MJIEL Vol 8 Issue 3 2011 - Article 3

Abstract: Issues around the proposed application of border carbon adjustments by some of the developed countries, such as the European Union (EU) and United States (USA), on imports from countries that are not implementing comparable climate mitigation measures have assumed centre stage at the on-going global discussions on climate change. It is argued that the differences in the cost of mitigating the greenhouse gases could render some of the emission-intensive industrial products in the carbon-constrained developed countries less-competitive vis-�-vis their counterparts produced in non-carbon-constrained countries, eventually leading to loss of market share for the carbon-constrained industrial products. In the longer run, this loss of competitiveness (as indicated by the loss of market share) could influence the investment decisions of the affected industries in the carbon-constrained countries by inducing them to relocate to countries with less stringent climate measures - in the process resulting in ‘carbon leakage’. These developed countries argue that such competitiveness-driven carbon leakage could not only undermine the environmental integrity of the carbon constraining domestic policy measures adopted by them, but could also have detrimental social consequences with job losses. On the aforesaid grounds, both the EU and the US policy makers, among others, are contemplating the application of border carbon adjustments on imports from countries not having in place comparable emission reduction measures. It is widely argued that the WTO-consistency of the proposed border measures is one among the various hurdles that these developed countries would be confronted with, while deciding on actual implementation of such unilateral trade measures. This paper undertakes an in-depth assessment of this rather contentious issue in the light of the existing GATT/WTO jurisprudence.

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