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Obama's folks talking to fair traders

First WTO post-Y2K Climate Challenge?

Our recent report looked at the WTO preemption issues surrounding green and climate policies, noting that:

Cap-and-trade programs could be challenged under existing WTO rules. Indeed, this is far from a hypothetical problem: in January 2008, the Bush administration pressured the European Union to drop the import provisions of its cap-and-trade program. According to Inside U.S. Trade,

“Backing U.S. opposition to the proposal is the possibility it could retaliate under the WTO
…Under existing jurisprudence on the General Agreement on Tariffs and Trade (GATT),
tariffs imposed based on the means of production constitute WTO violations. Therefore, the EU proposal, which like tariffs also would have increased the price of imports, could in the end constitute a WTO violation because it was directed to products that used large amounts of carbon in their production.”

In response, the European Commission’s new package of carbon control policy package “did not contain a proposal opposed by the U.S. to require European importers of carbon-intensive products to buy carbon allocations in the EU’s cap-and-trade system.” Instead, the new plan shelves the import aspects of the plan “in favor of a study to be completed in 2011,” thereby postponing vital international policy innovation in that area for at least several more years.

According to today's NYT, it looks like the first major post-Y-2k climate policy challenge at the WTO is just around the corner.

The European Union reached a landmark agreement Thursday to cap emissions from aircraft, raising the stakes in an increasingly ferocious battle with the United States over how to regulate global greenhouse gases.

In the first requirement of its kind, all airlines arriving or leaving from airports in the European Union would be required to buy pollution credits beginning in 2012, joining other industrial polluters that trade in the European emissions market. That includes non-European carriers like American Airlines and Singapore Airlines.

Including airlines in the system is the boldest move yet by Europe to stamp its environmental policies on the rest of the world...

American officials warned that the requirements probably would be illegal under the convention governing international civil aviation.

“The mandatory application of the European Emissions Trading System to U.S. airlines and airlines of other non-European countries is, we think, both contrary to international law and ultimately unworkable,” said Robert Gianfranceschi, a spokesman at the United States Mission to the European Union in Brussels...

The transport association spokesman, Mr. Concil, said the costs to the airline industry of buying permits to comply with European emissions regulations would be more than $4 billion. Imposing new, costly rules on airlines was “incredible” at a time when the industry is expected to lose more than $6.1 billion this year, he said.

As the article notes, it's possible that this pact could come up under non-WTO agreements. But it's huge money. We'll be staying tuned.

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