Using GATT Flexibilities to Produce a WTO-Consistent Shift Toward More Climate-Friendly Consumption Patterns: An Analysis of GATT Article III from the Perspective of Greenhouse Gas Consumption Taxes

Taxes on goods according to the quantity of greenhouse gases or energy they contain are capable of addressing some of the most significant failings of the multilateral effort to mitigate global climate change. By focussing on consumption and including the greenhouse gases effectively embedded in imports, such measures tackle the mounting problem of so-called carbon leakage and afford developed countries committed to combating climate change an opportunity to influence a far greater portion of global greenhouse gas emissions than those that their action under the production-based developed country focussed UNFCCC regime address. However, by altering the consumption patterns of domestic and imported goods according to their embedded greenhouse gas content, such measures are subject to the constraints of international trade law. The present article undertakes an in-depth analysis of the GATT’s anti-discrimination rules in an effort to identify the policy space afforded to greenhouse gas consumption taxes, undoubtedly one of the most effective consumption-based climate change policies. The complex situation that would be created by a comprehensive greenhouse gas consumption tax programme reveals several important and heretofore under-analysed issues of WTO law including questions as to which products must be compared to establish de facto discrimination and the precise meaning of the “so as to afford protection” requirement for the rule in GATT article III: 2 second sentence. A balanced reading of the relevant WTO jurisprudence and how the GATT’s anti-discrimination rules would apply to greenhouse gas consumption taxes reveals several flexibilities for certain types of nonetheless effective environmental tax measures. It is accordingly submitted that, by crafting any unilateral climate change consumption-based policy around such flexibilities in the fundamental GATT anti-discrimination rules, WTO Members may comply with WTO law even without what would be somewhat dangerous reliance on the general exceptions of GATT article XX. If greenhouse gas consumption-based regulation indeed constitutes a potential way forward for the stalled international effort to mitigate climate change, this article shows that WTO law will not stand in the way of implementations of even some of the more potent forms of such regulation.