Protectionism redux

Carbon tax is no more than a non-tariff barrier

The attempt by the European Union (EU) and the US to link international trade with environment protection through some kind of a pollution tax on imports from the countries not obliged to undertake binding emission reductions seems a sinister protectionist move that will be detrimental to both these important causes. While the US House of Representatives has already passed a Bill that allows import taxes on goods from countries that do not have statutory curbs on greenhouse gas emissions, the EU has, on several occasions, considered such a proposal but without a final call on it. The proponents of this concept, led by France, justify it on the plea that it would create a level playing field between polluting developing countries (read India, China and the like) and the developed countries that have accepted emission cuts under the Kyoto protocol on climate change. Fortunately, some of the member countries of the EU itself have so far been resisting this move, considering it to be a new form of eco-imperialism. But how long they can prevent this from becoming a reality is difficult to visualise. As it is, the EU is on its way to mixing environment and commerce by imposing another kind of extra-territorial carbon tax from 2012, in the form of pollution credits on all airlines arriving in or leaving from European airports. This will net substantial revenues for the exchequers of several countries, especially those with busy airports, such as Britain and Germany, but without any environmental benefit.

India and other developing countries must challenge this ill-conceived carbon tax at the World Trade Organisation (WTO). Such trade barriers, being inimical to the promotion of free and fair global commerce, are unlikely to be WTO-compatible. Fortunately, India will not be alone in resisting this move. Some other emerging economies, such as China and Brazil, which are also likely to be affected by it, will surely resist this move. In fact, China has more at stake than any other developing country, because of its higher volume of exports to both the US and the EU. In India, the exports of items such as iron, aluminium, cement and chemicals can potentially get affected by a carbon levy. The idea of a carbon-based import tariff is condemnable also because it is based on a pretext which is not well-founded. The developing countries may be exempt from targeted emission reductions under the Kyoto accord, but that does not mean that they are unmindful of their duty to safeguard the environment. Most of them have voluntarily opted for measures to curtail environmental damage. India, on its part, has decided to reduce its carbon emissions by 20-25 per cent by 2020. Rather then strengthening the argument in favour of unilateral measures to reduce carbon emissions, such non-tariff barriers imposed by developed economies are bound to weaken the environmentalist’s cause, with domestic political resistance building up.