Could Copenhagen tax developing countries on border trade?

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Could Copenhagen tax developing countries on border trade?
Barack Obama plans to address the 193 nations at Copenhagen Climate Summit on Friday to salvage what is left of a failed summit in the hope of bringing immediate and binding emissions limits on the developing world. But pressures are mounting in E.U. and the U.S. to impose restrictions, called border adjustments, on imports from low-cost producers like China and India that are resisting cutting greenhouse gases. Border adjustments are essentially import fees levied by carbon-taxing countries, mostly E.U., on goods manufactured in non-carbon-taxing countries, mostly the developing world.

In the U.S., a House bill allows for the imposition of tariffs on goods from countries that do not constrain their carbon output like India and China. In the E.U., President Nicolas Sarkozy of France has led calls in favor of imposing a carbon tax at the bloc’s border to protect industries and jobs. Mr. Sarkozy has underlined that he and Chancellor Angela Merkel of Germany are proceeding with plans for a “border adjustment tax” on imports from countries without targets and trading systems comparable to those in Europe.

Earlier in 2001, the U.S. had refused to ratify the Kyoto Protocol on the grounds that it gives manufacturers in nations like China and India an unfair advantage because they do not face restrictions on their emissions under that treaty. More recently, organized labor in the U.S. has demanded keeping border adjustments as part of their support for the Obama administration on passing climate cap-and-trade legislation currently pending in the Senate.

“We are totally against it — totally against it,” said Jairam Ramesh, the chief negotiator and the Environment Minister for India attending the Copenhagen Climate Summit, speaking about border adjustments Monday. A trade war “is what we are doing our best to try to avoid,” he said. But in the negotiations on border adjustments that ended on Tuesday afternoon, Australia, the U.S. and the E.U. firmly resisted calls by developing countries to give-up any use of such tariffs as part of their climate control plans, according to a diplomat at the meeting. Importers and multinational corporations within the U.S. are skeptical and warned that there could be a backlash from key trading partners like China and India that could, in the end, trigger tit-for-tat actions that would hurt exporters and, ultimately, harm consumers. Mr. Ramesh promised Monday that his nation would appeal the imposition of any border adjustments by the U.S. or the E.U. at the W.T.O.

Similarly, on Tuesday, Yu Quingtai, the Chinese special representative on climate change, warned that his country would “always oppose the actions by any countries to make use of protection of the environment or climate as a pretext to conduct trade protectionism.”

Commenting on the issue, Keith Rockwell, a spokesman for the W.T.O., said Tuesday, “It’s very important that governments reach a decision on these measures multilaterally at Copenhagen as any individual action taken may ruffle feathers.” Pascal Lamy, the director general of the W.T.O., has been pressing for quiet sometime now for the governments to hammer out their own rules on border adjustments and minimizing the prospect he will have to intervene in an issue that already is creating fissures in one area of regulation.

Varun Dutt, Doctoral Candidate, Carnegie Mellon; Also, Knowledge Editor, FC, India.

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