《ENVIRONMENTAL TAX INITIATIVES AND MULTILATERAL TRADE AGREEMENTS:DANGEROUS COLLISIONS》

Introduction1

CHAPTER 1: GATT AND ITS HISTORY5

The History of GATT5

GATT’s Principal Obligations6

Organization of GATT/WTO8

Dispute Resolution Procedures8

Bad Blood10

The Classical Case for Free Trade and Its Recent Critics12

GATT’s rephrased trade purposes, softened as to environmental issues13

The “Nonclassic” Reasons for International Trade14

Conclusion15

Appendix A: List of Major GATT Articles16

Appendix B: Amendments to the GATT18

CHAPTER 2: CLASSIFYING ENVIRONMENTAL TAX MEASURES21

A Tax Vision22

Environmentally-Related Tax Measures23

Categories of Environmental Taxes and Tax Initiatives25

1.Tax Subsidies that Encourage Good Acts25

2.Withdrawal of Tax Burdens28

3.Withdrawal of Fiscal Bene№its30

4.Rules that Impose Fiscal Burdens31

Miscellaneous Taxes and Tax Initiatives39

CHAPTER 3: MICROECONOMIC APPROACHES TOENVIRONMENTAL TAXES43

“Pigouvian Taxes”45

“Market Failure” and a Remedial Tax on Output46

What to Do with the Tax Revenues?47

Setting the Tax47

An Emissions Tax to Restrict Pollution48

Microeconomic Expression of the Emissions Tax48

Implications of Defective Information in Setting Emissions Tax50

Marketable Emissions Trading Rights Compared51

Free Trade and Externalities52

The Race to the Bottom - Is it Real?53

The Problem of Socialist Countries54

The Problem of Unintended Consequences54

Why Economics Does Not Have All the Answers54

CHAPTER 4: THE POLLUTER PAYS PRINCIPLE AND ITS EARLY DEATHIN THE INTERNATIONAL TRADE ARENA57

The OECD’s Polluter Pays Principle57

The Superfund Tax Dispute and the Death of the PPP in International Trade Disputes58

Recommendation60

CHAPTER 5: THE ART OF TAX POLICY61

National Goals61

International Goals64

CHAPTER 6: BORDER TAX ADJUSTMENTS UNDER MULTILATERAL TREATIES65

ENVIRONMENTAL TAXES AND BORDER TAX ADJUSTMENTS65

Summary65

Introduction67

Ⅰ.History and Rules of Border Tax Adjustment Under GATT69

1.The Distinction Between Direct and Indirect Taxes69

（a） The Distinction69

（i） GATT Provisions69

（ii） Working Party Reports72

（iii） The 1979 Subsidies Code72

（iv） Challenge to the Distinction Between Direct and Indirect Taxes73

（b） Summary75

2.Which Indirect Taxes are Adjustable75

（a） The Present Rules75

（i） GATT Provisions75

（ii） Working Party Reports77

（iii） The 1979 Subsidies Code78

（b） Panel Reports79

（i） The Petroleum Tax Case79

（ii） The Tuna/Dolphin Case81

（c） The Uruguay Round Final Act84

（d） Summary85

Ⅱ.History and Rules of Border Tax Adjustment Under the EC Treaty85

1.The Distinction Between Direct and Indirect Taxes85

（a） The Distinction85

（i） EC Treaty Provisions85

（ii） Case Law86

（b） Summary87

2.Which Indirect Taxes are Adjustable87

（a） The Present Rules87

（b） Case Law89

（c） Summary90

3.Relationship Between Domestic and Imported Products91

（a） EC Rules: Like or Competing Products91

（b） Case Law91

（i） Similar Products91

（ii） Prohibition on Discrimination95

4.Least Restrictive Measure96

Summary97

5.Post Script: Evolution Towards the Origin Principle for Intracommunity Trade97

Ⅲ.Review of Economic Rationale Underlying Existing Distinctions98

1.The Distinction Between Direct and Indirect Taxes98

2.The Distinction Between Physically Incorporated and Other Inputs100

Ⅳ. Eligibility of Environment-Related Taxes for Border Tax Adjustment102

1.Fiscal-Related Environmental Measures （FREMS）102

2.Eligibility of FREMS for Tax Adjustment102

（a） Differential Treatment of Different Products103

（b） Differential Treatment of Like Products Based on Taxes on Inputs103

（c） Differential Treatment of Like Products Based on Different Process, Raw Material or Origin104

CHAPTER 7: THE PROPER INCIDENCE OF ENVIRONMENTAL TAXES HAVING AN INTERNATIONAL ASPECT107

Incidence of taxation defined107

Review of the principal types of taxes108

Proper incidence of steering taxes108

Proper incidence of trust fund taxes108

Proper incidence of Pigouvian taxes109

Pigouvian taxes: If the harm occurs in the nation of export111

If the Harm Occurs in the Nation of Import114

The hybrid case of mixed harm115

Global externalities116

Summary and proposals116

CHAPTER 8: THE CONCEPT OF A LIKE PRODUCT119

Thesis120

Text of GATT120

Specific Interpretations124

Superfund Tax Case - 1987124

Japan Alcohol Case - 1987124

Thai Cigarette Case - 1990125

Tuna Dolphin Decisions - 1991126

US Alcohol Case - 1992126

Cafe Decision - 1994127

“United States’ Automobile Luxury Tax”127

“Gas Guzzler Tax”128

The Cafe Decision130

Impact of the Automobile Decisions131

The Gasoline Decision132

Some proposed answers132

Remaining uncertainties133

Likeness in Other Contexts135

Appendix: National Treatment on Internal Taxation and Regulation136

CHAPTER 9: ENVIRONMENTAL TAXES UNDER NAFTA AND SUBSIDIES UNDER NAFTA AND THE EUROPEAN UNION139

Purpose of the Chapter139

Background to NAFTA139

Border Tax Adjustments Under NAFTA142

Export Taxes142

Environmental Taxes142

Implications of an Environmental Tax on Imports142

State and Provincial Taxes143

Subsidies Under NAFTA143

Subsidies Under the European Union Treaty Provisions144

Appendix: Excerpts from NAFTA, Chapter Seven, Agriculture and Sanitary and Phytosanitary Measures146

CHAPTER 10: WTO RESTRICTIONS ON SUBSIDIES151

GATT Subsidies Code152

Trade in Goods: Introduction152

Some Examples153

WTO Restrictions on Tax Adjustments for Exports153

Restrictions on Export Subsidies: Domestic Incentives157

Export Subsidies Under the Uruguay Round Subsidies Agreement157

The Subsidy Must Confer a Benefit159

The Subsidy Must Be Speci№ic160

The Specific Subsidy Must Be Actionable or Prohibited161

Non-Actionable Subsidies163

Research and Development as a Nonactionable Subsidy163

Pollution control facilities as Nonactionable Subsidies164

Lack of Regulation as Not a Subsidy165

The Enigma of Credits to Consumers166

Trade in Services166

Conclusions167

Annex B - Part Ⅱ: Prohibited Subsidies169

Exhibit A170

Exhibit B172

CHAPTER 11: POWER PLAY: USING GATT EXCEPTIONS AGGRESSIVELY TO AVOID GATT LIMITS ON ENVIRONMENTAL TAX INITIATIVES181

National Security181

Article XX（g） Conservation of Resources184

Article XX（b）: Protection of Life or Health188

Earlier Treaties and Extraterritoriality191

Summary191

CHAPTER 12: BLUEPRINTS FOR “GATT-PERMITTED” ENVIRONMENTAL TAX INITIATIVES193

Ⅰ.Introduction193

Ⅱ.Environmental taxes193

A.Permitted Tax Burdens194

B.Border Taxes that Are Open to Doubt195

C.Prohibited Taxes196

Ⅲ.Tax Subsidies196

A.Fiscal Incentives that Are Permitted196

B.Fiscal Incentives that Are Open to Doubt197

C.Fiscal Incentives that Are Prohibited198

Ⅳ Taxes and Tax Incentives Under GATT Exemptions198

CHAPTER 13: CONCLUSIONS AND RECOMMENDATIONS199

The conflicting theoretical bases underlying environmental taxes199

Change the National Targets201

Coordinate GATT with Welfare Economics201

Coordinate GATT with the OECD Treaty202

Be Realistic About the Legal Framework202

Domestic initiatives203

Pragmatically Limit the Process-Product Distinction203

“Internationalize” Domestic Tax Initiatives204

Develop a Strategy for Dealing with Border Taxes204

Improvements to WTO processes205

Provide WTO Advisory Opinions on Pressing Environmental Tax Issues205

Convene the Committee on Trade and the Environment205

Establish Guidelines for Deciding Environmental Tax Disputes205

Define Some Terms205

Harmonize environmental taxes207

Harmonize National and International Environmental Tax Initiatives207

Permit Countervailing Import Duties207

A Specific Agenda for the United States208

Experiment with Environmental VATS208

Pass an Oil Import Fee209

How powerful could environmental taxes be, and not violate GATT/WTO?209

Closing210

Bibliography213

Index245