Protectionist threats a lot of hot air

The Luxury Car Tax (LCT) is a special higher tax on expensive cars, applied equally to locally produced cars and imports. The same applies to the Wine Equalisation Tax (WET).

The excises applied to petroleum products, alcohol and tobacco produced in Australia apply equally to imports of these products (“revenue” customs duties).

The principle’s clear. Whatever tax (as a percentage of value, or as a dollar amount per physical quantity) is applied to locally produced goods and services can be applied to imports of those products under current WTO rules.

Any country can set a tax on a given product, determined any way you like, apply it equally to local products and substitute imports, and not breach WTO rules.

Suppose any country sets such taxes based on (i) the carbon emissions price in that country, and (ii) the emissions intensity of locally produced goods and services. Suppose that process also determines the border tax adjustment (BTA) to be applied to imports of the same products, so that percentage or specific tax burdens on imports are the same as on local substitutes.

Such BTAs are WTO-compliant. They are not protectionist. They are competitiveness-neutral.

They are an integral part of a national emissions consumption approach to climate policy.

By eliminating losses of trade competitiveness otherwise incurred by “first movers”, they make an effective (as opposed to pusillanimous) global deal on climate policy more likely.

They remove an obstacle impeding consummation of a global deal in this area since 1992, and, on present trends, likely to continue impeding such a deal in December 2009 and beyond.