Tempers and Temperatures Rising: Proposed EU Tax on U.S. Products

Tempers and Temperatures Rising: Proposed EU Tax on U.S. Products

By Kevin Kitchen, Managing Editor

After an unexpected election, environmentalists are concerned. The European Union, specifically France, has raised specific concerns as President-elect Trump campaigned on the idea of abandoning the Paris Agreement. Early November, Former French President, Nicolas Sarkozy, proposed a EU-wide tax on all U.S. imports if President-elect Trump pulls the country out of the Paris climate change agreement.[1] But, can the EU, let alone France, impose such a tax?

One hundred ninety-five countries adopted the Paris Agreement in December 2015 at the Paris climate conference, COP21.[2] The agreement seeks to limit global warming to below two degrees Celsius. Each government develops its own plan for how to contribute to the effort of reducing global warming.[3]

President-elect Trump made comments in the past that global warming is a hoax, and he also wants to revamp the coal and shale oil industries. During his campaign, he advocated for abandoning the global deal combating global warming. Current French President, Francois Hollande, spoke during this year’s climate summit, COP22, addressing the United States by saying the Paris Agreement is “irreversible in law and in fact. In addition, it is irreversible in our minds.”[4]

Upon France’s former president’s comments, Scott Lincicome of the Cato Institute claimed the proposed tax is inconsistent with World Trade Organization rules.[5] The WTO prohibits raising taxes above certain levels defined in the General Agreement on Tariffs and Trade (GATT).[6] The GATT and other WTO agreements prohibit discrimination with measures like most-favored-nation and national treatment principles.[7] The conflict resembles arguments from 2011 between the United States and the European Union over the imposition of carbon emission taxes on flights in and out of the EU.[8]

However, some, like Germanwatch, believe the tax is possible. The EU would need to structure the tax as an extension of the domestic policy of the country in order for it not to be discriminatory. The countries would tax domestic companies with carbon tax at the same rate and with the same policy as they tax imports.[9] This would thereby still provide national treatment and most-favored-nation treatment to U.S. companies.

Not everyone feels the same as France’s former president. Germany and the European Commission already rejected the proposal and rather referred to using emissions trading instead of carbon emission taxes.[10]

President-elect Trump may not even be able to withdraw the United States from the Paris Agreement. The agreement requires four years for a country to exit the pact. Article twenty-eight requires waiting three years after signing before providing notice to withdraw from the agreement. Then it requires another one year after receiving notice of withdrawal before withdrawal is effective.[11] Latest reports allude that the president-elect is seeking for a way to bypass the four-year requirement.[12]

Many aspects of Donald Trump’s presidency are widely speculative at this point. Whether the EU would even be allowed to impose these taxes is still debated. More importantly, whether the EU will even be faced with having to turn to these measures is completely unknown.

[1] Robbie Gramer, Can Europe Tax the U.S. for Axing the Paris Climate Change Deal, Foreign Pol’y (Nov. 14, 2016), http://foreignpolicy.com/2016/11/14/can-europe-tax-the-u-s-for-axing-the-paris-climate-change-deal/?wp_login_redirect=0.

[2] Paris Agreement, Eur. Commission, https://ec.europa.eu/clima/policies/international/negotiations/paris/index_en.htm (Last updated Nov. 19, 2016).

[3] See Paris Agreement, Dec. 12, 2015, http://unfccc.int/files/essential_background/convention/application/pdf/english_paris_agreement.pdf.

[4] Anne-Sophie Brandlin, Could the EU Impose a Carbon Tax on US Goods to Pressure Trump?, Deutsche Welle (Nov. 17, 2016), http://www.dw.com/en/could-the-eu-impose-a-carbon-tax-on-us-goods-to-pressure-trump/a-36427531.

[5] Gramer, supra note 1.

[6] Michael Daly, The WTO and Direct Taxation (June 2005), https://www.wto.org/english/res_e/booksp_e/discussion_papers9_e.pdf.

[7] Jennifer Hillman, Changing Climate for Carbon Taxes: Who’s Afraid of the WTO? (July 2013), http://www.climateadvisers.com/wp-content/uploads/2014/01/2013-07-Changing-Climate-for-Carbon-Taxes.pdf.


[8] See, e.g., European Court Defies US Over Airline Carbon Tax, NBC News (Dec. 21, 2011), http://www.nbcnews.com/id/45748814/ns/world_news-europe/t/european-court-defies-us-over-airline-carbon-tax/#.WDJHQ6IrLLY.

[9] Hillman, supra note 7.

[10] EurActiv.com & Reuters, Berlin, Brussels Dismiss Call for CO2 Tax on Trump’s US, EurActiv (Nov. 15, 2016), https://www.euractiv.com/section/climate-environment/news/berlin-brussels-dismiss-call-for-co2-tax-on-us-under-trump/.

[11] Paris Agreement, supra note 3.

[12] Brandlin, supra note 4.