Sunday, March 11, 2012

EU ETS again and again - Trade war or international consensus?

The controversy over the EU ETS refuses to die down. I have blogged about it here, here,   here and here. In a defiant tone in an interview, the EU Climate Chief Connie Hedegaard defended the EU ETS by saying that the lack of a global scheme to address the issue of airline emissions led to the unilateral EU measure.
We're not surprised by the hostility, but it's clear that some countries don't like it. They say they would prefer a global scheme. But the European Union has been fighting for a global scheme since 1997. It was only after we saw that there was no global agreement that we made our own, regional scheme. If we could reach global consensus at the level of the International Civil Aviation Organization (ICAO), it would be a very happy ending.
The official EU line is that once a global system is enforced, the EU system will no longer be relevant. But we are not changing our scheme just because some countries say they would like to discuss a global system. That is why I am challenging these countries that can unite against the European system to come up with an alternative within ICAO. We'll see what happens. 
I am absolutely sure that most passengers flying with me from Munich to Brasilia would say that paying a couple of euros for the pollution caused by this long-distance flight was fair. The amount we are talking about is less than what a cup of coffee at the Munich airport would cost."
In another interview to Reuters she reportedly said,
 "Nobody has an interest in a trade war and everybody knows that," she added. "It's not that you can threaten us to change the law."
While domestic legislation can definitely be challenged on the ground that it violates international treaty obligations, whether the EU ETS does infact go contrary to EUs WTO obligations is a debatable issue. With the Moscow declaration against the EU ETS, commentators are predicting a long drawn trade war over the issue which includes a possible WTO dispute. The EU Climate Chief seems to be suggesting that a lack of an international agreement has forced the EU to enact the scheme and could withdraw if a more constructive alternative is forwarded. The legality of the measure in the context of WTO obligations has not yet been tested but the DSM would then need to address the issue of a whether the measure is a legitimate use of domestic policy space in the context of reduction of barriers to trade. Would the EU ETS stand the test of the General Exceptions in Article XX of the GATT or be considered a technical regulation applied with a view to create unnecessary obstacles to international trade as per Article 2.1 of the Agreement on Technical Barriers to Trade. Further, is a non-conclusion of an international understanding on any issue ipso facto sufficient for member countries to go ahead with a unilateral measure in the anticipation of a better global alternative. This approach may raise contentious issues in the context of the Doha round of negotiations wherein international agreement on a number of issues has failed. Would this then justify to certain countries to go ahead with individual measures as per their positions, leaving the multilateral system to accept them or come up with alternatives? A new way of proceeding with international trade rule making n the context of conflict?

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