NCCR Climate WP4 Paper 2010/06 "Trade and Climate Policy Interaction: Dealing with WTO Inconsistencies of Carbon-related Border Adjustment Measures"

The paper discusses possible legal solutions to the problem of WTO-inconsistency of border adjustment measures (BAMs), which have been recently proposed in existing and pending emissions trading schemes. Particularly, it explores the possibility of justification of carbon-related BAMs under health and environmental exceptions of GATT Article XX, and offers lines of argument for their defence. The paper comes to the conclusion that although the defence of carbon-related BAMs under GATT exceptions might be accepted under certain conditions, the litigation approach cannot guarantee a long-lasting accord among countries on the issue. Therefore, there is a need to find institutional solutions to the problem of WTO inconsistency of carbon related BAMs. One of them could be the use of preferential trade arrangements. The possibility of the inclusion of provisions on carbon-related BAMs in preferential trade agreements needs further exploration.