Green Border Tax Adjustments and their Consequences for Chinese Tax Policy and Trade

Transcription

1 Green Border Tax Adjustments and their Consequences for Chinese Tax Policy and Trade 1 Bill Butcher, Australian School of Taxation and Business Law University of New South Wales

2 China s Energy Demands In the end, China will have to invade Western Australia and Russia. 1% of the world s oil reserves and consumes 10% of world oil exports. 14% of the world s coal reserves and consumes 50% of world coal exports. Energy security. 2

3 Environmental Tax Negative Effects Affect competitiveness Results in carbon leakage (CO2 emissions in one country rising as a result of emissions reductions in another country) Production moves offshore Demand falls in country A, world price falls, demand taken up by other countries. 3

4 Border Tax Adjustment and the Destination Principle BTA = a fiscal measure that puts into effect the destination principle. Destination Principle = exported products can be relieved of some or all of the domestic tax imposed on the product, and imported products can be subjected to tax charged on similar domestic products. 4

5 Environmental Taxes on Imported Products Process and Production Methods (PPMs) Can BTAs be imposed on PPMs of imports? If so, may the BTA be discriminatory? Does the legitimacy of the BTA depend on whether the impacts of the PPM are transnational? 5

6 BTAs and China China produces goods for the world, takes on the related pollution and then taxes on the goods will be paid to the US Treasury? Will the Chinese people agree to that? 6

7 Environmental Protection: Where are We Now? Copenhagen total failure? Pledges 1. Reduce emissions by some absolute amount. 2. Reduce emissions intensity. 3. Reduce emissions by a percentage of what they otherwise would have been. Quick start funding for developing countries. 7

8 Environmental Tax Reform Aims at behavioural change. Tax Bads Not Goods Shifting taxation from value adding activities (employment, enterprise and investment) to the value subtracting use of energy and resources and associated creation of wastes and pollution. 8

9 Economic Theory of Green Tax Internalise externalities Double dividend 9

10 Advantages of Market Mechanisms Static efficiency provides choice Dynamic efficiency continuing incentive Revenue potential recover producer rents 10

11 Disadvantages of Market Mechanisms Location differences Regressive 11

12 Current Economic Instruments (Market Mechanisms) in Environmental Policy US and Australia reluctant to go it alone. Politics Rudd. Clinton 1993 deficit reduction plan Carbon Tax Finland, Netherlands, Norway, Sweden, Denmark, British Columbia Emissions Trading Schemes EU, NZ, Tokyo, US states (Regional GHG Gas Initiative, Western Climate Initiative, Midwestern GHG Accord) South Korea emissions cap China 12

13 Chinese Green Taxes Poor PPMs Implied price on carbon Investment in clean energy (China $US35 billion, US $18 bn, UK $11 bn) Resource tax Vehicle tax Trial on resource rent tax Freeze on capacity of high polluting activities (eg cement) FYP carbon tax (cap or pay?) 13

14 China in a Green World Economy Photovoltaic cells 1999 vs 2010 Solar panels Solar hot water units Wind power turbines US renewable energy companies moving operations to China Intellectual property accusations 14

15 Trade and the Environment: Beginnings GATT formed after WW II Concerns about protectionism and war Little attention to the environment 1991 Tuna Dolphin dispute (Mexico US) Trade trumped environment 1995 WTO preamble acknowledges importance of the environment 15

16 The WTO and Environmental Taxation Outline WTO does not restrict taxation at the purely national level If taxation has transborder effects, the principles of GATT must be respected, especially Articles I (MFN) and III (National Treatment) and the subsidies rules Exceptions, notably Article XX 16

17 WTO and BTAs Article I Most Favoured Nation Article II Schedules of Concessions Article III National Treatment Article VI Anti dumping and countervailing duties Agreement on Subsidies and Countervailing measures Article XVI Subsidies Article XX Exceptions 17

18 Article III National Treatment III:1 internal taxes and other internal charges shall not be applied to imported or domestic products so as to afford protection to domestic production. III:2 Imports shall not be subject to internal taxes in excess of those applied to like domestic products. 18

19 Like The likeness accordion which stretches and squeezes Physical characteristics paramount (recyclable vs non recyclable bottle) PPMs? Tuna Dolphin I: dolphin safe tuna and unsafe tuna Treatment must be identical (US Reformulated Gasoline) 19

20 Not like but competitive/substitutable Imports must be treated similarly. Whether substitutable depends on consumer responses: Dolphin safe tuna? Organic foods? Produced in a sustainable way? 20

21 Rebate of Green Taxes on Exports Interpretative Note on Art XVI (t)he exemption (or remission) of an exported product from duties or taxes borne by the like product when destined for domestic consumption shall not be deemed to be a subsidy. Non taxation of environmental externalities = a subsidy? (Chinese PPMs.) 21

22 Direct vs Indirect Taxes BTA is only allowed for taxes imposed on the product (ie indirect taxes), not taxes imposed on the producer (ie direct taxes) Indirect: excise duties, sales tax, VAT Direct: income tax, payroll tax, social security charges Why the difference? 22

23 Taxes on Production Inputs Inputs consumed in production: eg oil, energy, fuels? A carbon tax imposed on the production process? 23

24 The Article XX Exceptions Provided they are not unjustifiably discriminatory between countries or a disguised restriction on international trade, GATT does not prohibit measures: (b) necessary to protect human, animal, or plant life and health; (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption. 24

25 Article XX (b): necessary? Must all less inconsistent measure be tried first? Thai Cigarettes Proportionate to the seriousness of the problem Korea Beef Connection between the harm and the tax (location of the environmental damage little chance for BTAs based on exporter s PPMs) 25

26 Article XX (g) Includes clean air in conjunction with (domestic) restrictions what does this require? 26

27 Article XX Chapeau: The Overriding Requirement Against Protectionism in Disguise BTA imposer must show good faith (cf US in Tuna Dolphin) Territorial nexus (Shrimp Turtle) Multilateral attempts at resolution Regulatory consistency (Australian Salmon) (taxing some imported products but not other equally polluting products). 27

28 Green Unilateralism One country imposing its environmental standards (and tax) on another. it boils down to countries wanting to assert their jurisdiction over priorities and policies of other countries submission by Egypt to the WTO. 28

29 BTAs: Theory vs Reality Theory: if you can t get a new Kyoto, get some BTAs Legal problems Practical problems rebate for exports reduces green incentive calculation of rate small differentials on most goods administrative complexity damage to international trade 29

30 Conclusions: BTAs and China FYP Carbon tax Carbon price Currency control Who would impose BTAs? US? Aus? EU? NZ? On whom would China impose BTAs? 30