Chapter 10: A bilateral approach to imposing carbon-related border adjustments
The multilateral and plurilateral fora examined in the previous chapter lack jurisdiction, feasibility, effectiveness, or all of these essential characteristics altogether. Therefore, this chapter examines a bilateral approach, specifically, the possibility of including provisions on the use of carbon-related BAMs, or the mutual acceptance of countries' climate laws and, consequently, restrictions on the use of carbon-related BAMs, in preferential trade agreements (PTAs), especially those, which represent broader economic cooperation/partnership agreements. The formation of PTAs has significantly increased in recent years. By 2010, there were about 300 PTAs in force. The border adjustment of consumption taxes has been subject to bilateral trade agreements for centuries. The main rationale for the inclusion of provisions on border adjustment in these agreements was to avoid double taxation. If an exporting country had an origin-based tax while an importing country had a destination-based tax system, goods from an exporting country would be charged a tax twice - once in the country of their production and once in the country of their export destination, which would make them uncompetitive. Needless to say, countries wanted to prevent this in their bilateral commerce. Against this background, dealing with border adjustment for carbon taxes and regulations in PTAs would be in line with international trade practice. Settling the issues of climate change, in general, and, particularly, those relating to carbon-related BAMs, through bilateral and plurilateral PTAs could be beneficial from both a WTO and UNFCCC perspective.
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