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Why the WTO ban on China’s export duties should be ‘greened’

China is prohibited from using export duties to address any environmental problems. This is unfortunate, according to PhD candidate Fengan Jiang (Richard), as export duties could be useful in tackling global carbon leakage. PhD defence on 19 February 2020.

Global warming is accelerating more rapidly than scientists had previously anticipated. In order to limit its impact, the Intergovernmental Panel on Climate Change (IPCC) report calls for a 45% reduction in emissions from 2010 levels by 2030 and their complete elimination by around 2050. Achievement of these targets requires rapid, far-reaching and unprecedented actions on the part of all nations. 

Fengan Jiang

China, however, as the largest emitter and exporter of carbon dioxide emissions, faces legal problems when it comes to using one potential measure to fight climate change, namely duties on carbon-intensive exports. 'Owing to a series of controversial World Trade Organization (WTO) decisions, China is prohibited from using export duties to address any environmental problems, including those associated with climate change', Jiang tells. 'This is unfortunate, because a number of climate studies, including the well-known Stern Review on the economics of climate change, have suggested that Chinese export duties could be useful in reducing carbon leakage. My research thus argues that there is a need to consider 'greening' the absolute ban on China's export duties.'

Why is China prohibited from using export duties to address environmental problems?

Although WTO members are generally free to impose export duties, China made a special commitment to restrict the use of export duties. This commitment was breached in 2006 when China began to impose export duties on various products including raw materials. In order to have access to Chinese raw materials, several WTO members, including the EU, chose to litigate in the case of China–Raw Materials and China–Rare Earths.

China argued that those duties could be justified under WTO environmental exceptions. The complaining governments could have based their arguments on the merits of China’s environmental justifications. However, China's rather unconvincing environmental justifications seemed to provoke the complainants to minimise China’s chances of prevailing by denying its right to invoke environmental exceptions at all. As a result, China is prohibited from using export duties to address any environmental problems.

The research question is two-fold: First, whether China should be allowed to use export duties to address local or global environmental concerns; and second, if the answer is in the affirmative, whether it is possible, without opening the floodgates to protectionism, to provide China with the requisite policy space in light of the WTO ban. To answer these questions, Jiang studied among other things the relevant WTO jurisprudence, the provisions regulating export restrictive measures in all of the WTO accession protocols, China's Five-Year Plans and the practices of tribunals at various levels to loosen the grip of precedent, including the International Criminal Tribunal for the former Yugoslavia (ICTY), the International Court of Justice (ICJ), the European Court of Human Rights (ECtHR and the Court of Justice of the European Union (CJEU).

With the aim of balancing environmental and economic interests, this doctoral thesis has proposed a more sophisticated approach to adjust the simple ban on China's export duties. 'It begins with a distinction between export duties and 'export duties plus' that are imposed in combination with restrictions on Chinese consumption.' Then, domestic and foreign consumers are treated in an identical manner. This proposed solution is unlikely to be abused in practice as shown in the example of 'export duties plus' covering the aluminium sector in the final chapter.

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The findings in this thesis particularly stand to benefit global efforts to combat climate change in three respects, according to Jiang. 'First, given that a large portion of China's carbon emissions results from the manufacture of products for export, 'export duties plus' that reduce this source of emissions would contribute to the achievement of global carbon reduction targets.'

Also, the proper use of export duties as a climate measure by China would set a good example for other countries, such as India, where 20% of the emissions are related to exports. 'As it is, while China has been working to reduce its emissions, it has done so in part by pushing some of its more carbon-intensive activities onto such neighbouring countries as Cambodia, Vietnam, and India. In this game of 'whack-a-mole', export duties could represent an appealing option for carbon-outsourced countries seeking to join in the global effort to combat climate change.' Moreover, 'export duties plus' would also address the competitive concerns of Western nations so that they would be better able to win public support for more ambitious climate actions such as the European Green Deal.

Supervisors Prof. dr. M.C.E.J. Bronckers and dr. A. Cuyvers on Fengan Jiang's research:

'Almost six years ago Fengan Jiang first started out as a student in Leiden's postgraduate program in European and International Business Law. He did well, and expressed an interest in writing a PhD on a topic that was controversial then and has only increased in relevance since then: should China be allowed to limit some WTO trade rules to protect the environment? At that time, one of China's trade measures (export duties) which China claimed was to protect the environment had just been held to be WTO-incompatible, after it had been challenged by the EU and the US. Fengan considered that this ruling, though perhaps understandable in that particular case, deprived China of a potentially useful instrument to combat climate change in the future. A limitation that could hurt us all as climate does not stop at borders. He therefore explored ways in which China might yet be allowed to use export duties for environmental purposes under WTO law.  

Fengan's approach has been unusually patient, thorough and nuanced. He really wanted to get to the bottom of things. What was also commendable is that Fengan did not confine himself to analyzing all that went wrong. He dedicated a considerable amount of his time and talent to get things right again: which legal instruments are available to arrive at compromises that could be acceptable to the WTO membership as a whole? Of course, trade disputes with China have now become headline news. For all of our sake, rather than sabre rattling, we need more analyses like Fengan's to find constructive solutions.'

Text: Floris van den Driesche
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