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A Thoughtless Tax

Authors: Jagdish N. Bhagwati, and Arvind Panagariya, Professor, Indian Economics, Columbia University
December 8, 2009
The Times of India


There are several substantive issues dividing the developed and developing countries as we enter the Copenhagen conference on climate change. But none are more gratuitous than the threat posed by the US Congress - in its proposed legislation such as the Waxman-Markey Bill--and in remarks by President Nicolas Sarkozy and French proposals, that any carbon tax (or its equivalent "cap premium" in national cap and trade schemes) in the developing countries which falls below the one in the developed countries would be "equalised" or countervailed through border taxes or in other equivalent ways.

Such proposals are based on fears that have little grounding in economic analysis. They are also likely to be considered violative of the WTO rights of the developing countries on whom such tariffs would be imposed and, even if found WT0-legal in a challenge at the WTO Dispute Settlement Mechanism, will certainly provoke WTO-legal retaliation in several ways by countries that are hit with such tariffs. Besides, the implementation of such tariffs raises impossible conceptual problems in implementation. In fact, the threat of such tariffs will certainly produce "local warming" at Copenhagen and undermine the progress to a satisfactory conclusion of a new climate change treaty.

At the outset, the demands are driven by a misguided sense of "fairness" and morality: that, unless others cut their emissions, we should not be asked to cut ours.


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