Tax Design Considerations: International Cooperation and Trading

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Many environmental taxes are levied on pollutants or products that are traded internationally and consequently must incorporate international considerations in their design. Also of importance is the fact that not all countries impose identical environmental taxes. Border tax adjustments harmonize differing regimes, but there are problems associated with identifying taxable content (e.g. carbon) within products.  This problem is of particular importance for trade with “non-Annex 1” (developing) countries as they do not submit regular and detailed carbon inventories.

The legality of border tax adjustments under the General Agreement on Tariffs and Trade (“GATT”) is also an issue. GATT stipulates that a tax on imports may only be imposed if there is an equivalent tax on like products in the home country. The terms “likeness” and “on the product” are the key determinants governing the legal status of border tax adjustments.