US climate levy may cut China imports

Legislation pending in the US Congress to cut greenhouse gas emissions may reduce imports of Chinese goods by 20 percent, according to a World Bank study.

The provision, included in the measure passed by the House of Representatives in June, would tax imports from countries that do not enact curbs on carbon dioxide emissions.

Senator Sherrod Brown of Ohio and representative Sander Levin of Michigan, both Democrats, say any legislation in the US to limit pollutants must include the so-called border measures to tax imports. The Senate has not yet acted on the greenhouse gas measure.

"People haven't thought through the full implications of those measures," said Aaditya Mattoo, a World Bank economist and one of the paper's authors.

The threat to imports should be part of what drove negotiations at global climate talks in Copenhagen this week, said Scott Paul, the executive director of the Alliance for American Manufacturing, which represents the United Steelworkers union and US Steel.

"It shows that the right border measures would be effective," said Paul. "So it would be in the interest of India and China to participate" in any global agreement to cut emissions, he said.

The US imported $338 billion (R2.5bn) in goods from China last year, more than from any other country.

Advocates say that the fees are required to prevent price-undercutting by manufacturers in countries that would not match US or EU emission cuts.

The World Bank study says US and EU producers of steel, cement, plastics, paper and chemicals have reason to be worried. If the US follows through on a pledge to cut emissions by 17 percent, it says, "producers of energy-intensive" goods "will witness erosion in their competitiveness, reflected in export and output declines".

Output of such goods could decline 4 percent and exports by 12 percent, the report says.

The prospect of that decline would prompt "tremendous pressure to address the competitiveness issue", Mattoo said.

Depending on how the US and EU calculate taxes on imports, the effect on China and India would be that of a 20 percent tariff, the analysis says.

"It would be a 'nuclear option' in terms of trade consequences," according to the World Bank paper. - Bloomberg

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