Like the Lieberman-Warner Climate Security Act that failed in the Senate last summer, Title VII, Part G of the just-released Dingell-Boucher climate change bill would create an “International Reserve Allowance Program” to ensure that U.S. manufacturers of greenhouse gas emissions-intensive goods are not placed at a competitive disadvantage vis-à-vis imports produced under less strenuous emissions requirements.  Under these provisions, also intended to spur international efforts towards a global emissions pact to replace the Kyoto Protocol, U.S. importers of emissions-intensive goods from countries found not to be taking action “comparable” to the U.S. to reduce greenhouse gas emissions would be required to purchase and surrender emissions allowances.  These allowance requirements would operate separately from, and parallel to, the domestic emissions allowance requirements established under Title VII.

The range of “covered products” under Part G is potentially vast, encompassing both “primary products” (e.g., iron, steel, aluminum, cement, glass, pulp, paper, chemicals and industrial ceramics) and “manufactured items for consumption” (other products that, in the course of manufacture, generate substantial greenhouse gas emissions), so long as the products are “closely related” to goods produced in the U.S..

Part G would also establish a six-member International Climate Change Commission (ICCC), which would be required to determine, on an annual basis starting no later than 2013, which foreign countries are taking action comparable to the U.S.  Countries found to be taking climate change action comparable to the U.S. would be identified on an “excluded list,” along with certain least developed countries and countries emitting greenhouse gases at de minimis levels, while countries found not to be taking comparable action would be identified on a “covered list.”  Only imports of covered products from countries on the covered list would be subject to the international reserve allowance requirements.  However, the covered list might ultimately include major developing country exporters to the U.S., such as Brazil, China or India, potentially complicating already strained trading relationships with those countries.

Part G would grant far-reaching compliance responsibilities and powers to U.S. Customs and Border Protection (CBP).  Importers of covered products would be required to declare to CBP either that the imported products were not produced or processed in any foreign country on the covered list, or that the imported products are subject to the international reserve allowance requirements.  In the latter case, the importer would be required to submit to CBP either international reserve allowances in the appropriate amount, as determined by a methodology set out in Part G of Title VII, or cash, bonds or other security in an amount sufficient to cover the purchase of the required amount of international reserve allowances.  Covered products imported without the required documents would not be permitted to enter the U.S..  The ICCC would also be empowered to prohibit U.S. importers from entering covered goods for up to five years as a penalty for the submission of fraudulent importer declarations.

The import measures proposed in the Dingell-Boucher bill are considerably more onerous and detailed than those set forth in the EU’s proposed directive to expand the EU Emissions Trading System (ETS).  The proposed directive, currently undergoing revisions as it winds its way through the EU’s “Co-Decision” process, would only impose import measures upon future findings that particular manufacturing sectors or sub-sectors are vulnerable to competition from countries with less stringent emissions restrictions.  Also, unlike the Dingell-Boucher bill, the proposed EU directive does not specify the type of border measure that may ultimately be applied.  It appears that the EU’s more cautious approach to import measures reflects a different domestic political reality than in the U.S..  While the EU is a net exporter and, therefore, concerned about the trade retaliation that import measures might bring about, in the U.S. it is difficult to imagine that any national emissions restrictions scheme would be politically feasible absent some mechanism, such as import measures, to address the competitiveness concerns of U.S. manufacturing industries.

For further information about this topic, please contact Akin Gump.