In their article, “Border Adjustment Measures in Proposed U.S. Climate Change Legislation-A New Chapter in America’s Leadership on Climate Change?” co-authors Stephen Kho, Bernd Janzen and Holly Smith of Akin Gump examine mechanisms proposed in recent U.S. legislation aimed at preserving the competitiveness of U.S. manufacturing industries that may be subject to greenhouse gas emissions reductions costs not borne by their foreign competitors.  Such mechanisms, often referred to as border adjustment measures, would impose costs on imports of emissions-intensive manufactured goods commensurate with the costs of compliance with U.S. emissions regulations.  The authors examine both the rationale for border measures as well as their exposure to potential challenge under World Trade Organization rules.

In particular, the authors examine the border adjustment provisions of the American Clean Energy and Security Act of 2009 (”ACESA”), which recently passed in the House of Representatives by a thin margin and now is under consideration by the Senate.  The bill’s border measure provisions are among the bill’s most controversial aspects, and are also complicating the Obama Administration’s efforts to find common ground in the U.N. climate change negotiations with developing countries such as China and India, whose exporters would likely be adversely affected by any final border adjustment measures in U.S. law.

The authors conclude their analysis with a proposal that would minimize the WTO risks of border adjustment measures by shifting compliance from the border to the point of consumption within the United States.  Such an approach could reduce the appearance that border measures discriminate against imports based on their country of origin, and could contribute to their effectiveness in spurring U.S. trading partners to join in a globally coordinated approach to reduce greenhouse gas emissions.

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