Eutopia and the United States of Pollutia(USP)are both developed countries and both members of the WTO. Eutopia is at the forefront of global efforts to combat climate change. It is also a party to and strong supporter of the Kyoto Protocol intended to reduce carbon emissions. The United States of Pollutia, on the other hand, considers that the threat of global warming is exaggerated, if it exists at all, and refused to join the Kyoto Protocol. Among other objec- tions,USP argued that major developing countries are unfairly exempt from any carbon reduction commitments under the Kyoto Protocol. After years of diplomatic efforts to entice Pollutia and other countries to cut their carbon emissions, Eutopia has decided to enlist its trade policy as a weapon in the fight over climate change. Eutopian companies consider it especially unfair that they are subject to a domnestically imposed carbon tax, whereas their foreign competitors in USP can pollute without consequences. A poll of Eutopia's population shows that 80 percent of Eutopians regard imports from non-Kyoto members as "environmental dumping" and "unfair competition." To level the playing field, to stimulate countries to join the Kyoto Protocol, and to limit so-called carbon leakage (that is, Eutopian firms relocating to countries like USP and continuing to pollute there), Eutopia has decided to

impose its "carbon tax" not only on domestic products but also on imports from all countries that have not ratified the Kyoto Protocol. The tax amounts to 40 EUTOPS (the equivalent of 30 Euros) per ton of carbon that was emitted in the production process of each product and is calculated exactly the same way for imports and domestic products. For imports, the tax is levied at the border.For domestic products, it is to be paid at the time of shipment from the factory. In response to Eutopia's tax reform, USP complained to the WTO and a panel has been established to examine Eutopia's new tax regime. USP expressed the view that carbon emitted on USP territory is none of Eutopia's business and that the tax is a thinly disguised form of protectionism prohibited under WTO rules. How would a WTO panel approach Eutopia's "carbon tax"? Does GATT Article III:2 apply to the tax and, if so, does the tax violate national treatment? You should ignore any issues arising from the impact of the measure on states other than Eutopia and USP?

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Answer In examining Eutopias carbon tax a WTO panel would likely consider several factors including ... View the full answer