Carbon Tariffs: Functional or Futile for Textile Exporters?

While some countries believe carbon tariffs would give immunity to their country, few others predict that it is just a label, and would gradually trigger trade wars.

Every nation is currently trying hard to keep up with the laws of nature, and to adopt a lifestyle; not hurting the environment. Many countries are now implementing reforms that curb unfair competition with countries having weaker environmental protection laws. Some powerful nations; and states are attempting to take the matter in their own hands, by initiating a carbon tariff on the imported goods. EU is aiming to impose special tariffs on the products imported by them restricting the emissions of carbon-dioxide in the products. Industries with high energy consumption, high emissions, and high exports feel the heat of the proposed carbon tariff.

Conceptually, carbon tariff is a tax levied on goods that are being imported from other nations without regulations in limit to their greenhouse gas emissions. This is done to protect the domestic industry from the competitive disadvantage, and also motivate the implementing country to legislate climate policy. The impact of the carbon tariffs may be even more serious than the anti-dumping measures, as it mainly targets manufacturing industries with a high export promotion ratio. Anti-dumping measures generally target individual and specific products. China will remain the main target of the carbon tariffs of US and the EU.

China's industrial output has realized an average annual growth of 11.2% and its industrial capital stock has achieved an average annual growth of 9.2%. Along with the countrys industrial growth, their energy consumption, and carbon-dioxide emissions also shot up with a growth rate of 6%, and 6.3% respectively. Around 23% of the countrys carbon emissions were due to the exporting industries. China is one of the biggest bases for manufacturing exports. The carbon tariffs of EU and US will have a deep impact on the manufacturing, and competitive abilities of China. The defensive China criticizes that the tariff proposals on the imports are inconsistent with the WTO rules, and is a de facto protectionism in the label environmental protection.

Will tariffs do good?

On the contrary, some economists believe that carbon tariff is not a very good idea as it will reduce the efficiency in the use and allocation of resources; including energy resource. The countries that implement the tariff will be more affected than the exporting countries. It would be a complicated task for the customs officials to assess the emissions embedded in the imports. The biggest challenge lies in the rules of the international trade game. The tariff restrictions penalize the carbon intensive goods traded across borders, and not the products consumed within the borders. This gives way for manipulation of trade instruments, and misuse of political purposes. Tariffs are more likely to become a protectionist tool of the developed countries against the developing countries.

Estimates state that, as an impact of the carbon tariff rate of US$ 30, employment opportunities in the industrial sector would drop by 1.22% during the first year, and 1.18% by the fifth year. With the carbon tariff rate of US$ 60, employment is expected to go down by 2.39% during the first year, and by 2.33% during the fifth year. Employment carnage is anticipated to be more in 5 industries mainly of which garment, leather and textile industries are included.

On one side, carbon tariffs are believed to shield the country from importing goods which are not favorable to the environment. On the contrary, arguments do happen stating that it is merely eco-protectionism, and would trigger trade wars.

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