Environmental Taxation and International Trade: Challenges and WTO Compliance

This article addresses the interface between environmental tax reforms and international trade rules established in the World Trade Organization (WTO). It discusses the use of carbon taxes and other economic instruments as green subsidies to promote the climate agenda. However, measures of this nature, when implemented unilaterally, can violate WTO principles such as national treatment and most favored nation. An alternative that has been studied is the carbon tax adjustment at the border, which aims to equalize competition by taxing imports from countries without a climate policy. However, its compliance with the GATT/WTO is debated. Other issues include the compatibility of environmental subsidies with trade agreements and the adoption of differentiated taxes between products based on their carbon emissions. Different tax reform proposals are analyzed in the light of WTO rules, concluding that balanced solutions that consider environmental and trade objectives are necessary to avoid unnecessary friction between the climate and free trade spheres.