UN Admits Cap and Trade is Harmful: Congress Should Discuss Border Tax Adjustments

Nicolas Loris / June 26, 2009

A paper released today by the United Nations Environment Program and the World Trade Organization acknowledged that cap and trade legislation would be expected to have significantly harmful economic consequences, likely including a serious loss of international competitiveness. In response, governments considering such a policy would likely want to consider a border tax adjustment (BTA) system to mitigate the loss of competitiveness. The report goes on to say that such a BTA system would be permissible under the world trading system.

While it’s shocking in and of itself that a group like the UN Environmental Program is admitting that cap and trade is economically harmful, the report raises a good point concerning the BTA system that should be addressed by Congress.

A BTA system allows a tax to be levied on imports and an export rebate to be given on exports to reflect the influence of a tax on the relative prices in the domestic economy. Most countries with Value-Added Taxes (VAT), such as those found in Europe, employ BTA systems to prevent the VAT from putting their countries at a competitive disadvantage at home or abroad. Page 22 of the report states:

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