CHINA HAS banned its airlines from paying EU carbon taxes, a move that could intensify trade tensions between the world’s second largest economy and its biggest trading partner a week before they meet for a summit.
In a statement on its website, the Civil Aviation Administration of China said the EU Emissions Trading Scheme breaches UN climate change rules and international civil aviation regulations.
It also said its carriers were barred from using the system as a reason to raise fares.
China’s statement represents a hardening of its position and there are fears the issue could turn into an international trade row. It comes as Europe is eager for China’s help in supporting measures to prop up the euro zone.
The carriers argue that Brussels is exceeding its legal jurisdiction by calculating the carbon cost over the whole flight, not just the pollution that happens outside of Europe. The cap-and-trade scheme, which has also angered the US, India and airlines worldwide, came into force after the European Union’s highest court rejected a challenge brought by US carriers last year.
China has said it fears its aviation sector will have to pay an additional 800 million yuan (€96.4 million) a year on flights originating or landing in Europe, and that the cost could be almost four times higher by 2020.
“Given the tax applies equally to EU and foreign airlines, it is not clear that the Chinese claims it represents trade protectionism has any basis, but the EU may still have to offer concessions if it wants to diffuse the row,” said Duncan Innes-Ker, an economist with the Economist Intelligence Unit.
The announcement came as the IMF warned that economic growth in China could drop by half this year in the event of a sharp recession in Europe.
“The risks to China from Europe are both large and tangible” and “China would be highly exposed through trade linkages”, said the report, which underscored the importance of global trade to the world’s second largest economy and was published by the IMF’s resident representative office in China.
The IMF's forecast for China's annual growth in 2012 has already been lowered to 8.2 per cent from 9 per cent, but if Europe's performance is worse than expected then China's export-driven economy would be badly hit – "by as much as four percentage points relative to the baseline projections [of 8.2 per cent] leading to broad-based consumer and asset price deflation", the report warned. – ( Additional reporting: Financial Times Limited)