Trade war begins as China rejects EU aviation tax

China has ordered its airlines not to pay the new EU carbon taxes in the latest chapter of the controversial Emission Trading Scheme.

The Chinese aviation authority has imposed a ban even though companies failing to comply could be fined and barred from EU airports.

Reporting the ban, the state news agency Xinhua hinted at possible further government action, declaring: “China will consider adopting necessary measures to protect interests of Chinese individuals and companies, pending the development of the issue.”

Chinese airlines had already vowed to ignore the charges, arguing that the law disproportionately impacts developing countries and represents an extension of European power to foreign jurisdictions, as permits cover flights from outside the EU and carbon emitted in non-EU countries.

The cap-and-trade scheme, which has also faced resistance by US and other airlines, came into force at the beginning of 2012 after EU courts rejected a challenge from the Air Transport Association of America and others in December. Fees, however, will not have to be paid until next March.

A trade war over the issue with China, and possibly other economies emboldened by the ban, now seems increasingly likely.

Duncan Innes-Ker, an economist with the UK-based Economist Intelligence Unit, said: “Given the tax applies equally to EU and foreign airlines, it is not clear that the Chinese claims that it represents trade protectionism have any basis, but the EU may still have to offer concessions if it wants to defuse the row.”