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Wen, Lih-Chyi、Yen, Huai-Shing、Chou, Yu-Chen、Wang, Yu-Shung、Hsu, Yu-Chia、Yiting Cheng
2023/08/09
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An Analysis of Carbon Border Adjustment Measures (CBAM) in Different Countries


Publication2021.12

Principal Investigator溫麗琪 Wen, Lih-Chyi

Researchers顏慧欣Yen, Huai-Shing、周雨蓁Chou, Yu-Chen、王煜翔Wang, Yu-Shung、許裕佳Hsu, Yu-Chia、鄭伊庭Yiting Cheng




The present study examines the EU’s application of Carbon Border Adjustment Measures (CBAM) to imported products at high risk of carbon leakage according to the initial CBAM proposal issued by the European Commission on July 14, 2021, and explores the issue of WTO consistency based on the CBAM obligations. Building upon such results, an impact assessment of the EU’s adoption of CBAM on Taiwan was conducted, and recommendations were made to help inform the government’s strategies in response.

l  To begin with, the CBAM requires companies to purchase CBAM certificates based on the corresponding processes and production methods (or PPMs, namely the carbon content) of a product. However, the application of PPMs may lead to goods produced within the EU and foreign products, or imports from different sources being treated differently. A key question in this regard is whether “carbon content” is a sufficient criterion to determine product “likeness,” and currently there is no clear consensus on this issue in relevant GATT cases.

l  If the WTO determination of likeness is based on the product itself (i.e., not considering carbon content), the CBAM mechanism would need to comply with GATT national treatment and most-favored-nation treatment. Therefore, while the EU can argue that CBAM is a type of border adjustments under the GATT, the applicable legal provisions for border adjustment under GATT are still subject to varying interpretations. If CBAM is classified as a tax, the applicable provisions for border adjustment would be GATT Article II:2(a) and the Note Ad Article III:2. If CBAM is considered a domestic regulation, the corresponding provisions would be Note Ad Article III:4. However, at present there is no WTO precedent regarding the nature of CBAM, and differing views exist within the academia.

l  Based on the analysis of WTO consistency, the study suggests that Taiwan continue to monitor the European Commission’s practices in developing carbon price deduction methods for importers and emission verification process for imported goods, in order to examine whether foreign products are treated less favorably and whether CBAM constitutes an unnecessary trade barrier under the TBT Agreement. It is equally important to track the negotiations between the EU and relevant countries before the application of CBAM in 2023, which will help assess whether the EU CBAM complies with the introductory provisions of Article XX of GATT.

l  In terms of the impact on trade across sectors affected, Taiwanese steel exports to EU will be the most affected by CBAM. Preliminary estimates indicate an increase in export costs of steel products to the EU by NT$608 to 4,665 million, accounting for 1.82% to 13.97% of the export value, after CBAM enters into force.

l  With the transitional period for CBAM expected to start from 2023 for imported products, the study recommends businesses understand the associated declaration process and penalties, provide clear information of the carbon content of products, and enage in carbon reduction efforts in response. In the medium to long term, as the EU CBAM may gradually cover more items, establishing a carbon pricing mechanism similar to the EU ETS is advisable in order to mitigate the impact on trade. Regarding international engagement, it is suggested that the Taiwanese government join forces with other countries to promote a multilateral carbon pricing mechanism and call on the EU to abandon (or at least postpone) unilateral measures.

Chinese:https://web.wtocenter.org.tw/Page/91/388804