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