The United States government is appealing to the European Union to be exempt from its carbon border levy this week, a move that experts say is likely to throw a wrench in talks for an overarching agreement on imports of aluminium and other metals.
According to Bloomberg, insiders say the chances of the EU agreeing to Washington’s request are slim. The EU’s rules make such an agreement all but impossible, and an agreement of that nature also runs counter to World Trade Organization (WTO) rules.
European Commission Spokeswoman Miriam Garcia Ferrer told Bloomberg that the carbon border adjustment mechanism is how costs for decarbonization are adjusted for companies within the EU that incur such costs. However, as there is no carbon price in the United States, such an exemption for US-based firms would not be possible.
“Such an exemption would also constitute a breach of WTO rules (most favored nation rule) if CBAM (carbon border adjustment measures) were not to apply to the US steel and aluminum sectors covered by the GSA.”
The US Trade Representative did not offer a responsive comment to Bloomberg when asked.
In a nutshell, the EU is planning to assess a carbon price on some imported goods to offset the expense to EU companies for producing their goods with fewer carbon emissions. As a result, imported aluminium, cement, fertilizers, and steel will begin reporting their carbon footprint to the EU this fall, and imports will be assessed a tariff based on that number.
Insiders say the EU also understands the WTO’s rules to forbid an exemption to carbon tariffs for US goods. The WTO’s “mot favored nation” principle is rooted in the idea that it must treat other parties to the agreement indiscriminately or make the other party whole via trade concessions. Thus, suspending the carbon tariff on American goods without doing the same for all the other signatories is likely a violation of the treaty’s MFN provisions.