South Africa considers complaining to WTO against EU carbon border tax

22nd May 2024 By: Reuters

South Africa considers complaining to WTO against EU carbon border tax

An EU flag
Photo by: Reuters

South Africa is considering lodging a formal complaint at the World Trade Organization against the European Union's "protectionist" carbon border levy, Trade Minister Ebrahim Patel said on Wednesday.

The EU's proposed carbon border adjustment mechanism (CBAM), which will impose charges on imports of carbon-intensive goods like steel and cement into Europe, has faced criticism from some developing nations and sectors including China's steel industry.

In October, the EU launched a trial phase of the world's first carbon border levy, which from 2026 will impose costs on imports of steel, cement, aluminium, fertilisers, electricity, and hydrogen.

"We believe that first prize always is to reach agreement through engagement and negotiation and our door remains open to find a settlement with the European Union on this matter," Patel told Reuters.

"Failing everything else, we would be obliged to take the next step which would be to lodge a formal complaint (at the WTO), but we are still continuing discussions with a view to finding an amicable solution," he added.

A European Commission spokesperson said the border levy was designed to comply with WTO rules and would allow deductions for any carbon prices already paid abroad.

"EU domestic industry pays a carbon price. We need to make sure importers pay an equivalent price, based on the carbon content of their goods, to prevent carbon leakage and help reduce greenhouse gas emissions," the spokesperson said.

"Carbon leakage" refers to the risk that, rather than reducing emissions, European industries would simply move abroad to avoid paying the EU's domestic carbon price.

However, countries including South Africa say CBAM would penalise developing nations struggling to raise the large investments needed to reduce their industries' CO2 emissions.

"Instead of recognising differential levels of development, it imposes a one-size-fits-all on firms across the world," Patel said.

He said South Africa, which could take a serious economic hit should CBAM be introduced, had raised the issue of trade-related measures on climate change at the WTO in February.

The EU is South Africa's largest trading partner and the current version of CBAM could lead to a reduction of total exports to the EU of 4% in 2030 (or 0.02% reduction in GDP) relative to a baseline with no CBAM, an April report from the South African Reserve Bank said.