Steel dispute between EU and US about to escalate?
Steel dispute between EU and US about to escalate?

5 April 2023 – The ongoing steel dispute between the European Union and the United States appears to be on course for further escalation. The US demand for an exemption from the Carbon Border Tax CBAM is putting the European Union on the spot. Bureaucratic madness in Brussels to grow with CBAM authority in Brussels – paid for by sales of CO2 certificates? And UK opens consultations for own CBAM measure.

Steel dispute between EU and USA about to escalate?

The European Union’s agenda is pretty full. Not only does the EU want to launch the CBAM market protection measure by October 2023, it still has the simmering and as yet unresolved trade war with the United States on its agenda.

Dispute over steel, aluminium, CBAM and subsidies

This dispute, largely over steel and aluminium, is further fuelled by the US Inflation Reduction Act, which has caught the Europeans not only on the wrong foot, but also with their pants down in the middle of the Russian winter.

USA demand CBAM exemption

Now the Americans are apparently demanding that the EU exempt American exports from the Carbon Border Tax (CBAM). Understandable, since it is a growing bureaucratic monster that eats up time and money, when all they want to do is do business.

Will CBAM fall before the WTO?

The Europeans, who were so eager with CBAM to make their hidden market protection measure as unassailable as possible before the World Trade Organisation (WTO), are now likely to have their hair stand on end – because if the United States gets an exemption with CBAM, there is likely to be a perfectly justified wave of complaints to the WTO’s Dispute Settlement Body (DSB) and CBAM will hardly survive the period until 2026.

CBAM: EU market protection measure, nothing more

Because, as we have been saying ever since the first CBAM draft became known, CBAM is nothing other than the possible successor to the EU Safeguard Measure on certain steel products, which the European Commission extended by the skin of its teeth until shortly before the final introduction of CBAM. No wonder, then, that the European Commission is trying to step on the gas here.

Section 232 Tariffs firmly in the saddle

With regard to the Section 232 Tariffs, which the United States is very likely to maintain even in contradiction to WTO rules and which have sidelined the DSB decision for years with an appeal to the WTO Appellate Body, the EU higher-ups are certainly jealous of the Americans, but if you have to keep up appearances of probity, at least in Brussels they pretend that DSB decisions carry any weight. But this also means that the EU Safeguard measures will have to expire in 2025/2026 in purely legal terms and a replacement will be needed to save EU steelmakers from the onslaught that Safeguard was supposed to avert.

Great frustration on the part of the USA

Whether and how a solution can be found here, whether with a Sustainable Steel Club or not, must be decided by October 2023. Because experts there are already assuming that the USA, in the face of massive frustration over its allies’ lack of concern with regard to Chinese overcapacities, could resort to unilateral measures if no progress continues to be made with the EU.

The bureaucracy monster CBAM is growing

The Carbon Border Adjustment Mechanism, CBAM for short, the European Union’s carbon border tax to tax imports such as steel, cement, aluminium and fertiliser, which emit particularly high amounts of CO2eq during production, presented a new cost plan in March 2023, which shows that this is by no means a simple and less bureaucratic system to be created.

EC needs more money for CBAM

The Draft Amending Budget No 1 to the General Budget 2023 with the sounding title: “Technical adjustments stemming from the political agreements reached on several legislative proposals, including with respect to REPowerEU, the Carbon Border Adjustment Mechanism and the Union Secure Connectivity programme” calls for 90 new posts to be created for CBAM alone, of which 16 full-time posts in 2023 alone.

However, an estimated 90 staff will be needed to ensure the centralised management of CBAM at full cruising speed, of which 16 posts and four external staff in 2023.

Source: European Commission

Central CBAM authority demanded

Originally, the EC had envisaged 8 full-time positions for the launch of CBAM. Also, the CBAM administration was to be decentralised and distributed among the member states and the established bodies, such as the national customs authorities. However, after the EU parliamentarians apparently demanded that this be centralised, the next EU super-authority including bureaucratic madness is now growing up.

ETS certificates should now pay for it?

“Without any additional means, such as the external assigned revenue accruing from the ETS, the
options to finance the necessary administrative costs (staff and IT) of CBAM cannot be easily found.”
Source: Commission unilateral statement on the financing of human resources for CBAM on 1 February 2023.”

And how is it to be paid for? According to the EC, there doesn’t seem to be any money for it, unless you take the money from the sale of CO2 certificates – weren’t they actually intended for something else? To finance measures for CO2 reduction, for example?

No texts, no calculation scheme, no IT

Of these 20 positions, 12 are to be filled for administrative purposes alone – i.e. writing texts. 8 are intended to strengthen the CBAM IT team, which is to bring a complex and apparently non-existent IT project to a successful conclusion by October 2023.

12 AD posts will address the 2023 workload related to several delegated and implementing acts, the methodology for calculating embedded emissions, financial responsibility oversight and contracts and reports. Commission staff will also be needed to review and assess the functioning of the CBAM system and to implement the IT system. In addition, the strategic importance, the magnitude and complexity of the CBAM IT project require a dedicated CBAM IT team estimated at a total of 15 FTEs to manage the overall project implementation and operations. The Commission has already internally redeployed seven FTEs for this purpose. Eight further FTEs, of which four AD posts and four contract agents, are therefore needed in 2023.

Source: European Commission

Cost explosion inevitable

If we now consider that IT projects, especially on the government side, are never actually completed on time, the costs usually explode further and further – because politicians like to calculate the costs small in order to have more chance of success in the first instance – and e.g. the EU “Customs 2020” programme has not yet been fully implemented and still has a lot of catching up to do, especially on the IT project side.

Customs 2020 still not ready today?

With regard to the costs for the “Customs 2020” project, while these were still at 80 million euros per year between 2017 and 2019, which already represented an increase of almost 20% compared to the years 2014 to 2016, the budget for 2021 was already at almost 127 million euros, an increase of almost 60% compared to 2019. This already gives an idea of what can be expected in terms of the EC’s cost plan for CBAM.

Still no calculation scheme for CBAM

And, what also emerges from the EC’s cost plan and what we had already noted recently: There is still no valid calculation scheme for the calculation of the CO2 emissions that are to be recorded with CBAM from October 2023. So far, there is not even the staff to think about a possible calculation scheme.

But the main thing is that the informal CBAM expert group of the European Commission has not yet delivered a calculation scheme too…

“The founding fathers, who wanted to simplify the EU, would turn in their graves at this prospect. Sorry, you haven’t heard the shot.” Thorsten Gerber, CEO of Gerber Group commented today.

UK launches consultations on CBAM

And who, appropriately, is just around the corner with their own consultations for their own carbon border tax based on the EU template? That’s right, the United Kingdom. The bureaucratic roulette game between the two sides of the Atlantic is now happily going into the next round with a third player. Rien ne va plus.

Latest news

Receive all the latest news once a week

Receive all the latest news once a week

Make it easy for yourself: we will remind you once a week about the latest news.

Join our mailing list to receive the latest news and updates from our team.

You have Successfully Subscribed!