South Africa is deliberating lodging a formal complaint at the World Trade Organization (WTO) against the European Union’s proposed carbon border adjustment mechanism (CBAM).
This move comes in response to the EU’s plan to impose charges on the import of carbon-intensive products.
The products include among others – steel and cement, into Europe.
On Wednesday, Trade Minister Ebrahim Patel said they are still in the negotiation stage and would opt for to lodge complaint should the talks fail.
“We believe that first prize always is to reach an 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.
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First Carbon Border Levy
The European Union initiated a trial phase for the world’s first carbon border levy in October.
Scheduled for full implementation from 2026, the levy will affect imports of steel, cement, aluminium, fertilizers, electricity, and hydrogen.
This initiative has drawn criticism from various quarters, including developing nations and industries like China’s steel sector.
Minister Patel called on EU to accommodate differential levels of development among nations, pointing out that the CBAM’s one-size-fits-all approach could disproportionately impact developing economies like South Africa.
On the other hand, a spokesperson from the European Commission defended the CBAM said the region’s move aligns with WTO regulations.
“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.
Importers Must Pay a Carbon Price
EU thinks importers must pay a carbon price equivalent to that borne by domestic industries, a measure intended to prevent carbon leakage and contribute to global emissions reduction efforts.
EU is South Africa’s largest trading partner and the latter says the move could result in strained trade relations between the two due to the levy.
An analysis by the South African Reserve Bank forecasted a possible 4% reduction in total exports to the EU by 2030, equivalent to a 0.02% decline in GDP, under the current CBAM framework.
