China asks EU to justify upcoming carbon tax at World Trade Organization
China has asked the European Union to justify its incoming carbon border tax at the World Trade Organization, a move that suggests it may challenge the law at Geneva's trade courts.
Beijing's WTO envoy on Wednesday proposed using the Committee on Trade and Environment for multilateral talks on "environmental measures that have given rise to controversies", starting with the EU's carbon border adjustment mechanism (CBAM), which China has insisted is not compliant with global trading rules.
If the proposal is accepted, the EU would have to defend the measure's legality, its environmental objectives, its impact on trade, its consistency with WTO rules and its impact on developing members, according to a proposal filed to the Geneva body's secretariat. However, it would not constitute a formal dispute.
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The proposal does not mention the EU directly, but at a committee meeting on Wednesday Beijing made clear that CBAM was the initial target, according to a Geneva-based trade source.
The document said "environmental objectives should be consistent with the fundamental principles and basic rules of the WTO, strike a balance between environmental considerations and trade considerations, and do not constitute protectionist measures or green trade barriers".
CBAM, which is scheduled to be implemented in October, is a cornerstone of the EU's quest to reach climate neutrality by 2050.
After the carbon border tax takes full effect, companies wanting to import goods into the EU must buy certificates reflecting the emissions generated in producing them.
These credits will reflect the difference between carbon prices in their origin countries and that of the EU emissions trading system (ETS). It aims to prevent "carbon leakage" - that is, relocating manufacturing to places with weaker climate policies than the EU.
Initially, CBAM will cover direct emissions from the iron and steel, cement, aluminium, fertiliser and electricity sectors. A transition period until December 2025 will require producers to report their emissions, after which a gradual levy will be introduced up to 2034.
Beijing has railed against the policy for years.
A paper from Tsinghua University, published in 2021, found that as the world's largest producer of industrial raw materials such as cement and steel, China would be the most heavily penalised by the EU law.
Also in 2021, a spokesperson for the Ministry of Ecology, Liu Youbin, said CBAM "violates WTO principles ... and (will) seriously undermine mutual trust in the global community and the prospects for economic growth".
However, a study by China Dialogue, a non-profit research house, found that just 2 per cent of China's EU exports would be covered by the first wave of levies.
The EU insists that CBAM will be compatible with global trading rules. In Geneva, Brussels' representatives urged other members not to risk turning the committee into an informal dispute settlement body.
The bloc said it had already presented CBAM "in detail at the WTO over the past two years and responding to members' questions", the source said. It plans to hold an information session on CBAM's legal text, which is likely to be released in May.
This article originally appeared on the South China Morning Post (SCMP).
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