Most Favoured Nation: Does the EU need CBAM anymore?
CBAM, India-Australia, Digital Policy Alert and Denis.
Depending on who you ask, the EU’s carbon-border adjustment mechanism (CBAM) – which will see importers of high-carbon goods required to purchase and surrender ‘CBAM certificates’, which are price-linked to the weekly cost of domestic carbon permits sold through the EU’s emissions trading system – is needed either to …
a) Guard against a loss of EU industrial competitiveness and subsequent offshoring of heavy industry (carbon leakage)
b) Force other countries to adopt their own domestic carbon price, so as to ensure their exporters to the EU aren’t hit by the CBAM
c) Provide domestic political cover for all of the green measures that are going to increase the cost of producing in the EU
d) All or some of the above
I was a camp d) man, but given all that has happened over the last few months I’m beginning to wonder if, in practice, all that’s really plausible is c). By which I mean that Russia’s invasion of Ukraine, and the subsequent sanctions, have made a) and b) kinda redundant.
Because in terms of exposure to the proposed CBAM measure, Russia was way out in front [see my helpfully annotated chart below].
And now, well, the EU isn’t going to be importing much of anything from Russia for a while, reducing the risk of carbon leakage, but also the EU’s ability to influence Russian climate policy. Second in line is Turkey, which the EU already applies a number of import restrictions to anyway. Then you have China, which is tariffed up to the eyeballs. Then you have the UK, which already has a high domestic carbon price. And then you have Ukraine … and well, no.
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WHAT ARE YOU EVEN DOING, Australia?
India really does not like data being transferred out of its territory. Particularly personal data, and increasingly data linked to financial services.
See MFN fan favourite Nigel Cory’s paper on barriers to digital trade for a rundown:
Anyway, Australia and India have agreed a free trade agreement, which is a little light on substance but a big deal all the same because it proves that India is actually willing to do a free trade agreement.
But I thought I’d check to see if it contained any commitments on cross-border data flows and digital, given the fact Australia is generally at the forefront of these kinda discussions.
Tl;DR: not really. Other than commitments to discuss digital trade in a few months time, the only commitments on data exist in the financial services chapter. [Text of the agreement here.] But they are a little odd.
Usually commitments in this space are pretty generic and say something like [USMCA]:
Neither party shall require a covered financial service supplier to use or locate financial service computing facilities in that Party’s territory as a condition for conducting business in that territory, so long as the Party’s financial regulatory authorities, for regulatory and supervisory purposes, have immediate, direct, complete, and ongoing access to information processed or stored on financial service computing facilities that the covered financial service supplier uses or locates outside the territory of the Party.
There are then a load of caveats around public policy, personal data, prudential regulation and national security that mean regulators can do whatever the hell they want in practice, but on the surface the provisions are pretty clear cut.
What you don’t want to do is include provisions that explicitly say “yeah, forcing financial firms to store data locally is actually fine and we’re cool with the explicit way you do it.”
Which is what Australia seems to have done with India:
The thing I don’t get here is not that India didn’t change its approach because the Australians asked it to. That was pretty much a given. Rather, it’s why the Australians didn’t push to just say … well … nothing. Rather than seemingly endorse India’s approach, which runs contrary to pretty much everything Australia claims to stand for in other negotiations.
Very odd. And not something, presumably, the UK will want to replicate.
Every morning, EU trade defence chief Denis Redonnet wakes up, has a coffee, goes for his morning stroll, gets to the office, sits down at his computer, fires up twitter, and unleashes violence.
This time it’s graphite electrodes from China. But no country is safe. If you are breaching the rules, he is coming for you.
Digital Policy Alert
Simon Evenett and the team behind Global Trade Alert have pulled together the resource everyone has been waiting for — a tracker of the different policy and regulatory interventions impacting the global digital economy.
As well as broad coverage, Digital Policy Alert also narrows in on some key themes, including content regulation in response to Russia’s invasion of Ukraine:
Do check it out!
Not dead, just different.
So the next time you’re sitting on your IKEA couch, wearing a Uniqlo T‑shirt, eating grocery store sushi, and streaming either a Bad Bunny track or the Squid Game Season 2 trailer on your iPhone, please take a moment to lament the Death of Globalization.
Anyway, read Scott Lincicome’s piece on the non-death of globalisation. It has lots of charts.
As spotted by sanctions-watcher-in-chief Chad Bown, the UK government placed a temporary export ban on the £10 million painting Ferme Normande, Été (Hattenville) by Paul Cézanne. The ban will apparently “allow time for a UK gallery or institution to acquire the painting”. PROTECTIONISM. GAH. [I actually have no opinion on this.]
The UK Trade Remedy Authority has launched a review into its safeguard quotas for steel imported from Russia and Belarus, with a mind to reallocating them to other, non-sanctioned, countries. If interested, let them know.
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Thanks Sam for you always thought provoking MFN.
As for the CBAM it is obvious that much of what is going on right now is in part dealing with the effects that the CBAM also should deal with, but it strikes me that you are missing two long term points:
1) The CBAM is aimed to be a long term instrument hopefully surviving the present conflict by decades.
2) The CBAM is in making since many years (some 20y that EU industry has been feeling the economic pressure from countries not having same level of environmental measures) and is not just about the EU, but very much about driving EU climate policy beyond EU borders.
In addition, the EU CBAM is likely to have an important spill-off effect on other countries actions on like measures, plus it will undoubtedly have a kick-ass effect on the debate at the level of WTO on what is possible and what is not under the provisions of GATT.
So, for me, the CBAM has every good reason to be.