Top EU Trade Official Says EU Carbon Border Adjustment Must Not Trigger Trade Wars

Bernd Lange, chair of the European Union parliament's committee on trade, said that though it may be tricky to do so -- given that the EU and other countries have different ways of encouraging cleaner industry -- the EU's proposed carbon border adjustment measure should not be a way to just hike tariffs. "We have to avoid trade wars," he said to reporters in Washington Nov. 4. He said if another country does not have a cap and trade system and doesn't have a price on carbon, that doesn't mean they don't have climate change measures. "So we need to find equivalencies," he said.

The U.S. and the EU are going to work over the next two years on how to evaluate the carbon intensity of steel production in the two regions so that American steel will not be subject to a carbon border adjustment if it is imported into the EU. "This has to be solved," he said.

He added that it's not just trade between the U.S. and EU that could be harmed if the carbon border adjustment is not properly designed. The CBAM will also apply to cement, and Lange said the two top exporters of cement to the EU are Tunisia and Morocco. "We want to stimulate their economic growth, and not to harm them with such measures," he said.

He said he thinks the proposal released in July needs some elements readjusted, including where the collected revenue should go. He said that the proposal is not ready, but that because there are five years before border taxes would be levied, that gives policymakers time to discuss how to get it right.

Lange was upbeat about the tariff rate quotas that the U.S. and EU agreed to so that tariffs on European steel and aluminum could be lifted, but characterized it as a "cease-fire" rather than a permanent solution to the trade irritant. The negotiations on the carbon intensity of steel are one portion of that permanent solution, as is a pledge to work together to confront uneconomic steel overcapacity.

Lange had been meeting with the U.S. trade representative, other administration officials, members of Congress and the new leader of the AFL-CIO, and he said, "We discussed a lot about China in these last few days."

He said China is the "elephant in the room" when it comes to reform of the World Trade Organization and the return of binding dispute resolution in Geneva. He said that the U.S. knows it cannot tackle China, curb forced labor abroad, have effective export controls or fight climate change without its allies behind it. "The climate has changed totally," Lange said, comparing the Trump administration to the Biden administration.

In response to a question, Lange said he brought up in his meetings congressional proposals to offer more generous purchase subsidies for electric cars if they are assembled in the U.S., if they have a domestic battery pack, and if they were made at a plant that has a unionized workforce. Many electric cars that are currently assembled in the U.S., such as Tesla, or are scheduled to be, such as Volkswagen's ID.4 crossover, are not made in union-represented plants.

He said looking at "the production conditions of a car is quite reasonable, I guess." But he said if Congress limits incentives to cars built in the U.S., "this is going in the direction of protectionism. And this, of course, is not acceptable." He noted that Canadian auto manufacturers are "a little bit nervous" about this element of the Build Back Better package, and said that Canada's labor force has good working conditions, and they should not be excluded from the subsidies.

He said if the incentives are focused on a minimum wage for workers and on collective bargaining, as long as they are not "trying to give the advantage to specific American producers, I can live with such an approach."

Lange, who was a negotiator for the failed free-trade talks between the EU and the U.S., said they've learned their lessons from that and are being more transparent in the U.S.-EU Trade and Technology Council, and aim to produce concrete results much faster. He said that an agreement on how to rebalance global supply chains for semiconductors should be reached by May or June next year so that it can be turned into legislative proposals in the EU and the U.S.

Export controls are also on the TTC agenda, and he said that since the EU's export controls are quite limited compared with the broader national security mission of U.S. export controls, they are "really identifying the differences and the reasons for them," on their path to finding a common view.