SA has lobbied the EU for relief in the implementation of a protectionist carbon border tax, five months ahead of its enactment, citing the recent agreement between the bloc and the US where firms secured “additional flexibilities” under the carbon border adjustment mechanism (CBAM).
In an August 26 letter, the deputy director of the trade branch at the department of trade, industry and competition (DTIC), ambassador Xolelwa Mlumbi-Peter, urged that those same concessions be extended to SA and other developing economies.
SA’s latest plea regarding CBAM reconsiderations comes as Pretoria works to shore up its trade partnerships, as the Trump administration’s recent tariff hikes on the steel and vehicle sectors and green technologies squeeze market access to the US.
It also follows the EU’s investment package of R94bn to SA covering overs areas of mutual interest such as critical raw mineral processing, green hydrogen, renewable energy, transport and digital infrastructure, local vaccine and pharmaceutical production, and resources for skills development.
“We have noted with interest the recent Joint US-EU Framework on an Agreement on Reciprocal, Fair and Balanced Trade, in which the EU committed to ‘work to provide additional flexibilities in the CBAM implementation’ for US firms.
“SA calls on the EU to extend such flexibilities to SA and other African countries,” Mlumbi-Peter said in the letter addressed to the EU’s ambassador to SA, Sandra Kramer.
Transitional phase
The CBAM, which is in a transitional phase until the end of 2025, will impose a carbon tax on EU imports of seven carbon-intensive sectors, including steel, cement, fertiliser, aluminium and hydrocarbon products. The 27-member trading bloc accounts for 19% of SA’s exports.
By 2026, importers will begin paying for emissions linked to products entering the EU.
The letter argues that “the extension of the scope of CBAM to cover downstream products is a cause for concern and will have significant implications on industry and the SA economy”.
Mlumbi-Peter further warns that the CBAM may also be inconsistently breaching World Trade Organisation rules, citing potential conflicts with provisions on non-discrimination under the General Agreement on Tariffs and Trade.
Under the CBAM, SA’s trade exports to the EU could fall 4% by 2030 and a further reduction of 10% by 2050, wiping out 2.6-million jobs, according to Reserve Bank estimates.
Exports at risk
In SA, according to Trade and Industrial Policy Strategies, a total of $2.8bn of exports (based on 2022 data) were at risk in the short term, with this number set to increase as the CBAM covers progressively more products.
“By seeking to impose uniform approaches without recognition of capacity and resource constraints, measures such as CBAM risk generating inefficiencies that weaken the effectiveness of climate action, while eroding competitiveness in developing economies and penalising countries unable to decarbonise at the pace of developed countries such as those in the EU,” Mlumbi-Peter said.
“Without parallel commitments to finance, technology transfer and capacity building, CBAM represents an externalisation of EU adjustment costs onto developing economies, compounding existing inequities and impacting vulnerable communities most severely.
“We urge the EU to reconsider the implementation of the CBAM and not to expand the scope further as it will lead to further negative impacts on SA and other developing countries, especially in Africa.”
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