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The EU’s trading partners have slammed the bloc’s plan to introduce a world-first carbon border tax, saying it is protectionist and puts export industries at risk as talks to finalize the deal drag on into the weekend.

Several developing countries have already begun negotiating with Brussels for more flexibility on the proposals, including possible waivers, according to two people familiar with the discussions.

The plan is temporary until a final round of negotiations is completed this weekend. After that, the agreement must be approved by the EU ambassadors. Outstanding issues include specific timelines for its gradual phase-in.

Michael Bloss, a German lawmaker and European Parliament negotiator, said on Saturday that “a lot was negotiated” on Friday but “little was decided”. The talks will “continue and hopefully conclude negotiations on Europe’s biggest climate protection package,” he told Reuters.

Swedish lawmaker Emma Wiesner said Friday’s talks had made “surprisingly great progress”. Other EU officials told Reuters no deals had yet been found on the most divisive issues.

The tax would require importers to buy certificates to cover their emissions, based on calculations linked to the EU’s own carbon price. Production of iron, steel, cement, aluminium, fertilisers, hydrogen and electricity will all be covered by the deal. The trial period is scheduled to begin in October 2023.

If deemed successful, the EU plans to expand the scheme to other sectors, including cars and organic chemicals.

The plan has drawn criticism from countries including the US and South Africa, which say the carbon cap adjustment mechanism (CBAM) will unfairly penalize their producers.

“We are particularly concerned about things like border adjustment taxes and regulatory requirements that are imposed unilaterally,” South Africa’s trade minister, Ibrahim Patel, told the Financial Times. “If it’s going to be a huge defining thing between the north and the south, you’re going to have a lot of political resistance.”

“There are a lot of concerns on our part about how this will affect us and our trade relationship,” US Trade Representative Catherine Tye said at a conference in Washington this week.

The EU sees CBAM as a key part of its efforts to achieve net-zero emissions by 2050, arguing it would simultaneously encourage countries outside the bloc to decarbonise their industrial sectors.

“CBAM is just a way to threaten third countries that they also have to renew their ambitions when it comes to climate,” said Dutch socialist politician Mohammed Chahim, who led negotiations on the European Parliament law.

Before the Russian invasion of Ukraine, it was supposed to be the country most affected by CBAM. Russian exports accounted for the largest share of imports from sectors affected by the CBAM, according to an analysis by Berlin-based think tank Adelphi based on EU import data from 2015 to 2019.

Due to the EU sanctions regime and the destruction of Ukrainian industry, the significant drop in imports from Russia has put the burden on other countries.

According to Adelphi, China accounts for about a tenth of the affected imports, with Turkey and India also affected. China has frequently attacked the tariff since it was first proposed in July last year.

Developing countries with less economic weight and systems to measure emissions are more likely to be hit hardest by the introduction of the levy, said Faten Agad, senior adviser on climate diplomacy at the African Climate Fund.

“The countries most likely to mitigate CBAM risk are those that already have proper carbon accounting,” he said. The result could be “de-industrialisation” in African countries that export to the EU.

“A lot of these industries are at risk of losing business if we don’t put money into their sustainability, and it’s very difficult to rebuild.”

Steel producers in Brazil are concerned that CBAM will put domestic producers at risk. Instead of shipping their products to Europe, exporters can target less protected steel markets such as South America.

“Our big concern is not towards export [Europe]But more materials are being diverted to the region, leaving the domestic industry “vulnerable,” said Marco Polo de Mello López, executive president of Instituto Aço Brasil.

Anger at the measure has been fueled by EU claims that CBAM will encourage others to decarbonise, while not providing funds to help poor countries invest in clean technologies.

According to people familiar with the text of the draft, revenues from CBAM are intended to flow into the EU’s domestic budget, with a weak commitment to provide climate finance to countries outside the bloc.

Baran Bozoglu, president of the Climate Change Policy and Research Association, a non-profit research organization in Ankara, said it would be “beneficial. [for the EU] provide various incentives, support and technologies so that the Turkish economy is not adversely affected.”

He added that exporters would have to pay to calculate their carbon emissions and validate it to report to the EU. It was a “huge injustice” that they had to cover those costs as well as pay CBAM, he said.

Additional reporting by Reuters, Andy Bounds in Brussels, David Pilling in London and Michael Pooler in Sao Paulo.


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