Japanese steel industry faces challenge of CBAM draft bylaw

The Japanese steel industry is on the backfoot with the European Union (EU) poised to start the transitional phase of its Carbon Border Adjustment Measures (CBAM) from October this year. The EU has recently published a draft bylaw, which is open for public comment until the deadline in July. This article explores the concerns and potential impact of CBAM on the Japan steel industry.

What is CBAM?

CBAM is a set of measures that requires importers to report the carbon intensity (carbon footprint) of certain products before any adjustment measures, such as taxation. These are to be implemented from 2026. The aim of CBAM is to ensure that countries and regions that are not actively taking climate action face additional tariffs on their imports, thus maintaining industrial competitiveness within the EU.

Concerns of the Japan steel industry

The steel industry in Japan is worried about the complexity of the draft report presented by the European Commission. The report contains over 150 items that need to be evaluated, which is a time-consuming task. Some of the items require disclosing trade secrets and technical information, which raises concerns about the necessity of such detailed reporting.

Violation of free trade principles

One of the major concerns is that the draft report may violate the principle of free trade. While the EU does not require its own steel manufacturers to report certain items, importers may be required to report all items. This discrepancy could potentially violate World Trade Organization (WTO) rules and create an unfair trade environment.

Potential impact on Japanese steel exports

If the reporting system is implemented as proposed, steel exports from Japan to the EU may be significantly affected. Currently, steel exports to the EU account for more than 5% of all exports, with a volume of approximately 1.85 million tonnes (mnt) per year. The extensive reporting requirements could create barriers and hinder trade between Japan and the EU.

Conclusion

The Japanese steel industry is closely monitoring the developments of the CBAM and actively participating in the public comments process. It is essential to find a balance between climate action and fair-trade practices. The final decision on the reporting requirements will greatly impact steel exports from Japan to the EU, and it remains to be seen how the situation will unfold.

Note: This article has been written in accordance with an article exchange agreement between Japan Metal Daily and SteelMint.