EU countries agree to tax high-carbon imports

The ministers of Economy and Finance of the European Union reached an agreement on Tuesday to launch a mechanism that will tax imports produced with high polluting emissions to avoid unfair competition between EU producers and those who manufacture in countries with more lax environmental legislation.

The aim is to prevent carbon leakage, i.e. for companies to move their production to states that are more permissive with emissions, and for imports from other countries to undermine the EU’s efforts in the fight against climate change.

“It is an absolutely considerable step forward on the path of reducing carbon emissions within our borders. For years our industries and citizens have complained that all the efforts we make are squandered by the absence of a carbon adjustment mechanism at the border,” French Economy and Finance Minister Bruno Le Maire said in announcing the agreement.

Only Poland explicitly opposed the adopted text, which sets out the position of the Member States in negotiating with the European Parliament the final legislation.

However, many states called for ensuring that this mechanism does not harm the competitiveness of EU industries and exports and is compatible with the rules of the World Trade Organization, so they called on the European Commission to deepen its analysis on these points and to review the impact of it once it is underway.

“There will be many countries that can react in different ways to this mechanism and we have to see how it develops in practice. We must ensure that protection against climate change does not affect the export industry,” german Finance Minister Christian Lindner said.

In addition, this mechanism is only one element within a broader package of measures proposed by the European Commission and dubbed ‘Fit for 55’ to achieve its climate target of reducing greenhouse gas emissions by 55% by 2030 and reaching neutrality by 2050.

For this reason, the ministers urged to resolve soon, even before starting to negotiate with the European Parliament, other legislative dossiers linked to the mechanism, in particular, the progressive elimination of the free allocations of emission rights to certain economic sectors as they become covered by the carbon adjustment mechanism.

This point is part of the revision of the European Emissions Trading System (ETS), negotiated by the Energy Ministers of the Twenty-seven, and is behind the rejection of the proposal by Poland, which refuses to end these free allocations until there is evidence of the effectiveness of the new mechanism.

In this sense, the European Commissioner for the Economy, Paolo Gentiloni, conveyed to the ministers that in “weeks or months” a solution could be found for the “problems” related to the mechanism on which there is still no political agreement.

The Spanish Vice-President for Economic Affairs, Nadia Calviño, highlighted during the ministerial debate Spain’s support for the proposal and stressed that it is “fundamental” to promote energy efficiency and the decarbonization of the industry.

And also that the transition is “fair” and does not put European companies “at a disadvantage”, so he urged to resolve the issues raised by the mechanism.

BLOCKING THE MINIMUM RATE FOR MULTINATIONALS IN THE EU

On the other hand, however, ministers were unable to reach an agreement to introduce into the bloc a minimum effective corporate tax rate of 15% on multinationals for the reserves of Sweden, Poland and Malta.

The dossier seeks to transfer to Community legislation a part of the agreement reached last year in the OECD and precisely the main problem raised by these three countries is that the draft directive does not yet include the other pillar of the pact: the specific tax on digital giants.

The Ecofin meeting came with little chance of achieving the necessary unanimity among the capitals, as it is a legislative proposal in the field of taxation; and this despite the changes introduced by France as the rotating presidency of the EU to try to overcome the reluctance of some Member States.

Another problem was the date of entry into force of the directive, but the text that Paris brought to the ministers’ table delayed the implementation of the directive until December 1, 2024.

It also introduced a nuance on another of the points that generate doubts, the so-called income inclusion rule (RIR), which allows taxing the profits of a subsidiary abroad if they are paying a corporate tax rate lower than the minimum.

Its application would be voluntary, according to the French text, for a period of five years, a change that allowed Hungary and Estonia to lift their reservations about the draft directive.

“We still have some problems,” the representative of Malta, which considers it essential that the two pillars of the OECD agreement be treated as “a package” said despite everything during the public discussion.

A similar reluctance was expressed by Poland, while Sweden noted that, although it is in favor of “moving forward” with the project, it considers that it is still “too early” to close the agreement despite the advances introduced by France.

Le Maire, said at the end of the debate that “if it is necessary to give three weeks”, the ministers will give themselves that time to get the agreement, while he was confident that it will be possible to reach unanimity at the Ecofin meeting in early April.

For her part, Calviño was the first to take the floor in the exchange to reiterate Spain’s support for the file and highlight that its approval would send “a very important message” to the world that Europe “wants to have a fair system of international taxation.”

Source: Euro EFE