Japanese industry groups resist EU carbon border rules

Various Japanese industry groups have opposed the EU's reporting obligations for its carbon border adjustment mechanism (CBAM), on concerns that doing so could disclose confidential price information.

The European Commission has recently disclosed public comments for draft reporting obligations that would be imposed on foreign traders during the transitional implementation phase of the bloc's CBAM, after the feedback period ended on 11 July.

The CBAM will first come into force under a transitional scheme from 1 October until the end of 2025, before it fully phases in from January 2026. The CBAM initially covers imports of cement, iron and steel, aluminium, fertilizers, electricity and hydrogen.

In this first transitional phase, traders only report provisional calculation methodologies and embedded emissions for their imported CBAM goods without paying financial adjustments.

The comments came from three industry groups and an anonymous group, with all of them voicing concerns that Japanese products could be treated unfairly, in comparison with EU-made products. They also noted that some reporting obligations could disclose confidential information regarding prices and costs.

"[The] CBAM must be in compliance with [World Trade Organisation] rules," said Brussel-based Japan Business Council in Europe (JBCE), pointing out there are disparities in the reporting process and frequency between EU products and foreign goods, with such disparities potentially violating WTO regulations. Foreign traders are obligated to report emissions on a quarterly and facility-by-facility basis along with alloy element ratios and scrap usage. But this is not the case under the EU emissions trading system (ETS) which only requires annual reporting, JBCE said.

JBCE has further concerns about mandatory reporting requirements regarding greenhouse gas emissions (GHG) per product that "could potentially expose data that may be highly confidential", likely referring to price and cost data.

The Japan Aluminium Association (JAA) echoed JBCE's views, opposing CBAM obligations that require traders to report all GHG emissions from fuel consumption in processes involving the manufacturing of aluminium products and flue gas cleaning. The EU also requests separate data for production of primary and secondary aluminium. "[The] content of primary and secondary aluminium are directly related to the confidential cost of each product," JAA said.

CBAM regulations could even undermine the price competitiveness of non-EU products as the "extra workload will be an extra cost that should be theoretically passed onto the current export price", said the Fasteners Institute of Japan chairperson Yoshinori Sato.

An anonymous Japanese business association submitted a 12-page feedback document to the European Commission regarding the CBAM, which argued that the EU could use CBAM revenue to subsidise EU steelmakers' investment in green manufacturing. "If the CBAM revenue will be specifically allocated to the EU steel industry, it could be argued that the CBAM is being misused as a tool to enhance protectionism," the group said.

But the country's trade and industry ministry (Meti) remains cautious about making an evaluation of the draft now. "It does not immediately constitute [a] violation of the WTO rules", a Meti official told Argus, adding that it is still too early to make a concrete judgement and that its evaluation will depend on how the EU implements the CBAM.

By Yusuke Maekawa