CBAM Implementing Regulation Is Issued, Indonesia-EU Feud Is Increasingly Intense

The Indonesia-EU trade dispute has intensified amidst the commitment of the two parties to continue discussions on the IEU CEPA. RI will take the path of litigation, bilateral dialogue, and invite other countries affected by EU policies.

The following article was translated using both Microsoft Azure Open AI and Google Translation AI. The original article can be found in Peraturan Pelaksana CBAM Terbit, Perseteruan RI-UE Makin Intens

KOMPAS/HERU SRI KUMORO

The steel production process at PT Krakatau Steel steel plant, Cilegon, Banten, on Wednesday (6/2/2013).

After implementing the No Deforestation Products Act or EUDR, the European Union officially adopted the carbon limit adjustment mechanism or CBAM derivative rules on 17 August 2023. The transition period for implementing this regulation will take place from 1 October 2023 to 31 December 2025.

This follows the issuance of European Commission (EC) Implementing Regulation (IR) No. 956 of 2023 on the Reporting Obligations for CBAM Implementation During the Transitional Period on August 17, 2023. The IR details the implementation, methodology, and obligations of importers of goods regulated under CBAM in the EU region during the transitional period.

CBAM is a mechanism for imposing carbon tariffs on a number of commodities entering the EU. There are five commodities subject to rules that run in parallel with the EU Emissions Trading System, namely cement, electronics, fertilizers, iron and steel, and aluminum.

CBAM is also one of the key elements of the "Fit for 55" EU program. "Fit for 55" is the EU policy package to reduce greenhouse gas emissions in the EU region by 55 percent by 2030.

"In the CBAM transition phase, importers only need to report imported goods data including their carbon contents in accordance with the mechanism without being subject to adjustment tariffs," stated the EU Commission through a press release on Thursday, August 17th, 2023.

During the CBAM transition phase, importers only need to report the imported goods data including their carbon content in accordance with the mechanism without being subject to adjustment tariffs.

BPMI SEKRETARIAT PRESIDEN

President Joko Widodo held a bilateral meeting with European Commission President Ursula von der Leyen in Bali on Monday (14/11/2022). During the meeting, President Jokowi pushed for the acceleration of negotiations on the Indonesia-European Union Comprehensive Economic Partnership Agreement (IUE-CEPA) cooperation agreement.

The first stage of reporting containing import data for the fourth quarter of 2023 must be submitted no later than January 31, 2024. Meanwhile, the final stage of reporting must be done no later than January 31, 2026.

According to the EU Commission, the transition period given is long enough for related businesses to prepare themselves well until CBAM is definitively applied in 2026. The EU Commission will assist importers in the EU region and manufacturers in developing countries in preparing for the implementation of CBAM through the publication of guidebooks, mentoring and training, as well as webinars.

For Indonesia, one of the leading export products that will be affected by EU CBAM is iron and steel. In the last decade, namely in 2012-2023, the downstream industry of steel in Indonesia was able to significantly boost product exports.

The Central Bureau of Statistics (BPS) notes that the total volume of iron and steel exports, which stood at 1.1 million tons in 2012, has surged to 15.62 million tons in 2022. The value of these products has also dramatically increased from $1.82 billion USD in 2012 to $28.48 billion USD in 2022.

China is the largest export market for Indonesian iron and steel with a contribution of 66.64 percent in 2022. Meanwhile, the EU's contribution is only around 5 percent of the total value of iron and steel exports.

Head of Trade Policy Agency Ministry of Trade (Kemendag) Kasan Muhri said, currently, almost all Indonesian steel products entering the EU are subject to a zero percent tariff. Only six certain types of steel products are subject to import duties in the range of 0.85-3.5 percent per ton.

"When the EU implements CBAN in 2026, the estimated import tariff for Indonesian iron and steel could reach 16.8 percent," he said when contacted in Jakarta."

Also read: ”Fortress” of European Union Carbon Blocks RI's Iron and Steel

In addition to Indonesia, India also objects to the implementation of the EU CBAM as it will hinder exports and Indian exporters will bear a higher tax burden. The Global Trade Research Initiative (GTRI) states that the implementation of CBAM is expected to pose significant challenges for India's metal sector.

By 2022, 27 percent of India's exports of iron, steel and aluminum products will enter the EU market worth US$8.2 billion. As of January 1, 2026, the EU will start levying a carbon tax under CBAM rules. The carbon tax imposed is estimated to be equivalent to 20-35 percent of import duties on metal products to the EU (India Briefing, 10 May 2023).

India has already dialogued with the EU regarding the matter. India also plans to build opposition to CBAM ahead of the 13th WTO Ministerial Conference in Abu Dhabi in February 2024. "We are confident that the EU's intention is not to create trade barriers. We will engage in dialogue to find the appropriate solution," said Indian Commerce Minister Piyush Goyal (Reuters, May 16, 2023).

Currently, RI, India, and the EU are also in a trade dispute regarding the imposition of reimbursement of import duties (BMP) and anti-dumping duties (BMAD) on stainless steel cold-rolled flats (/ SSCRF). The EU imposed a BMP for these products to RI and India of 21 percent and 7.35 percent respectively on March 15 2022. The BMAD imposed on the two countries in November 2021 was 10.2 percent-35.3 percent.

Indonesia has decided to bring the case to the World Trade Organization’s (WTO) Dispute Settlement Body (DSB) on January 24, 2023. Two days after, the WTO published a consultation request for the DS616 case to all members as the initial stage of the discussion at the DSB level. This is stated in the WTO Notification Letter Number WT/DS616/1, G/L/1479G/SCM/D135/1, G/ADP/D142/1 dated January 26, 2023.

Also read: RI-EU Feud Again at WTO, This Time About Stainless Steel

KOMPAS/TOTOK WIJAYANTO

The officials displayed an example of B40 fuel during the release ceremony of B40-fueled vehicle road testing in Jakarta on Wednesday (27/7/2022).

The feud is getting more intense

With the implementation of CBAM, the trade dispute between Indonesia and the EU intensifies amidst the commitment of both parties to continue the discussion of the Indonesia-EU Comprehensive Economic Partnership Agreement (IEU CEPA). The dispute not only concerns the negative campaign against palm oil and its derivative products, but also commodities and other products regulated in CBAM and EUDR.

In addition, the EU also sued Indonesia's ban on nickel ore exports and won at the WTO DSB level. Meanwhile, RI's lawsuit against the EU's RED II at the WTO DSB level is still not final. Despite this, RI has again disputed the EU to the agency, this time regarding the imposition of BMI on biodiesel. The WTO received and announced RI's request for consultations on the DS618 dispute case on August 15, 2023.

Also read: RI-EU are back at WTO over Biodiesel

Two days later, coinciding with the commemoration of the 78th Independence Day of Indonesia, the EU responded. The EU issued the CBAM implementing regulations and announced an investigation into Indonesian biodiesel. The investigation relates to allegations that Indonesia is exporting biodiesel through China and the UK to avoid EU biodiesel blending obligations.

Two days later, coinciding with the 78th anniversary of Indonesia's Independence Day, the EU retaliated. The EU issued the CBAM implementing regulations and announced an investigation into Indonesia's biodiesel.

The investigation was requested by the European Biodiesel Producers Association (EBB). EBB estimates that the value of Indonesia's biodiesel imports that avoid the EU biodiesel sustainability criteria obligation is around 221 million euros in 2022.

Since 2019, the EU has imposed a 8-18 percent biodiesel duty on Indonesia to restore fair or equal trade for EU biodiesel producers. This BMI imposition is based on the investigation by the EU Commission. The EU found that Indonesian biodiesel producers benefited from grant funds, tax advantages, and access to raw materials below market prices.

Director General of International Trade Negotiations at the Ministry of Trade, Djatmiko Bris Witjaksono, stated that the Indonesian Government is committed to resolving trade barriers with the EU. This will be done through litigation, bilateral dialogue, and by involving other countries affected by these policies.

Also read: "Desk and Book" Diplomacy Becomes RI's Weapon Against the European Union