CBAM dispute between the US and EU: “Tariff or climate instrument?”

Puzder: “A tariff is a tariff, even if it is called by a different name”

U.S. Ambassador to the EU Andrew Puzder criticized the EU’s CBAM implementation in an article published in the Financial Times on August 12.

While criticizing the EU’s tariffs on U.S. steel and aluminum imports, Puzder argued that the EU imposes a similar cost at the border on such products through CBAM. Although CBAM differs in form from U.S. tariffs, Puzder argued that it increases import costs and protects domestic producers, stating that the mechanism is “a tariff implemented under a different name.”

Puzder also stated that the U.S. tariffs on steel and aluminum under Section 232 aim to protect domestic production against foreign excess capacity, arguing that the EU’s implementation of CBAM while criticizing these measures constitutes a “double standard.”

European Commission: “CBAM is not a tariff”

The European Commission responded to Puzder’s comments on August 13. A Commission representative stated that they do not agree with defining CBAM as a “tariff,” saying that the mechanism is applied equally to all third countries, regardless of origin, based on verified embedded emissions.

The Commission emphasized that, unlike traditional customs tariffs, CBAM creates low or zero obligations for low-carbon products and that the implementation is compatible with World Trade Organization (WTO) rules, stating, “Therefore, we do not agree with comparisons to unilateral customs tariff measures.”

“The aim is to prevent carbon leakage”

The European Commission stated that the main purpose of CBAM is to prevent carbon leakage and support global decarbonization.

Under the mechanism, imported products are intended to carry a similar carbon cost to equivalent products produced in Europe under the EU Emissions Trading System (ETS).

The Commission also stated that if a carbon price has already been paid in the third country for the emissions embedded in imported products, this amount can be deducted from the CBAM obligation. In this way, it aims to prevent paying twice for the same emissions.