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The greening of the European Union makes Serbian steel and aluminum more expensive

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The greening of the European Union and competition with America will hit the pockets of third countries, including Serbia. Our iron, steel, aluminum, fertiliser, electricity and cement can very easily become uncompetitive on the European market when the tax on products with high carbon dioxide emissions starts to be levied on companies from the EU, as well as those from third countries. Products that are produced in a process that emits more carbon dioxide than is allowed in the EU upon importation will be subject to additional customs duties for the amount of these costs, which are borne by producers in the EU.

Ivan Nikolić, director for development projects of the Economic Institute and editor of the journal Macroeconomic Analysis and Trends (MAT), estimates that these products make up 11.8 percent of our exports to the EU. This measure will hit China first, followed by Russia, Turkey, Great Britain, Switzerland, India, Ukraine, Taiwan, South Korea, and Serbia is ranked as the 16th EU partner on that list.

Nikolić states that this will have a negative effect on the competitiveness of companies from third countries that export to the EU. This also applies to those who do business in Serbia. As he explains, the new tax means in practice that our products will be more expensive on the EU market. In the future, this may discourage investment, especially by foreign companies that are also the biggest exporters. At the same time, the EU will bear the negative effects, although all the mentioned products coming from the markets of China, Russia, Turkey and other third countries will become more expensive, which does not support the current fight against inflation. There are certain countermeasures that will make it more difficult for companies from the EU to export. Especially if we were to take into account the growing criticism that the carbon dioxide tax is contrary to the rules of the World Trade Organization.

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To ensure Europe can compete with the US, the European Commission proposed measures on February 1, including relaxing EU state aid rules and repurposing existing EU funds. A reversal is sought in the so-called The Green Deal Industrial Plan. As a prelude, on December 20 last year, the European Parliament adopted new measures to preserve competitiveness with the application of the so-called CBAM mechanism (Carbon Border Adjustment Mechanism). It will apply effectively from 1 October 2023 as part of a larger package of EU climate targets collectively called “55% Ready”.

– This is important for countries outside the EU, including Serbia. The EU’s aim is to force companies to follow Brussels’ climate policy and dissuade them from moving capacity to countries with lighter restrictions on greenhouse gas pollution. At the same time, the mechanism is aimed at encouraging the decarbonization of imported products in the same way as it is done with industrial plants and power plants from the EU. Therefore, such products, which are produced in a process that emits more carbon dioxide than is allowed in the EU, will be subject to additional customs duties for the amount of these costs borne by producers in the EU. Importers of these products and raw materials in the EU will have the obligation to report on carbon dioxide emissions generated during production and to pay an equivalent fee for all emissions generated – explains Nikolić.

The effective collection of taxes on products with high carbon emissions will begin in 2026, for companies from the EU, but also for those from third countries.

The mechanism will relate to the production of electricity, the production and processing of metals, primarily iron and steel, aluminum production facilities, the production of ceramic products, roof tiles, bricks, ceramic tiles, stone materials, cardboard and paper.

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