Is South Korea vulnerable to EU and US carbon border restrictions?

11 Pages Posted: 28 Jul 2022

See all articles by Jeffrey J. Schott

Jeffrey J. Schott

Peterson Institute for International Economics

Megan Hogan

Peterson Institute for International Economics

Date Written: July 18, 2022

Abstract

South Korean exports, especially carbon-intensive products like steel, are increasingly vulnerable to both the European Union’s proposed carbon border adjustment mechanism (CBAM)—set to begin on January 1, 2023—and the proposed Clean Competition Act (CCA) before the US Congress. Schott and Hogan caution that Korean exporters should not count on Korea’s decade-old EU and US free trade agreements (FTAs), nor on the multilateral trading rules of the World Trade Organization (WTO), to protect them from new carbon-based import barriers in key foreign markets. The WTO and the FTAs have broad and loosely defined exemptions for environmental protection. Nor is Korea likely to be shielded by its own cap-and-trade emissions trading system (the K-ETS), because of extensive use of free allowances and large differences between EU and Korean carbon prices. While the threat the EU CBAM poses to Korean exports is imminent, passage of the CCA faces major legislative obstacles. But US imports of Korean steel and other carbon-intensive goods are still subject to climate-related duties at the US border under US unfair trade statutes. The US Department of Commerce has ruled that free allowances issued under the K-ETS (and EU ETS) are implicit subsidies that can be offset by countervailing duties. These charges are in addition to the harsh tariff-rate quotas on imported Korean steel applied under the “national security” authority of Section 232 of US trade law, which are more restrictive than measures imposed against European and other steel exporters. The authors suggest relaxing these US barriers, as they have been for shipments from Europe, in return for Korean participation in the nascent US-EU talks to establish a “Global Arrangement on Sustainable Steel and Aluminum.”

Keywords: United States, European Union, Sourth Korea, Trade Policy, Environment, carbon border adjustment mechanism

Suggested Citation

Schott, Jeffrey J. and Hogan, Megan, Is South Korea vulnerable to EU and US carbon border restrictions? (July 18, 2022). Peterson Institute for International Economics Policy Brief 22-10, Available at SSRN: https://ssrn.com/abstract=4175318 or http://dx.doi.org/10.2139/ssrn.4175318

Jeffrey J. Schott (Contact Author)

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Megan Hogan

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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