EU Climate Policies and Developing Country Trade Vulnerability

Issue Paper No. 19

EU Climate Policies and Developing Country Trade Vulnerability An Overview of Carbon Leakage-Sensitive Trade Flows

ICTSD Global Platform on Climate Change, Trade and Sustainable Energy

ICTSD Programme on Competitiveness and Sustainable DevelopmentAugust 2011 |

Transition to a Low Carbon Future Series

l ICTSD Programme on Competitiveness and Sustainable Development

ICTSD Global Platform on Climate Change, Trade and Sustainable Energy

EU Climate Policies and Developing Country Trade VulnerabilityAn Overview of Carbon Leakage-Sensitive Trade Flows

Issue Paper No. 19

August 2011

ii EU Climate Policies and Developing Country Trade Vulnerability

Published by

International Centre for Trade and Sustainable Development (ICTSD)International Environment House 27 Chemin de Balexert, 1219 Geneva, SwitzerlandTel: +41 22 917 8492 Fax: +41 22 917 8093E-mail: [email protected] Internet: www.ictsd.org

Chief Executive: Ricardo Meléndez-Ortiz Programmes Director: Christophe Bellmann Programme Manager: Ingrid Jegou

Acknowledgments

This paper was prepared under the general direction of Ricardo Meléndez-Ortiz and supervised directly by Ingrid Jegou. Principal researcher and author was Samantha Derksen. ICTSD would like to thank Aaron Cosbey of the International Institute for Sustainable Development (IISD) for taking time during his mountain summer to review the final manuscript; Vicente Yu from the South Centre and Anirudh Shingal from the WTI for their valuable comments and contributions. Contributions were also made by Ingrid Jegou and Ricardo Meléndez-Ortiz. As with other our research and analysis work, the subject of study here was exposed in detail to developed and developing country negotiators and policy-makers, academic experts, staff of intergovernmental, nongovernmental organisations and advocacy groups, and other participants in ICTSD multi-stakeholder dialogues. Critical insights were received and are most appreciated on those occasions, in particular at the ICTSD Symposium in Cancun in December 2010 and a side-event in Bonn in June 2011, both alongside the UNFCCC-negotiations, as well as a workshop held in Pretoria in May/June 2011.

This paper was produced under the ICTSD Competitiveness and Development Programme and the ICTSD Global Platform on Climate Change, Trade and Sustainable Energy. ICTSD is grateful for the support of ICTSD’s core and thematic donors including the UK Department for International Development (DFID), the Swedish International Development Cooperation Agency (SIDA); the Netherlands Directorate-General of Development Cooperation (DGIS); the Ministry of Foreign Affairs of Denmark, Danida; the Ministry for Foreign Affairs of Finland; the Ministry of Foreign Affairs of Norway; Australia’s AusAID; and Oxfam Novib.

For more information about ICTSD’s Programme on Competitiveness and Sustainable Development, visit our website at www.ictsd.org

ICTSD welcomes feedback and comments on this document. These can be forwarded to Ingrid Jegou, [email protected]

Citation: ICTSD; (2011); EU Climate Policies and Developing Country Trade Vulnerability: An Overview of Carbon Leakage-Sensitive Trade Flows; Transition to a Low Carbon Future Series; Issue Paper No. 19; International Centre for Trade and Sustainable Development, Geneva, Switzerland, www.ictsd.org.

Copyright ICTSD, 2011. Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged.

This work is licensed under the Creative Commons Attribution-Noncommercial-No-Derivative Works 3.0 License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-nd/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA.

The views expressed in this publication are those of the author and do not necessarily reflect the views of ICTSD or the funding institutions.

ISSN 1995-6940

iiiICTSD Programme on Competitiveness and Sustainable Development

TABLE OF CONTENTS

LIST of TAbLES AND boXES v

LIST of fIgUrES vi

LIST of AbbrEVIATIoNS AND ACroNymS vii

forEWorD viii

1. INTroDUCTIoN 1 1.1 Aim and outline of the Study 1

2. ThE EU, CLImATE ChANgE PoLICIES AND CArboN LEAkAgE 3 2.1 The EU Emissions Trading System and free Allowances 3

2.2 Possible border measures 4

3. To WhICh ProDUCTS WoULD ThE EU moST LIkELy APPLy bCAS? 5

4. WhICh DEVELoPINg CoUNTrIES WoULD moST LIkELy fACE EU bCAS? 7

5. mEThoDoLogy 9

6. ANALySIS of CArboN LEAkAgE-SENSITIVE TrADE fLoWS 10 6.1 Summary of the findings 10

6.2 Analysis of the findings 18

7. DISCUSSIoN, CoNCLUSIoNS AND PoLICy rECommENDATIoNS 20

ENDNoTES 22

rEfErENCES 25

ANNEX I – gooDS IDENTIfIED AS LIkELy To fACE EU bCAS 27

ANNEX II – ComPLETE oVErVIEW of CArboN LEAkAgE-SENSITIVE TrADE fLoWS 33 China 33

India 35

brazil 37

mexico 39

Indonesia 41

South korea 43

Iran 44

South Africa 46

Saudi Arabia 47

Thailand 49

Argentina 51

iv EU Climate Policies and Developing Country Trade Vulnerability

Nigeria 52

Taiwan 54

Venezuela 56

Pakistan 58

malaysia 59

Egypt 61

kazakhstan 64

vICTSD Programme on Competitiveness and Sustainable Development

LIST OF TABLES AND BOXES

Table 1: Annual GHG emissions for developing countries responsible for >0.5 percent of global GHG emissions, 2005

Table 2: Carbon leakage-sensitive exports to the EU, 2007-09

Table 3: CHINA – Carbon leakage-sensitive exports to the EU, 2007-09

Table 4: INDIA – Carbon leakage-sensitive exports to the EU, 2007-09

Table 5: BRAZIL – Carbon leakage-sensitive exports to the EU, 2007-09

Table 6: MEXICO – Carbon leakage-sensitive exports to the EU, 2007-09

Table 7: INDONESIA – Carbon leakage-sensitive exports to the EU, 2007-09

Table 8: SOUTH KOREA – Carbon leakage-sensitive exports to the EU, 2007-09

Table 9: IRAN – Carbon leakage-sensitive exports to the EU, 2007-09

Table 10: SOUTH AFRICA – Carbon leakage-sensitive exports to the EU, 2007-09

Table 11: SAUDI ARABIA – Carbon leakage-sensitive exports to the EU, 2007-09

Table 12: THAILAND – Carbon leakage-sensitive exports to the EU, 2007-09

Table 13: ARGENTINA – Carbon leakage-sensitive exports to the EU, 2007-09

Table 14: NIGERIA – Carbon leakage-sensitive exports to the EU, 2007-09

Table 15: TAIWAN – Carbon leakage-sensitive exports to the EU, 2007-09

Table 16: VENEZUELA – Carbon leakage-sensitive exports to the EU, 2007-09

Table 17: PAKISTAN – Carbon leakage-sensitive exports to the EU, 2007-09

Table 18: MALAYSIA – Carbon leakage-sensitive exports to the EU, 2007-09

Table 19: EGYPT – Carbon leakage-sensitive exports to the EU, 2007-09

Table 20: KAZAKHSTAN – Carbon leakage-sensitive exports to the EU, 2007-09

Box 1: Carbon leakage sensitivity and WTO law

vi EU Climate Policies and Developing Country Trade Vulnerability

LIST OF FIGURES

Figure 1: Chinese exports to the EU, 2007-09

Figure 2: Chinese exports of sensitive products to the EU, 2007-09

Figure 3: Indian exports to the EU, 2007-09

Figure 4: Indian exports of sensitive products to the EU, 2007-09

Figure 5: Brazilian exports to the EU, 2007-09

Figure 6: Brazilian exports of sensitive products to the EU, 2007-09

Figure 7: Mexican exports to the EU, 2007-09

Figure 8: Mexican exports of sensitive products to the EU, 2007-09

Figure 9: Indonesian exports to the EU, 2007-09

Figure 10: Indonesian exports of sensitive products to the EU, 2007-09

Figure 11: South Korean exports to the EU, 2007-09

Figure 12: South Korean exports of sensitive products to the EU, 2007-09

Figure 13: Iranian exports to the EU, 2007-09

Figure 14: Iranian exports of sensitive products to the EU, 2007-09

Figure 15: South African exports to the EU, 2007-09

Figure 16: South African exports of sensitive products to the EU, 2007-09

Figure 17: Saudi Arabian exports to the EU, 2007-09

Figure 18: Saudi Arabian exports of sensitive products to the EU, 2007-09

Figure 19: Thai exports to the EU, 2007-09

Figure 20: Thai exports of sensitive products to the EU, 2007-09

Figure 21: Argentinean exports to the EU, 2007-09

Figure 22: Argentinean exports of sensitive products to the EU, 2007-09

Figure 23: Nigerian exports to the EU, 2007-09

Figure 24: Nigerian exports of sensitive products to the EU, 2007-09

Figure 25: Taiwanese exports to the EU, 2007-09

Figure 26: Taiwanese exports of sensitive products to the EU, 2007-09

Figure 27: Venezuelan exports to the EU, 2007-09

Figure 28: Venezuelan exports of sensitive products to the EU, 2007-09

Figure 29: Pakistani exports to the EU, 2007-09

Figure 30: Pakistani exports of sensitive products to the EU, 2007-09

Figure 31: Malaysian exports to the EU, 2007-09

Figure 32: Malaysian exports of sensitive products to the EU, 2007-09

Figure 33: Egyptian exports to the EU, 2007-09

Figure 34: Egyptian exports of sensitive products to the EU, 2007-09

Figure 35: Kazakhstani exports to the EU, 2007-09

Figure 36: Kazakhstani exports of sensitive products to the EU, 2007-09

viiICTSD Programme on Competitiveness and Sustainable Development

LIST OF ABBREvIATIONS AND ACRONymS

BCA Border Carbon Adjustment

CAIT Climate Analysis Indicators Tool

CBDR Common but differentiated responsibilities

CO2 Carbon dioxide

CO2e Carbon dioxide equivalent

ETS Emissions Trading System/Scheme

EU European Union

FTA Free Trade Agreement

GHG Greenhouse gas

GSP Generalized System of Preferences

HFC Hydrofluorocarbon

HS Harmonized System

LDC Least Developed Country

MERCOSUR Mercado Común del Sur (Southern Common Market)

Mt Metric ton (1,000 kg)

PFC Perfluorocarbon

SF6 Sulfurhexafluoride

UNFCCC United Nations Framework Convention on Climate Change

US United States

USD United States Dollar

WTO World Trade Organization

viii EU Climate Policies and Developing Country Trade Vulnerability

As negotiations under the United Nations Framework Convention on Climate Change (UNFCCC) progress, it seems increasingly unlikely that parties will agree on a comprehensive binding deal, putting a global price on carbon. Rather, in the past years it has been possible to observe a shift towards a bottom-up approach, where countries make pledges of emission reductions, that will, at best,adduptoabatementeffortssufficienttohindertemperatureincreasesexceeding2degreesCelsius.

In light of this development, concerns remain over competitiveness distortions and carbon leakage resulting from unilateral climate change mitigation policies. Asymmetric levels of commitments and carbonpricingcouldleadtofirmsinrestrainedeconomieslosingmarketsharetofirmsincountriesimposing no or a lower carbon cost, thereby resulting in emissions moving across borders.

A few options are available to policy makers to dampen such effects. One of them is to impose a carboncostonimports,soastoleveltheplayingfieldbetweendomesticandforeignproducers.Concrete proposals have so far been put forward in the US, and discussed in many other countries. Although EU policy has for a long time been to wait and see, the Union is now raising its stakes as forthefirsttimeitincludesimportsofaviationservicesinitsemissionstradingscheme,andisalsoconsidering including maritime transport.

Against this background, it is crucial to take the often-polarized debate about border measures one step further, and assess the actual vulnerabilities of developing countries in particular to suchmeasures. Indeed, in the case of aviation, no exceptions aremade for airlines or flightsoriginating in developing countries, something that accentuates the need for solid facts focusing on developing countries’ exports.

In this paper, the author Samantha Derksen, Programme Officer at ICTSD specializing incompetitiveness and development in relation to climate change policies, makes a pioneer effort to quantify the potential exposure of developing countries to possible EU border measures. By convertinga list of sectors that theEuropeanCommissionhas identifiedas sensitive to carbonleakage into products as classified in the Harmonized System and then applying trade data tothem, she has been able to identify the levels of trade that could face EU import restrictions. The results clearly show that a number of countries have good reason to closely monitor developments in the EU in this regard, as their export profiles andhighdependenceon the EUas an exportmarket make them highly vulnerable.

Ihopethatthefindingsofthispaperwilladdtothedebateaboutclimatechangepoliciesandtrade, and in particular assist policy makers in striving for balance between the urgent need to address climate change and the responsibility to minimize the impact of climate change policies on social and economic development, in particular of developing countries.

Together with the author, I invite you to provide us with comments on this paper. We hope you will enjoy the reading.

FOREWORD

Ricardo Meléndez-Ortiz Chief Executive, ICTSD

1ICTSD Programme on Competitiveness and Sustainable Development

As the international community struggles to agree on a comprehensive, global effort to curb greenhouse gas (GHG) emissions, countries are increasingly moving forward unilaterally and in smaller groups. This will result in an exacerbated asymmetry of climate change mitigation measures and larger differences in costs of carbon around the world.

Countries imposing a carbon cost, for example through an emissions trading scheme (ETS), are concerned that their energy-intensive industries will become less competitive and lose market share to firms from countries pricing carbon lower or not at all. This could result in a relocation of production and thus of related emissions, a concept referred to as carbon leakage.

To address these competitiveness and carbon leakage concerns, countries are discussing putting in place measures at the border, so-called border carbon adjustments (BCAs), to tax imports from countries where the carbon cost is lower. Such proposals raise concerns from trading partners that their exports will face BCAs and thereby that an important source of income will be affected. Developing countries1 are especially concerned, as they will not be prepared to take on comparable mitigation measures, and exportation can be an important tool in their developmental process.

The European Union (EU) aims to take a lead in combating climate change and, as such, experiences a higher intensity of carbon leakage and competitiveness concerns. The EU is, however, an important export market for many developing countries, and BCAs implemented by the EU could therefore have a large impact on these countries. Even though there is currently no (draft) legislation in the EU that foresees the implementation of BCAs, it is not unlikely that these measures will be adopted in the future, especially considering the EU’s relatively high emission reduction targets compared to

other countries. This paper focuses on such possible future measures implemented by the EU and identifies related vulnerabilities in developing countries.

The purpose of this paper is to assess the overall vulnerability of developing countries to possible EU BCAs, and identify where their specific vulnerabilities, in terms of products, lie. For this purpose, the trade flows originating from developing countries that would be likely to face possible future EU BCAs were identified.

Further, it is considered that developing country economies are specifically vulnerable to BCAs imposed on products of which high values are exported to the EU. This vulnerability is accentuated when the EU, as an export market, represents a large share of the country’s sectoral exports. Therefore, the sectors for which the largest values of goods are exported to the EU were singled out and, where possible, the importance of the EU as an export market in these sectors was also analyzed.

This study, by identifying where developing countries’ vulnerabilities lie, is considered a first step towards examining the economic and social consequences of (EU) BCAs for developing countries. It needs to be stressed however that in order to assess the actual costs that could be involved, a carbon cost would have to be assumed, and, most importantly, estimations of the GHG intensities of the exports would have to be made.

The paper starts by outlining current EU climate change regulation, and, more specifically, the legislation enacted to address the concerns of carbon leakage and distortions of competitiveness. In doing so, the possibility of future border measures is assessed.

1. INTRODUCTION

1.1 Aim and Outline of the Study

2 EU Climate Policies and Developing Country Trade Vulnerability

This discussion is followed by an analysis of which products and developing countries would likely face possible future EU BCAs. This forms the basis of the assumptions made in this research in terms of the sectoral coverage of possible border measures and the developing countries whose products would face them.

Asummaryandanalysisofthefindingsisgivenin the main text; more detailed findings arepresented in Annex II. Finally, the conclusion discusses what these results mean for developing countries and provides recommendations as to the possible lines of action they could take to address the threat of BCAs.


2. ThE EU, CLImATE ChANGE POLICIES AND CARBON LEAkAGE

The EU has made a unilateral commitment to cut emissions by 20 percent by 2020 compared to 1990 levels, and to increase this reduction commitment to 30 percent within the framework of a genuine global effort to fightclimate change.2

The main instrument with which the EU currently addresses its concerns over carbon leakage and competitiveness distortions is the allocation of allowances free of charge under its Emissions Trading System (ETS).3

The EU-ETS, in place since 2005, is a cap-and-trade system with a cap on overall emissions and free trade of emission allowances between the covered installations. The EU-ETS currently covers some 11,000 installations, accounting for about half of the EU’s carbon dioxide (CO2) emissions. The system covers activities such asthecombustionoffuelsandrefiningofoil;production of metal, cement, ceramics and glass, pulp and paper, and chemicals; and, from 2012onwards,aviation.Thefirsttradingperiodof the EU-ETS ended in 2007, lasting three years. The second trading period runs from 2008 to 2012, thereby ending at the same time as the commitment period under the Kyoto Protocol. The EU is currently preparing its ETS for phase III and for making it capable of contributing to themore significant emission reductions thatthe EU has committed to over the coming years. Among others, an important change involves the allocation mechanism, whereby auctioning will progressively become the general principle for distributing allowances.

During the first two phases of the EU-ETS, alarge proportion of the emission allowances were allocated free of charge, as a way of slowly introducing the burden imposed by the system. Although in the post-2012 strategy emission allowances within the EU-ETS will increasingly be distributed through auctioning, sectors and

subsectorsdeemedtobeexposedtoasignificantrisk of carbon leakage will continue to receive free allowances. The European Commission was assigned to establish a list of (sub)sectors eligible for free allowances no later than 31 December 2009, and will issue a new list every fiveyears.Moreover,theCommissionmayaddsectors every year if it can be demonstrated that they satisfy the criteria for inclusion on the list.4

From 2013 until 2020, these (sub)sectors will receive free allowances on a 100 percent basis,5whereby the10percentmostefficientEU performers in 2007 and 2008 are used as a benchmark.6 This means that only the most efficientinstallations,intermsoftheircarbonemissions, will have any chance of receiving all of their needed allowances for free. The free allowances will be allocated on a product-basis, as opposed to a sector-basis. Accordingly, an installation will receive allowances based on its production of products that fall within the carbon leakage-sensitive (sub)sectors, not based on its entire production because of its classificationwithinsucha(sub)sector.

A(sub)sectorqualifiesforinclusiononthelistifitsatisfiesoneofthefollowingcriteria:7

i. the sum of the direct and indirect additional costs induced by the implementation of the ETS would lead to at least a 5 percent increase in production costs, calculated as a proportion of gross value added, and the intensity of trade with third countries is above10percent,‘intensityoftrade’definedas the ratio between the total value of EU exports and imports with third countries over the total market size of the European Union (in other words, annual turnover plus total imports from third countries), or;

ii. the sum of direct and indirect additional costs induced by the implementation of the ETS would lead to a particularly high increase in production costs, of at least 30 percent, or;

2.1 The EU Emissions Trading System and Free Allowances


iii. the intensity of trade with third countries is above 30 percent.

In addition, sectors can also qualify for entry onto the list after a qualitative assessment, which takes into account the extent to which it is possible for individual installations in the sector or subsector concerned to reduce emission levels or electricity consumption. As appropriate, the increase in production costs that the related investment may entail is also taken into account.8

In December 2009, the Commission issued this list of (sub)sectors deemed exposed to a significant risk of carbon leakage.9 It includes 164 sectors and subsectors. The list is longer than the list of sectors covered by the ETS, as it includes sectors and subsectors not actually covered by the ETS. The rationale is that these sectors may face increased costs indirectly from the ETS, because they use products from ETS-covered sectors, notably electricity, as inputs.

Border carbon measures are another tool that has been discussed in the EU to deal with the concerns of carbon leakage and competitiveness distortions. In light of the disappointing outcome of the United Nations Framework Convention on Climate Change (UNFCCC) conference in Copenhagen, the European Commission issued a communication in May 2010, in which it reviewed, among other things, the need for tools to address carbon leakage and competitiveness concerns.10 The communication establishes that it is difficult

to assess the risk of carbon leakage as long as it is not clear how or whether countries will implement their commitments under the Copenhagen Accord. Considering these uncertainties, it states that it is justified toretain the measures already in place to handle the risks of carbon leakage.

The communication also discusses border measures, citing several potential stumbling blocks to the implementation of BCAs, including practical, legal and political complications. The communication thereafter concludes that such measures “could at best only be envisaged for a limited number of standardized commodities”.11 The possibility of border measures is not, however, excluded. The communication states that “as an alternative to current measures, the Commission continues to study the inclusion of imports to the EU-ETS”.12

In the communication of May 2010, the implementation of a community-wide carbon tax, as a supplement to the EU-ETS, was described as an important contributor to possible increased emission reduction targets (30%) and, at the same time, a generator of considerable revenues.13 These revenues could be used for low carbon investments. The fact that discussions have been taking place on an EU-wide carbon tax, although fruitless so far, could possibly reinvigorate interest among member states for discussing border adjustments.

The EU’s 30 percent reduction target is still on the table,14 and it is not unlikely that new mitigation measures implemented to reach this target, such as a carbon tax, will be accompanied by border adjustments.

2.2 Possible Border measures


3. TO WhICh PRODUCTS WOULD ThE EU mOST LIkELy APPLy BCAS?

To assess the value of developing country exports that could be affected by possible future EU BCAs, one of the most important assumptions that needs to be made is the sectoral coverage of the border measures. In other words, the question that needs to be answered is: which products will likely face a carbon cost when being imported into the EU?

A logical starting-point to identify these products is the EU’s list of carbon leakage-sensitive (sub)sectors. Over the years 2007-09, EU imports of products in these (sub)sectors equalled 82 percent of total EU imports.15 It is unlikely that the EU would impose BCAs on such a large share of its imports.

The EU list of carbon leakage-sensitive (sub)sectors consists of several tables.16 Tables 1.1, 1.2 and 2 of the list contain sectors that have

been identified by the EU as carbon leakage-sensitive on the basis of their trade intensity as well as their predicted increased costs due to the ETS. Table 1.3 contains sectors identifiedon the basis of their increased costs only and Table1.4sectorsidentifiedonthebasisoftheirtrade intensity only. Lastly, Table 3 contains sectors identified on the basis of qualitativecriteria. For the purpose of this research, it is assumed that the EU would impose BCAs on the goods from the sectors listed in Tables 1.1-1.3 and 2. This way, sectors qualifying for the EU status of carbon leakage-sensitive on the basis of trade intensity only (Table 1.4) are excluded from the assumed sectoral coverage of possible future EU BCAs. Imposing BCAs on the products from these (sub)sectors would not only make little environmental sense, it would also be more difficult to justify under WorldTrade Organization (WTO) law (see Box 1).

Box 1: Carbon leakage sensitivity and WTO law

It is generally agreed that emission-intensive, trade-exposed sectors are those that could be susceptible to carbon leakage. The EU has compiled its list of carbon leakage-sensitive sectors17 using these two criteria; however, it has also used them separately. Table 1.4 of the list contains sectors that only satisfy the criterion of trade intensity. From an environmental viewpoint, protecting these sectors from carbon leakage through BCAs makes little sense because, as they did not meet the emission intensity threshold, they will not be notably impacted by measures to charge for emissions, and high levels of leakage cannot therefore be expected.

Because of this, in the case that the hypothetical BCAs are found to be in violation of one of the provisions of the WTO’s General Agreement on Tariffs and Trade (GATT) 1994,18 it would be difficultfortheEUtojustifythisassumedviolationunderGATTArticleXX.ArticleXX,whichprovides for general exceptions, includes two environmental provisions: paragraph (b) provides a provisional exception for measures “necessary to protect human, animal or plant life or health”; and paragraph (g) for measures “relating to the conservation of exhaustible natural resources”. In addition to satisfying the criteria included in either of these paragraphs,19 as a second step, an environmental measure will have to be applied in accordance with the criteria setoutinthechapeauinordertobejustifiedunderArticleXX.

The crucial point is that Article XX provides an opportunity to justify otherwise WTO-incompa-tible measures taken on environmental grounds, but not on economic or competitiveness grounds. The EU would encounter problems justifying an imposition of BCAs on the goods of the sectors listed in Table 1.4 because it is highly questionable that sectors can be identified as carbonleakage-sensitive on the basis of their trade intensity only. This would especially pose a barrier forjustificationunderthechapeauofArticleXX,whichscrutinizeswhetherthemeasureisindeedappliedinaccordancewiththereasonsoutlinedinthespecificparagraphunderwhichthemeasureisprovisionallyjustified(which,asfarasrelevanthere,focusonenvironmentalgoals).


The sectors in Tables 1.1-1.3 and 2 are expressed inEU-specificNACE(EuropeanClassificationofEconomic Activities) and PRODCOM (Products of the European Community) codes, which were converted to Harmonized System (HS) 2007 codes by the author.20 This was necessary in order to express the sectoral coverage in international codes and enable comparisons and further research. During this conversion, the author removed the codes related to services.21 This was done for two reasons. First, BCAs are unlikely to be applied to services, as services do not cross customs borders. Second, including services would have been impractical due to the lack of data relating to trade in services.

After converting the NACE- and PRODCOM-listed sectors to HS 2007 ones, several codes were aggregated, despite the absence of some corresponding more-detailed codes, so as to include five entire sectors (2-digit level) usually deemed very carbon leakage-sensitive.22 Annex I includes the resulting list of sensitive products, which are also the products analyzed in this paper.

Thus, what will be referred to below as either (most) sensitive products, products identified as (most) sensitive to carbon leakage, or the like, are the products resulting from this conversion process (including aggregation) of the sectors listed in Tables 1.1-1.3 and 2 (see Annex I).


4. WhICh DEvELOPING COUNTRIES WOULD mOST LIkELy FACE EU BCAS?

The assumption made in this paper is that if the EU does implement BCAs, it will apply themtotheidentifiedcarbonleakage-sensitiveproducts from large-emitting countries that charge the emission of carbon at a lower price than the EU or not at all. In addition, it is assumed that Least Developed Countries (LDCs) will be exempt from the application of BCAs. These assumptions are reasonable, as the EU states on its website that “[a]ction by developing nations (except the least developed countries) is also needed to limit the rapid growth in their emissions. Overall, developing country pledges need to amount to a substantial deviation – in the order of 15-30 percent – below the currently predicted growth rate in their collective emissions by 2020”.23

As this paper studies the trade flows fromdeveloping countries to the EU that could be affected by possible future EU BCAs, only the developing large-emitting countries are investigated. However, it needs to be stressed that the most vulnerable targets are likely other Annex 1 countries, such as the US and Canada. Developing countries are defined here as non-Annex 1 countries, which are those that do not have binding emission reduction targets under

the UNFCCC and its Kyoto Protocol. In addition, Taiwan is included in our analysis, even though it is not a UNFCCC member. At this point, none of these countries have emission reduction policies in place as stringent as those of the EU.

Large emitters are defined in this study as countries that contributed more than 0.5 percent to global GHG emissions in 2005, which is the most recent year for which individual country data on all GHG emissions (not only CO2) is available, using the Climate Analysis Indicators Tool (CAIT).24 The threshold of 0.5 percent is taken from the Waxman-Markey and Kerry-Lieberman bills discussed in the US. Both these comprehensive climate and energy bills proposed the implementation of an emissions trading scheme with free allowances, and additionally both included provisions enabling the future implementation of border adjustments. Currently, however, both bills are off the table.

Table 1 shows the developing countries that were responsible for more than 0.5 percent of global GHG emissions in 2005, which are therefore included in the tradeflowanalysis. As canbeseen, this list does not include any LDCs.

Table 1. Annual GHG emissions for developing countries responsible for >0.5 percent of global GHG emissions, 2005

Country Million Mt CO2e emissions (rank)

Percentage of global CO2e emissions

Per capita Mt CO2e emissions (rank)

China 7,232.8 (1) 19.13% 5.5 (84)

India 1,859.0 (5) 4.92% 1.7 (149)

Brazil 1,011.6 (7) 2.68% 5.4 (87)

Mexico 645.0 (10) 1.71% 6.3 (75)

Indonesia 583.2 (12) 1.54% 2.7 (118)

South Korea 568.9 (13) 1.50% 11.8 (29)

Iran 559.2 (15) 1.48% 8.1 (61)

South Africa 422.2 (20) 1.12% 9.0 (54)

Saudi Arabia 376.6 (22) 1.00% 16.3 (16)

Thailand 351.1 (24) 0.93% 5.3 (88)

Argentina 326.6 (25) 0.86% 8.4 (59)

Nigeria 297.3 (26) 0.79% 2.1 (136)

Taiwan1 2 283.8 (27) 0.75% 12.4 (26)

Venezuela 260.4 (28) 0.69% 9.8 (48)


Table 1. Continued

Country Million Mt CO2e emissions (rank)

Percentage of global CO2e emissions

Per capita Mt CO2e emissions (rank)

Pakistan 239.7 (29) 0.63% 1.5 (154)

Malaysia1 235.9 (30) 0.62% 9.2 (52)

Egypt 227.2 (31) 0.60% 2.9 (113)

Kazakhstan 202.5 (33) 0.54% 13.4 (22)

Note: excludes land use change1 PFC, HFC & SF6 data not available2 Non-UNFCCC PartySource: CAIT Version 8.0 (2011).


5. mEThODOLOGy

The trade flows presented in this study are based on EU-27 import data from UN Comtrade for the period 2007 to 2009.25 To identify the trade flows that could possibly face EU BCAs, the trade values of the EU imports of the sensitive products (see Annex I) were aggregated. For this purpose, each developing country was considered a separate country of origin. The analysis further identifies the largest (most valuable) trade flows of sensitive products, highlighting the sectors from which the exports of sensitive products to the EU

constituted more than 0.5 percent of the country’s total exports to the EU.

In addition, the study gives an impression of the importance of the EU as an export market for the selected developing countries, overall as well as at a sectoral level. What is calculated is the share of a country’s total (sectoral) exports that were destined for the EU market during the years 2007 to 2009. These figures, unlike the trade flows of sensitive products, are calculated using export data.26


6. ANALySIS OF CARBON LEAkAGE-SENSITIvE TRADE FLOWS

Table 2 summarizes the results of the mapping of carbon leakage-sensitive exports from large-emitting developing countries to the EU during the years 2007-09. For each country analyzed, the table presents information on the average absolute (in USD; column 4) and relative (in % of total exports to the EU; column 3) values of carbon leakage-sensitive exports to the EU. In addition, the table identifies those sectors

in which the countries exported the largest values of sensitive products (column 2) and also presents average absolute (column 4) and relative (column 3) values for the sensitive products of these sectors specifically. Finally, the table includes information, wherever available, on the importance of the EU as an export market for the countries, overall as well as at a sectoral level (column 5).

A more detailed overview of these findings is presented in Annex II.

6.1 Summary of the Findings

Table 2: Carbon leakage-sensitive exports to the EU, 2007-09

Country Sectors with largest trade flows of sensitive products to the EUa

Exports of sensitive

products to the EU as % of total exports

to the EU

Average annual trade value

of exports of sensitive products

to the EU (in million USD)

Exports to the EU as % of total / sector exportsb

China All sensitive sectors 6.95% $22,769 20.11% (of total exports)

Organic chemicals – HS 29 1.69% $5,546 22.18%

Iron and steel – HS 72 2.07% $6,778 15.91%

India All sensitive sectors 23.75% $9,119 21.19% (of total exports)

Petroleum oils & oils from bituminous minerals – HS 2710.19

6.64% $2,549 22.52%


Leather articles of apparel – HS 4203.10

1.02% $393 84.23%

Cotton yarn (>85% cotton, no retail sale) – HS 5205

0.87% $335 17.82%

Iron and steel – HS 72 5.61% $2,154 29.82%

Sensitive articles of iron or steel – HS 73

0.58% $223


Table 2: Continued




to the EU





Brazil All sensitive sectors 13.80% $6,117 23.66% (of total exports)

Solid cane or beet sugar and chemically pure sucrose – HS 1701

0.70% $310 2.98%

Undenatured ethyl alcohol, >80% alcohol and denatured ethyl alcohol/sprits – HS 2207

0.86% $382 28.89%


0.82% $365 16.80%

Inorganic chemicals – HS 28 0.86% $380 18.05%

Organic chemicals – HS 29 1.86% $826 24.61%

Sensitive paper, paperboard and articles thereof (also of paper pulp) – HS 48

0.70% $309

Iron and steel – HS 72 4.05% $1,794 16.89%

Refinedcopperorcopperalloys, unwrought – HS 7403

0.81% $358 61.13%

Unwrought aluminium – HS 7601

1.44% $639 25.49%

Mexico All sensitive sectors 10.56% $1,786 5.45% (of total exports)

Malt beer – HS 2203 0.99% $167 7.08%


0.54% $92 3.00%


Iron and steel – HS 72 3.17% $536 11.17%

Zinc and articles thereof – HS 79

0.99% $167 36.31%


Table 2: Continued




to the EU





Indonesia All sensitive sectors 17.51% $3,133 11.58% (of total exports)

Bituminous coal, not agglomerated – HS 2701.12

4.32% $773 8.04%

Coal other than anthracite & bituminous, not agglomerated – HS 2701.19

3.68% $658 8.49%


0.64% $114


Industrial monocarboxylic fatty acids; acid oils from refining;industrialfattyalcohols – HS 3823

0.99% $178 26.23%

Uncoated paper and paperboard – HS 4802

0.74% $133

Yarn of synthetic staple fibres,noretailsale–HS5509

0.51% $91 14.40%

Iron and steel – HS 72 2.08% $371 11.11%

Unwrought tin – HS 8001 1.65% $295

South Korea

All sensitive sectors 8.94% $4,752 13.94% (of total exports)


2.72% $1,446 10.12%


Iron and steel – HS 72 3.95% $2,102 10.85%

Iran All sensitive sectors 6.34% $1,095Organic chemicals – HS 29 3.09% $533

Iron and steel – HS 72 1.30% $225


0.94% $162


Table 2: Continued




to the EU





South Africa

All sensitive sectors 28.10% $7,672 30.75% (of total exports)


9.51% $2,596 54.18%


3.41% $931




0.72% $196

Iron and steel – HS 72 9.00% $2,456 29.66%

Sensitive copper and articles thereof – HS 74

0.55% $150


0.70% $192 14.34%

Saudi Arabia

All sensitive sectors 16.24% $3,889 7.05%c (of total exports)


8.42% $2,017

Propane,liquefied–HS2711.12

0.85% $205 8.83%


Thailand All sensitive sectors 5.03% $1,139 13.04% (of total exports)


0.81% $183 3.55%


Iron and steel – HS 72 0.80% $181 7.26%

Argentina All sensitive sectors 4.84% $624 18.32% (of total exports)


Iron and steel – HS 72 0.92% $119 17.22%

Iron or steel tubes, pipesandhollowprofiles(seamless) – HS 7304

0.86% $110 8.77%

Sensitive aluminium and articles thereof – HS 76

0.51% $66


Table 2: Continued




to the EU





Nigeria All sensitive sectors 2.49% $424 20.73% (of total exports)


1.08% $185

Butanes,liquefied–HS2711.13

0.66% $112

Taiwand All sensitive sectors 6.98% $2,222Petroleum oils & oils from bituminous minerals - HS 2710.19

1.45% $463

Organic chemicals – HS 29 1.03% $328


Venezuela All sensitive sectors 41.83% $3,098 4.42%e (of total exports)


3.28% $243


0.53% $39


19.67% $1,456

Petroleum coke – HS 2713 3.25% $240


Iron and steel – HS 72 7.61% $564 23.17%


1.59% $117

Aluminium wire – HS 7605 1.06% $79 82.89%


Table 2: Continued




to the EU





Pakistan All sensitive sectors 13.61% $668 25.70% (of total exports)

Molasses from sugar – HS 1703

1.68% $82 97.83%


1.17% $57 37.64%


4.71% $231 56.78%

Gloves etc. of leather, not for sports – HS 4203.29

1.88% $92 58.34%

Cotton yarn (>85% cotton, not for retail sale) – HS 5205

2.82% $138 10.84%

Yarn of synthetic staple fibres,noretailsale–HS5509

0.55% $27 41.93%

Malaysia All sensitive sectors 5.15% $1,222 11.69% (of total exports)


1.12% $266 4.56%


Industrial monocarboxylic fatty acids; acid oils from refining;industrialfattyalcohols – HS 3823

1.52% $361 27.37%

Iron and steel – HS 72 0.52% $125 4.94%


Table 2: Continued




to the EU





Egypt All sensitive sectors 31.19% $3,122 32.97%f (of total exports)

Portland, aluminous, slag, supersulphate and similar hydraulic cements – HS 2523

0.52% $52 12.68%

Light petroleum oils and preparations – HS 2710.11

4.78% $478 18.15%


1.93% $193 32.44%


3.30% $331 100%

Sensitive other mineral fuels, oils, waxes and bituminous substances – HS 27, excl. 2710.11, 2710.19 & 2711.12

0.61% $61


Fertilisers – HS 31 6.20% $621 55.44%


0.83% $83 57.74%

Iron and steel – HS 72 5.30% $530 46.26%

Copper wire – HS 7408 1.53% $153


1.52% $152 94.43%

Aluminium plates etc., >0.2mm – HS 7606

1.33% $133


Table 2: Continued




to the EU





Kazakhstan All sensitive sectors 14.05% $2,727 43.83% (of total exports)


2.04% $395 43.86%


1.31% $255 65.27%

Sensitive other mineral fuels and oils – HS 27, excl. 2710.19 & 2711.12

1.20% $232


Iron and steel – HS 72 4.04% $784 21.60%


1.71% $331


1.14% $221 45.86%

Other base metals; cermets; articles thereof – HS 81

0.52% $101 33.40%

a A sector was included in this list if its trade value of exports of sensitive products to the EU was larger than 0.5 percent of the trade value of total exports to the EU (over the years 2007-09). Sectors in italics are those from which not all goods are identified as sensitive. The data however only refers to those goods from the sector that have been identified as sensitive.

b These percentages have been calculated using export data from UN Comtrade. It should be remembered that at exportation, the final destination of a commodity is not always known. Moreover, as mentioned before, the export data of these countries is often not classified according to HS 2007. However, for most codes mentioned in this table, the authors checked the concordances and decided that it poses no major problems that older HS classifications are used. Missing data in this column is for one of the following reasons:

• The sectors at issue are not completely comprised of identified sensitive products (the italicized sectors), and therefore information on the importance of the EU as an export market for these sectors as a whole would not serve the purpose of this study (India 73, Brazil 48, South Africa 48 & 74, Argentina 76, and Egypt 27, excl. 2710.11, 2710.19 & 2711.12).

• No trade data is available for the country (Taiwan).

• No 2007-09 trade data is available for the country (Iran).

• For certain HS codes, no 2007-09 export data is available for the country (Venezuela 2701.19, 2710.19 & 2713).

• The old classification system used in the country poses a problem, as there are no codes in this old system that appropriately correspond to the HS 2007 codes in which the sectors of certain sensitive products are expressed (Indonesia 2710.19 & 4802).

• The export data deviates so much from the EU-27 import data that it is highly unlikely that this difference is due to the general dynamics that cause import and export data to differ (for examples, see supra note 24). Figures based on export data where this is the case are not presented in this table (Indonesia 8001, South Africa 2701.19, Saudi Arabia 2710.19, Nigeria 2711.12 & 2711.13, Venezuela 2701.12, 29 & 7601, Egypt 7408 & 7606, and Kazakhstan 7403).

c For Saudi Arabia, no export data specifying the country of origin is available for the years 2008 and 2009, and these figures thus represent the year 2007 only.

d The imports of the EU-27 from Taiwan were assumed to be equal to the imports from the region classified as ‘Other Asia, nes’.

e For Venezuela, no export data is available for the year 2007, and these figures thus represent the years 2008 and 2009 only.

f For Egypt, no trade data is available for the year 2009. In addition, Egypt’s export data for 2007 is classified according to HS 1992, for which no correspondence tables are available on the UN Statistics Division website. Therefore, these figures represent the year 2008 only.


One conclusion that can be drawn from the analysis of those tradeflows fromdevelopingcountries to the EU that are likely to be affected by possible future EU BCAs is that sensitive exports differ widely between the countries of origin analyzed, not only in terms of trade value, which is to be expected if only because of the different sizes of the economies, but also intermsoftheirsharesoftotaltradeflowstothe EU. For example, taking two extreme cases, only 2.49 percent of Nigeria’s total 2007-09 exportstotheEUconsistedofgoodsidentifiedas likely to face EU BCAs, against no less than 41.83 percent for Venezuela. This makes it verydifficulttodrawgeneralconclusionswithrespect to the relative magnitude of the trade flows originating from developing countriesthat would likely be affected by possible future EU BCAs.

Countries that stand out in terms of the large shares of sensitive products in their 2007-09 exports to the EU are India (23.75%), South Africa (28.10%), Egypt (31.19%) and, as mentioned above, Venezuela (41.83%). Countries with relatively small shares are Argentina (4.84%), Thailand (5.03%), Malaysia (5.15%) and, as mentioned above, Nigeria (2.49%). In interpreting these shares it is important, however, to take into account the importance of the EU as an export market for these countries. For example, again taking two extreme cases, exports to the EU market made up only 5.45 per cent of Mexico’s total exports in 2007-09, against 43.83 percent for Kazakhstan.

Logically, these differences are explained by the sectoral focus of domestic production and exports (to the EU). One general trend that can be discerned, however, is that many of the analyzed developing countries with large shares of carbon leakage-sensitive exports to the EU in 2007-09 exported high values of iron and steel (HS 72), organic chemicals (HS 29), and petroleum oils and oils from bituminous minerals (HS 2710.19). With respect to how possible future EU BCAs could affect develo-ping countries, whether these products/sectors

are covered by the border measures will thus be crucial.

In addition, these three particular sensitive products are among the usual suspects with respect to carbon leakage. That means that even if the EU decides on a narrower sectoral coverage in implementing BCAs, it is very likely to impose them on these particular products. For China, India, Brazil, Mexico, South Korea, Iran, South Africa, Saudi Arabia, Thailand, Taiwan, Venezuela, Malaysia, Egypt and Kazakhstan, these sensitive products represented large shares of their total exports to the EU and/or their sensitive exports to the EU, meaning that they are particularly vulnerable to EU BCAs imposed on these products/sectors. Venezuela stands out in the sense that no less than 19.67 percent of its 2007-09 exports to the EU consisted of petroleum oils and oils from bituminous minerals (HS 2710.19).

Egypt is additionally particularly vulnerable to EU BCAs imposed on light petroleum oils and preparations (HS 2710.11) and fertilisers (HS 31), and Malaysia to those imposed on industrial monocarboxylic fatty acids, acid oils formrefiningand industrial fattyalcohols (HS3823). South Africa is additionally particularly vulnerable with respect to coal products, as (not agglomerated) bituminous coal (HS 2701.12) and coal other than anthracite and bituminous (HS 2701.19) together represented 12.92 percent of its total 2007-09 exports to the EU. Moreover, the EU is a very important export market for South Africa. Indonesia also exported coal products heavily to the EU during 2007-09; the same coal products (HS 2701.12 & 2701.19) represented exactly 8 percent of Indonesia’s exports to the EU in that period.

Nigeria is particularly vulnerable to EU BCAs imposed on liquefied propane and butanes (HS 2711.12 & 2711.13); 70 percent of the country’s 2007-09 sensitive exports to the EU consisted of these products. However, these sensitive exports comprised only 2.49 percent of its total exports to the EU. In terms of the composition of sensitive exports to the EU, Pakistan stands out; it is particularly vulnerable with respect

6.2 Analysis of the Findings


to leather articles of apparel (HS 4203.10) and cotton yarn (>85% cotton, not for retail sale; HS 5205). India shares these vulnerabilities and exported even larger values of the products identified as the usual suspects.

Further, what is also crucial for the impact of possible future EU BCAs on developing countries is the importance of the EU as an export market for each of them in their affected sectors. Namely, if the EU is a very important export market for an affected sector, that sector could experience problems as a whole because an important part of its demand is likely to shrink due to higher costs. As an example, 94.43 percent of Egypt’s unwrought aluminium (HS 7601) exports and 100 percent of its liquefied propane (HS 2711.12) exports were destined for the EU in 2007-09. Further, 97.83 percent of Pakistan’s exports of molasses from sugar (HS 1703), 82.89 percent of Venezuela’s aluminium wire (HS 7605) exports, and 84.23 percent of India’s exports of leather articles of apparel (HS 4203.10) were destined for the EU market in 2007-09.

The results presented above and the conclu-sions drawn here need to be interpreted in light of the limitations of the methodologies used and the assumptions made to identify sensitive trade flows. As alluded to above, the assumption of sectoral coverage is crucial, as well as the assumption of the countries for which the products would be covered.

Regarding the sectoral coverage, the author assumed coverage based on HS 2007 codes, which were obtained through a complex conversion process. In addition, after the conversion, some HS codes were aggregated so as to include certain entire HS chapters (HS 28, 29, 72, 79 and 81) in the list of assumed covered products, even if not all lower level codes (with more digits) resulted from the conversion process. This possibly resulted in a slightly overstated sectoral coverage.

Further, it should be remembered that the trade flows presented above are averages over the years 2007 to 2009. Due to the extraor-dinary economic circumstance of these years and our general inability to predict future trade flows, these figures cannot be entirely relied upon as representative of future trade flows. They likely understate the value of future trade flows.

Lastly, with respect to the singling out of sensitive products in the tables because of the relatively large trade values of their exports to the EU, the threshold, a trade value of at least 0.5 percent of the total trade value of exports to the EU, is quite a random cut-off point (see the Methodology section above and the notes below Table 2). Products representing for example 0.49 percent of the country’s exports to the EU have not been singled out, even though the absolute value of their trade flows should not differ significantly from those of some of the products that have been.


7. DISCUSSION, CONCLUSIONS AND POLICy RECOmmENDATIONS

The analysis in this paper strongly suggests that developing countries should closely monitor EU discussions of legislation on border carbon adjustments, and, more generally, legislation surrounding the EU list of carbon leakage-sensitive (sub)sectors. Although not the focus of this paper, the magnitude of the trade flows presented here suggests that it is generally advisable to closely monitor climate change policy developments within any country where competitiveness and carbon leakage concerns have been raised.

If indeed the EU does implement BCAs on products from the list identified in this paper as most carbon leakage-sensitive, this could affect significant shares of certain developing countries’ exports to the EU. In particular, large shares of exports to the EU from India, South Africa, Egypt and Venezuela could be expected to be affected, as in 2007-09 the share of their exports to the EU consisting of these sensitive products were 23.75, 28.10, 31.19 and 41.83 percent respectively. Countries that export high values of metals, minerals and chemicals to the EU seem to be most at risk of facing a carbon cost on large shares of their exports to the EU. This logically follows from the specific products that have been identified in this paper as most carbon leakage-sensitive and thus most likely to face EU BCAs (see Annex I). In addition, countries for which the EU is a very important export market, again such as South Africa and Egypt, but also Kazakhstan, should naturally be extra vigilant. This is not to say, however, that other developing countries should assume they would not to be affected by possible future EU BCAs.

In monitoring these discussions, within the EU or other countries, the sectoral coverage discussed will be a particularly important element to pay attention to. For example, for many developing countries, specifically India, SaudiArabia andVenezuela, it is crucial whether petroleum oils and oils from bituminous minerals (HS 2710.19) would face EU BCAs.

Considering that for many developing countries significant values of exports could be affected by possible EU BCAs, it is also worthwhile for these countries to take a proactive stance in finding solutions to the carbon leakage problem. This could avoid the need for the EU to implement such measures or make it possible for the country to be exempted from their application.

The optimum solution to curbing carbon leakage would be for all countries, including developing countries, to take domestic climate change mitigation action under a comprehen-sive multilateral climate agreement. However, due to the UNFCCC common but differenti-ated responsibilities (CBDR) principle,27 which would have to be taken into account in setting mitigation targets, even in the case of such an agreement it would still be possible for carbon leakage concerns to persist in developed countries, as asymmetric actions are prescribed by this principle. At the same time, if indeed a comprehensive climate change agreement is reached in which mitigation targets are set, it does not seem politically viable for developed countries to impose BCAs on developing countries’ products precisely because of the CBDR principle. Unless, of course, those countries are not complying with their mitigation targets, a situation that raises an entirely new set of questions.

Assuming no comprehensive climate change agreement is forthcoming, a way in which the need for the EU to impose BCAs on the imports from a particular country could be avoided is for that country to impose a carbon tax on exports to the EU. In this case, not only would the EU’s concern over carbon leakage be addressed, but the revenue raised by the carbon tax would also stay within the exporting country. The revenue could, for example, be used to support the needed transfer to a low-carbon economy.

Another possibility could be to seek bilateral or plurilateral agreements, in which deve-


loping countries would take on mitigation commitments and the EU would, in exchange, offer other concessions that are beneficial to developing countries and that could ease the enactment of unpopular climate change measures at the domestic level. One obvious example of concessions that the EU could offer is additional trade openings.

This study identified the shares of developing countries’ exports to the EU that could in the future be affected by BCAs if the EU would indeed implement such measures. Further, it shows where the specific vulnerabilities of developing countries lie by identifying heavily-traded carbon leakage-sensitive goods. This effort, although valuable in itself, can be used for further research into the economic and social consequences of possible EU BCAs. For this it will be necessary to assume a carbon cost and study in detail the affected sectors and their economic and social characteristics. In particular, a necessary complement to this study is the calculation of the carbon cost that

would be levied on the trade flows outlined in this paper. This will require estimations of the GHG intensity of the exports.

Another important factor that should be acco-unted for in further research into the effects of border measures are the administrative costs involved. Even if the imposed carbon cost is low, these administrative costs can be immense, and thus affect exports.28 For an applied analysis of these costs, it will be necessary to know which and how many imports would be covered by BCAs, which is where this study lays a foundation.

In general, it is clear that for many developing countries, exports are an important source of income, and measures affecting them could thus adversely affect development. Therefore, it is important to analyze and discuss ways in which both the concern over carbon leakage can be addressed, and at the same time the negative consequences of climate change measures can be largely avoided.


ENDNOTES

1 Developingcountriesaredefinedinthisstudyasnon-Annex1countries.Consciousofthefactthat thisdefinitiondoesnot reflect thecurrenteconomic reality, it isdecidedtobemostpractical,asitreflectstheinstitutionalrealitieswithintheUNFCCCandWTO.

2 See amongst others the Council of the European Union (2009a), the Copenhagen Accord, and European Commission (2010a).

3 This is recognized in Council of the European Union (2009b), para. 18 and in Council of the European Union (2009c), paras. 21-22.

4 Directive 2009/29/EC (amending Directive 2003/87/EC), Art. 10a(13).

5 Ibid., Art. 10a(12).

6 European Commission (2010c), para. 8, p. 3.

7 Directive 2009/29/EC (amending Directive 2003/87/EC), Art. 10a(15-16).

8 Ibid., Art. 10a(17).

9 Annexed to the Commission Decision (2010).

10 European Commission (2010a).

11 Ibid., p. 12.

12 European Commission (2010b), p. 73.

13 European Commission (2010a), p.7.

14 EurActiv (2011).

15 ICTSD and IADB (forthcoming 2011).

16 See Article 10(a), paragraphs 15 to 17 of Directive 2009/29/EC (amending Directive 2003/87/EC) for the different criteria used by the EU to determine carbon leakage sensitivity.

17 Annexed to the Commission Decision (2010).

18 BCAs are not necessarily in violation with one of the provisions of the GATT 1994. See ICTSD and IADB (forthcoming 2011) for a comprehensive legal analysis of the WTO-compatibility of BCAs.

19 Considering the different legal tests under these two paragraphs, provisional justificationunder paragraph (g) is generally more likely, as the so-called ‘relating to’ test is easier to pass than the ‘necessary’ test. See ICTSD and IADB (forthcoming 2011).

20 Use was made of the correspondence tables of the United Nations Statistics Division. To convert the NACE codes, the following tables were used: NACE Rev. 1.1 – ISIC Rev. 3.1; ISIC Rev. 3.1 – ISIC Rev. 4; ISIC Rev. 4 – CPC Ver. 2; and CPC Ver. 2 – HS 2007. To convert the PRODCOM codes, the following tables were used: PRODCOM 2002 – HS 2002; and HS 2002 – HS 2007. It proved particularlydifficulttoconverttheNACEcodes,inwhichthevastmajorityof(sub)sectorsonthe list of sectors sensitive to carbon leakage are expressed (including all the sectors listed inTables1.1,1.2and1.3).Thisrelatestotheintrinsicdifficultiesinvolvedinidentifyingthedifferent commodities that can result from production processes, or, conversely, the different processes involved in the production of certain commodities. The correspondence tables were


not simply applied, as this would not result in the desired outcome, but in overstated sectoral coverage. In contrast, the tables were applied carefully using the detailed descriptions of the codesinvolved.Duetothesedifficultiesandthelongconversionprocess,theresultinglistofHS 2007 codes should be interpreted with caution.

21 More specifically, at the stage of conversion of the NACE codes where the sectors wereexpressed in CPC codes (Ver. 2, 5-digit level), the codes starting with the digits 88 were deleted.

22 After studying the sensitive sectors in Tables 1.1-1.3 and 2 in detail, and taking into account the ‘usual suspects’ of carbon leakage-sensitive sectors, the author has taken the liberty to assume the presence of certain absent 6- and 4-digit level codes. Based on the descriptions of the (sub)sectors in these tables, it was judged most likely, and therefore assumed, that BCAswouldbeappliedtoallproductsclassifiedundercertainHSChapter. In thesecases,we aggregated codes to the 2-digit level despite the lack of certain HS codes at the 6- or 4-digit level. This was done for the following HS Chapters (and their corresponding lacking code-extensions): 28(18.10 & 44.50), 29(18.21, 18.22, 18.23, 31, 36, 37, 38, 39, 40 & 41), 72(04, 05 & 17), 79(02 & 07), and 81(01.97, 02.97, 03.30, 04.20, 05.30, 07.30, 08.30, 09.30, 10.20, 12.13, 12.22, 12.52 & 13). Initially, after the conversion to HS 2007 codes, the list of carbon leakage-sensitive sectors originally set out in Tables 1.1-1.3 and 2 contained 300 entries. The list resulting from aggregation contained 139 entries, and was used in the analysis of trade flows.NoHScodesthatwereonthelistwith300entrieswereexcludedfromthelistwith139 entries and thus from the analysis. It should be kept in mind that these aggregations may overstate,althoughprobablyonlyslightly,thetradeflowsthatmightbesubjecttoBCAs.

23 European Commission (2011).

24 CAIT Version 8.0 (2011).

25 United Nations Commodity Trade Statistics Database (UN Comtrade) (2010). When, in this paper, a claim is made about certain trade data being available or not, this applies exclusively to the data of UN Comtrade.

Import data, as opposed to export data, has been used for two reasons. First, at exportation, the final destination of a commodity is often unknown. In contrast, at importation, thecountry of origin is important information, mainly for reasons related to tariffs. Second, many developing countries have not used the HS 2007 system from 2007 onwards, making it more difficulttopresentacoherentpictureoftheinvolvedtradeflowsifexportdataisusedforwhich these countries are the reporters. Unfortunately, due to the fact that the presented tradeflows reflect import data, itwould not be correct to express themas a percentageof total exports. This would not be correct for several reasons, among them the fact that imports are generally recorded in CIF (cost, insurance and freight) values whereas exports are recorded in FOB (free on board) values, and that due to time lags between exportation and importation,theexportationofacertaintradeflowcanpotentiallyberecordedayearearlierthan the importation.

26 It should be remembered that at exportation, thefinal destination of a commodity is notalways known.

27 This principle, established under Article 3.1 of the UNFCCC, is one of the Convention’s guiding principles that recognizes historical differences in the contribution of developed and developing countries to climate change, and, at the same time, the differences in economic and technical capacities to address the problem of climate change.


28 See Persson (2010).

29 According to CAIT Version 8.0 (2011).

30 Council Regulation (EC) No 732/2008, Annex I, p. 4.

31 AsmentionedintheMethodologysection,phrasessuchas‘products/goodsidentifiedas(most)carbon leakage-sensitive’ or simply ‘(most) sensitive products/goods’ refer to those products that are listed and described in Annex 1 of this paper, which resulted from the conversion process (including aggregation) of the products originally included in Tables 1.1-1.3 and 2 of theEUlistof(sub)sectorsdeemedtobeexposedtoasignificantriskofcarbonleakage.

32 Fromhereon,unlessotherwisespecified,an‘average’numberreferstoanannualaverageover the years 2007 to 2009.

33 ThesefiguresexcludePFC,HFCandSF6emissions,forwhichdataisnotavailableforTaiwan.

34 ThesefiguresexcludePFC,HFCandSF6emissions,forwhichdataisnotavailableforMalaysia.


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European Commission. (2010b). Analysis of options to move beyond 20% greenhouse gas emission reductions and assessing the risk of carbon leakage – Background information and analysis PART II. Commission Staff Working Document accompanying the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. SEC(2010) 650. 26 May 2010. Brussels.

European Commission. (2010c). Draft Commission Decision “of […] determining transitional Union-wide rules for the harmonized free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC”. Version of 15 December 2010. Brussels.

European Commission. (2011). “Building a post-2012 climate regime: the EU’s contribution”. EC Climate Action website. Available at: http://ec.europa.eu/clima/policies/international/negotiations_future_en.htm.


EurActiv. (2011). 30% greenhouse gas emissions cut ‘still on the table’. Climate & Environment Section. 14 February 2011. Available at: http://www.euractiv.com/en/climate-environment/percent-greenhouse-gas-emissions-cut-table-news-502133?utm_source=EurActiv+Newsletter&utm _campaign=332ce1ff41-my_google_analytics_key&utm_medium=email.

ICTSD and IADB. (forthcoming, 2011). Vulnerabilities in Latin America and the Caribbean to Trade-Related Climate Change Policies: The Case of Border Carbon Adjustment Measures. International Centre for Trade and Sustainable Development. Geneva.

Persson, S. (2010). Practical Aspects of Border Carbon Adjustment Measures – Using a Trade Facilitation Perspective to Assess Trade Costs. ICTSD Programme on Competitiveness and Sustainable Development, Issue Paper No. 13. International Centre for Trade and Sustainable Development. Geneva.

United Nations Commodity Trade Statistics Database (UN Comtrade). (2010). United Nations Statistics Division. New York. Available at: http://comtrade.un.org.


ANNEX I – GOODS IDENTIFIED AS LIkELy TO FACE EU BCAS

HS 2007 Description 0402.10 Milk in powder/granules/other solid form, fat content by weight not >1.5%

0402.21 Milk in powder/granules/other solid form, unsweetened, fat content by weight >1.5%

0402.29 Milk in powder/granules/other solid form, sweetened, fat content by weight >1.5%

1107 Malt, whether or not roasted

1108 Starches; inulin

1109 Wheat gluten, whether or not dried

1701 Cane or beet sugar and chemically pure sucrose, in solid form

1702 Other sugars, including chemically pure lactose, maltose, glucose and fructose, insolidform;sugarsyrupsnotcontainingaddedflavouringorcolouringmatter;artificialhoney,whetherornotmixedwithnaturalhoney;caramel

1703 Molassesresultingfromtheextractionorrefiningofsugar

1903 Tapiocaandsubstitutesthereforepreparedfromstarch,intheformofflakes,grains, pearls, siftings or in similar forms

2002.90 Tomatoes, prepared/preserved otherwise than by vinegar/acetic acid, other than whole/in pieces

2102.10 Active yeasts

2203 Beer made from malt

2205 Vermouthandotherwineoffreshgrapesflavouredwithplantsoraromaticsubstances

2207 Undenatured ethyl alcohol of an alcoholic strength by volume of 80% vol. or higher; ethyl alcohol and other spirits, denatured, of any strength

2502 Unroasted iron pyrites

2503 Sulphur of all kinds, other than sublimed sulphur, precipitated sulphur and colloidal sulphur

2510 Natural calcium phosphates, natural aluminium calcium phosphates and phosphatic chalk

2511 Natural barium sulphate (barytes); natural barium carbonate (witherite), whether or not calcined, other than barium oxide of heading 28.16

2522 Quicklime, slaked lime and hydraulic lime, other than calcium oxide and hydroxide of heading 28.25

2523 Portland cement, aluminous cement, slag cement, supersulphate cement and similar hydraulic cements, whether or not coloured or in the form of clinkers

2528 Natural borates and concentrates thereof (whether or not calcined), but not including borates separated from natural brine; natural boric acid containing not more than 85% of H3BO3 calculated on the dry weight

2529.21 Fluorspar,containingbyweight97%/lessofcalciumfluoride

2529.22 Fluorspar,containingbyweight>97%ofcalciumfluoride

2530.20 Kieserite, epsomite (natural magnesium sulphates)

2530.90 Mineral substance, n.e.s. in Ch.25

2601.20 Roasted iron pyrites

2701.11 Anthracite coal, whether/not pulverised but not agglomerated

2701.12 Bituminous coal, whether/not pulverised but not agglomerated

2701.19 Coal other than anthracite & bituminous, whether/not pulverised but not agglomerated


HS 2007 Description 2704 Coke and semi-coke of coal, of lignite or of peat, whether or not agglomerated;

retort carbon

2706 Tar distilled from coal, from lignite or from peat, and other mineral tars, whether or not dehydrated or partially distilled, including reconstituted tars

2707 Oils and other products of the distillation of high temperature coal tar; similar products in which the weight of the aromatic constituents exceeds that of the non-aromatic constituents

2708 Pitch and pitch coke, obtained from coal tar or from other mineral tars

2710.11 Light petroleum oils & preparations

2710.19 Petroleum oils & oils obtained from bituminous minerals (other than crude) & preparationsnotelsewherespecified/incld.,containingbyweight70%/moreofpetroleum oils/of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations, other than waste oils and light oils & preparations

2711.12 Propane,liquefied

2711.13 Butanes,liquefied

2711.14 Ethylene,propylene,butylene&butadiene,liquefied

2711.19 Petroleum gases other than natural gas/propane/butanes/ethylene, propylene, butylene&butadiene,liquefied

2711.29 Petroleum gases & gaseous hydrocarbons, other than natural gas, in gaseous state

2712 Petroleumjelly;paraffinwax,micro-crystallinepetroleumwax,slackwax,ozokerite, lignite wax, peat wax, other mineral waxes, and similar products obtained by synthesis or by other processes, whether or not coloured

2713 Petroleum coke, petroleum bitumen and other residues of petroleum oils or of oils obtained from bituminous minerals

28 Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals, of radioactive elements or of isotopes

29 Organic chemicals

31 Fertilisers

3207 Preparedpigments,preparedopacifiersandpreparedcolours,vitrifiableenamelsand glazes, engobes (slips), liquid lustres and similar preparations, of a kind used in the ceramic, enamelling or glass industry; glass frit and other glass, in the form ofpowder,granulesorflakes

3501.10 Casein

3503 Gelatin (including gelatin in rectangular (including square) sheets, whether or not surface-worked or coloured) and gelatin derivatives; isinglass; other glues of animal origin, excluding casein glues of heading 35.01

3505.10 Dextrins&othermodifiedstarches

3507 Enzymes;preparedenzymesnotelsewherespecifiedorincluded

3801 Artificialgraphite;colloidalorsemi-colloidalgraphite;preparationsbasedongraphite or other carbon in the form of pastes, blocks, plates or other semi-manufactures

3802.90 Activated natural mineral products other than of activated carbon; animal black, incl. spent animal black

3803 Talloil,whetherornotrefined


HS 2007 Description 3805 Gum, wood or sulphate turpentine and other terpenic oils produced by the

distillation or other treatment of coniferous woods; crude dipentene; sulphite turpentine and other crude para-cymene; pine oil containing alpha-terpineol as the main constituent

3806 Rosin and resin acids, and derivatives thereof; rosin spirit and rosin oils; run gums

3807 Wood tar; wood tar oils; wood creosote; wood naphtha; vegetable pitch; brewers' pitch and similar preparations based on rosin, resin acids or on vegetable pitch

3823 Industrialmonocarboxylicfattyacids;acidoilsfromrefining;industrialfattyalcohols

4002 Synthetic rubber and factice derived from oils, in primary forms or in plates, sheets or strip; mixtures of any product of heading 40.01 with any product of this heading, in primary forms or in plates, sheets or strip

4203.10 Articles of apparel, of leather/composition leather

4203.29 Gloves, mittens & mitts, of leather/composition leather other than those specially designed for use in sports

4203.30 Belts & bandoliers, of leather/composition leather

4203.40 Clothing accessories (excl. of 4203.21-4203.30), of leather/composition leather

4402 Wood charcoal (including shell or nut charcoal), whether or not agglomerated

4801 Newsprint, in rolls or sheets

4802 Uncoated paper and paperboard, of a kind used for writing, printing or other graphic purposes, and non perforated punch-cards and punch tape paper, in rolls or rectangular (including square) sheets, of any size, other than paper of heading 48.01 or 48.03; hand-made paper and paperboard

4803 Toilet or facial tissue stock, towel or napkin stock and similar paper of a kind used for household or sanitary purposes, cellulose wadding and webs of cellulose fibres,whetherornotcreped,crinkled,embossed,perforated,surface-coloured,surface-decorated or printed, in rolls or sheets

4804 Uncoated kraft paper and paperboard, in rolls or sheets, other than that of heading 48.02 or 48.03

4805 Other uncoated paper and paperboard, in rolls or sheets, not further worked or processedthanasspecifiedinNote3tothisChapter

4806 Vegetable parchment, greaseproof papers, tracing papers and glassine and other glazed transparent or translucent papers, in rolls or sheets

4807 Compositepaperandpaperboard(madebystickingflatlayersofpaperorpaperboard together with an adhesive), not surface-coated or impregnated, whether or not internally reinforced, in rolls or sheets

4808.20 Sack kraft paper, creped/crinkled, whether/not embossed/perforated, in rolls/sheets (excl. of 48.03)

4808.30 Kraft paper (excl. sack kraft paper), creped/crinkled, whether/not embossed/perforated, in rolls/sheets (excl. of 48.03)

4808.90 Paper&paperboard,corrugated(with/withoutgluedflatsurfacesheets),creped,crinkled, embossed/perforated, in rolls/sheets, other than paper of the kind described in heading 48.03 (excl. of 4808.10-4808.30)

4809 Carbon paper, self-copy paper and other copying or transfer papers (including coated or impregnated paper for duplicator stencils or offset plates), whether or not printed, in rolls or sheets


HS 2007 Description 4810 Paper and paperboard, coated on one or both sides with kaolin (China clay) or

other inorganic substances, with or without a binder, and with no other coating, whether or not surface-coloured, surface-decorated or printed, in rolls or rectangular (including square) sheets, of any size

4811 Paper,paperboard,cellulosewaddingandwebsofcellulosefibres,coated,impregnated, covered, surface-coloured, surface-decorated or printed, in rolls or rectangular (including square) sheets, of any size, other than goods of the kind described in heading 48.03, 48.09 or 48.10

4813.90 Cigarette paper (excl. of 4813.10 & 4813.20)

5203 Cotton, carded or combed

5205 Cotton yarn (other than sewing thread), containing 85% or more by weight of cotton, not put up for retail sale

5206 Cotton yarn (other than sewing thread), containing less than 85% by weight of cotton, not put up for retail sale

5207 Cotton yarn (other than sewing thread) put up for retail sale

5509 Yarn(otherthansewingthread)ofsyntheticstaplefibres,notputupforretailsale

5510 Yarn(otherthansewingthread)ofartificialstaplefibres,notputupforretailsale

6806.20 Exfoliated vermiculite, expanded clays, foamed slag & similar expanded mineral materials (incl. intermixtures thereof)

6901 Bricks, blocks, tiles and other ceramic goods of siliceous fossil meals (for example, kieselguhr, tripolite or diatomite) or of similar siliceous earths

6907 Unglazedceramicflagsandpaving,hearthorwalltiles;unglazedceramicmosaiccubes and the like, whether or not on a backing

6908 Glazedceramicflagsandpaving,hearthorwalltiles;glazedceramicmosaiccubesand the like, whether or not on a backing

7005 Float glass and surface ground or polished glass, in sheets, whether or not having anabsorbent,reflectingornon-reflectinglayer,butnototherwiseworked

7006 Glass of heading 70.03, 70.04 or 70.05, bent, edge-worked, engraved, drilled, enamelledorotherwiseworked,butnotframedorfittedwithothermaterials

7007 Safety glass, consisting of toughened (tempered) or laminated glass

7008 Multiple-walled insulating units of glass

7009 Glass mirrors, whether or not framed, including rear-view mirrors

7010.90 Carboys,bottles,flasks,jars,pots,phials&othercontainers,ofglass,ofakindused for the conveyance/packing of goods; preserving jars of glass

7013 Glasswareofakindusedfortable,kitchen,toilet,office,indoordecorationorsimilar purposes (other than that of heading 70.10 or 70.18)

7019.11 Choppedstrands,ofalengthofnot>50mm,ofglassfibres

7019.12 Rovingsofglassfibres

7019.19 Sliversofglassfibres;choppedstrands,ofalengthof>50mm,ofglassfibres

72 Iron and steel

7301 Sheet piling of iron or steel, whether or not drilled, punched or made from assembled elements; welded angles, shapes and sections, of iron or steel


HS 2007 Description 7302 Railway or tramway track construction material of iron or steel, the following:

rails, check-rails and rack rails, switch blades, crossing frogs, point rods and other crossingpieces,sleepers(cross-ties),fish-plates,chairs,chairwedges,soleplates(base plates), rail clips, bedplates, ties and other material specialized for jointing orfixingrails

7303 Tubes,pipesandhollowprofiles,ofcastiron

7304 Tubes,pipesandhollowprofiles,seamless,ofiron(otherthancastiron)orsteel

7305 Other tubes and pipes (for example, welded, riveted or similarly closed), having circular cross-sections, the external diameter of which exceeds 406.4 mm, of iron or steel

7306 Othertubes,pipesandhollowprofiles(forexample,openseamorwelded,rivetedor similarly closed), of iron or steel

7401 Copper mattes; cement copper (precipitated copper)

7402 Unrefinedcopper;copperanodesforelectrolyticrefining

7403 Refinedcopperandcopperalloys,unwrought

7405 Master alloys of copper

7406 Copperpowdersandflakes

7407 Copperbars,rodsandprofiles

7408 Copper wire

7409 Copper plates, sheets and strip, of a thickness exceeding 0.15 mm

7410 Copper foil (whether or not printed or backed with paper, paperboard, plastics or similar backing materials) of a thickness (excluding any backing) not exceeding 0.15 mm

7411 Copper tubes and pipes

7412 Copper wire

7501 Nickel mattes, nickel oxide sinters and other intermediate products of nickel metallurgy

7502 Unwrought nickel

7504 Nickelpowdersandflakes

7505 Nickelbars,rods,profilesandwire

7506 Nickel plates, sheets, strip and foil

7507 Nickeltubes,pipesandtubeorpipefittings(forexample,couplings,elbows,sleeves)

7601 Unwrought aluminium

7603 Aluminiumpowdersandflakes

7604 Aluminiumbars,rodsandprofiles

7605 Aluminium wire

7606 Aluminium plates, sheets and strip, of a thickness exceeding 0.2 mm

7607 Aluminium foil (whether or not printed or backed with paper, paperboard, plastics or similar backing materials) of a thickness (excluding any backing) not exceeding 0.2 mm

7608 Aluminium tubes and pipes

7609 Aluminiumtubeorpipefittings(forexample,couplings,elbows,sleeves)

7801 Unwrought lead

7804 Leadplates,sheets,stripandfoil;leadpowdersandflakes


HS 2007 Description 79 Zinc and articles thereof

8001 Unwrought tin

8003 Tinbars,rods,profilesandwire

81 Other base metals; cermets; articles thereof

8401.30 Fuel elements (cartridges), non-irradiated

8701.10 Pedestrian controlled tractors (excl. of 87.09)

8701.90 Tractors n.e.s. in 87.01 (excl. of 87.09)


ANNEX II – COmPLETE OvERvIEW OF CARBON LEAkAGE-SENSITIvE TRADE FLOWSChina

Since 2005, China has been, in absolute terms, the largest emitter of GHGs globally;29 in that year it was responsible for 19.13 percent of global emissions. In terms of the need for mitigation, action in China is thus very important, and in the absence of such action, the scope for leakage is significant. Therefore, BCAs are very likely to be imposed on Chinese products if the country does not take sufficient mitigation action to address the carbon leakage concerns of the EU, or price the carbon of its exports.

China is a beneficiary of the EU Generalized System of Preferences (GSP), but many of its tariff preferences have been removed. Most

importantly with regard to the products identified as sensitive, tariff preferences have been removed for Chinese ‘products of chemical or allied industries’ (HS 28-38) and ‘base metals and articles of base metal’ (HS 72-83).30 These preferences have been removed because the EU was importing relatively high values of the corresponding Chinese products.

Thus, for certain sensitive and heavily-traded products, not only does China not enjoy GSP preferences, but the country’s exports of these products may also face EU BCAs in the future. It should be stressed, however, that not all the Chinese products from those sectors from which tariff preferences have been removed enjoyed preferencesundertheGSPinthefirstplace.

Of China’s total exports to the EU in 2007-09, 6.95 percent consisted of goods identified as most carbon leakage-sensitive (see Figure 1).31 On average, over the years 2007 to 2009,32 the value of Chinese exports to the EU of these sensitive goods was USD 22,769 million per year. This should be interpreted in light of the importance of the EU as an export market for China; in 2007-09, 20.11 percent of Chinese exports were destined for the EU. Figure 2 gives an overview of the composition

of China’s sensitive exports to the EU in terms of specific products.

Of the identified carbon leakage-sensitivegoods, China exported particularly high values of ‘organic chemicals’ (HS 29) and ‘iron and steel’ (HS 72) to the EU. China is thus especially vulnerable to possible future EU BCAs imposed on these products. An overview of these sensitive exports and of the importance of the EU as an export market for them is shown in Table 3.

Figure 1: Chinese exports to the EU, 2007-09

Non-sensitive productsSensitive products

7%

93%


This analysis shows that even though the products identified as likely to face possiblefuture EU BCAs (see Annex I) made up a small proportion of China’s total exports to the EU (6.95%), in terms of absolute value they were immense (on average USD 22,769 million annually). In addition, it should be kept in mind that about one fifth of total Chinese exportswere destined for the EU. Further, the sectors of which China exported sensitive goods with particularly high values (inorganic chemicals,

and iron and steel) are among the sectors generally viewed as the most likely targets for BCAs. This means that even if the sectoral coverage of possible future EU BCAs is much narrower than assumed in this paper, it would still very likely include these sensitive sectors that comprise a lot of China’s exports to the EU. Moreover, with respect to these sectors specifically,theEUisquiteanimportantexportmarket, making China additionally vulnerable to EU BCAs imposed on its products.

Table 3: China – Carbon leakage-sensitive exports to the EU, 2007-09

Figure 2: Chinese exports of sensitive products to the EU, 2007-09

Note: Sectors in italics are those from which not all goods are identified as sensitive.

a A sector was included in this list if its trade value of exports of sensitive products to the EU was larger than 0.5 percent of the trade value of total exports to the EU (over the years 2007-09).

b These percentages have been calculated using export data from UN Comtrade. It should be remembered that at exportation, the final destination of a commodity is not always known.

Organic chemicals (29)

Iron and steel (72)

Inorganic chemicals (28)

Other base metals; sermets; articles thereof (81)

Other sensitive products

Sensitive glass and glassware (70)

24%

30%6%

6%

7%

27%

Sectors with largest trade flows of sensitive

products to the EUa

Exports of sensitive products to the EU as % of total exports to

the EU

Average annual trade value of exports of

sensitive products to the EU (in million USD)


All sensitive products 6.95% $22,769 20.11% (of total exports)


Iron and steel – HS 72 2.07% $6,778 15.91%


India

India was the fifth largest emitter of GHGs in 2005, responsible for 4.92 percent of global emissions. It is thereby the second non-Annex 1 country in the ranking and is unsurprisingly also often mentioned as a country which would likely face BCAs implemented by developed countries to curb carbon leakage.

India is also a beneficiary of the EU GSP,but some of its tariff preferences have been removed(HS50-63).Morespecifically,theGSPtariff preferences regarding carbon leakage-

sensitive Indian cotton, cotton yarn and other sensitive yarn have been removed because these products were too heavily traded between India andtheEU(seeAnnexIforthespecificsensitiveproducts within HS chapters 50-63, which in principle all enjoy tariff preferences under the EU GSP). Further, negotiations between the EU and India on a free trade agreement (FTA) were launched in 2007.

Table 4 gives an overview of India’s sensitive exports to the EU and the share of the EU as a destination for them.

Over the years 2007 to 2009, no less than 23.75 percent of India’s exports to the EU consisted of the identified sensitive goods (see Figure 3). The annual average value of this trade flow was USD 9,119 million. Moreover, the EU is an important export market for India; of its total 2007-09 exports, 21.19 percent were destined there. Figure 4 shows the composition of India’s sensitive exports to the EU.

Of the identified sensitive goods, India exported especially high values of ‘petroleum oils and oils from bituminous material’ (HS 2710.19), ‘organic chemicals’ (HS 29), ‘leather

articles of apparel’ (HS 4203.10), ‘cotton yarn’ (HS 5205) and ‘iron and steel’ (HS 72). In addition, it exported high values of those ‘articles of iron and steel’ (HS 73) that have been identified here as sensitive products. Even though not all products from this sector (HS 73) were identified as sensitive, the data presented in this paper only covers the goods of this sector that have been identified as sensitive. The exact description of these can be found in Annex I. India would thus be particularly vulnerable to EU BCAs imposed on these sensitive products that were heavily exported to the EU.

Figure 3: Indian exports to the EU, 2007-09


24%

76%


Figure 4: Indian exports of sensitive products to the EU, 2007-09

Table 4: India – Carbon leakage-sensitive exports to the EU, 2007-09



b These percentages have been calculated using export data from UN Comtrade. It should be remembered that at exportation, the final destination of a commodity is not always known. Only 2009 Indian export data is classified according to HS 2007. However, for the codes mentioned in this table, the authors checked the concordances and decided that it poses no major problems that an older HS classification (HS 2002) is used. Data is missing for the HS 73 sector because it is not completely comprised of identified sensitive products (hence the italics), and therefore information on the importance of the EU as an export market for this sector as a whole would not serve the purpose of this study.

Sectors with largest trade flows of sensitive

products to the EUa

Exports of sensitive products to the EU as % of total

exports to the EU





Petroleum oils & oils from bituminous minerals - HS 2710.19

6.64% $2,549 22.52%



1.02% $393 84.23%


0.87% $335 17.82%

Iron and steel – HS 72 5.61% $2,154 29.82%

Sensitive articles of iron or steel – HS 73

0.58% $223

Petroleum oils & oils from bituminousminerals (2710.19)


Leather articles of apparel (4203.10)

Cotton yarn (>85% cotton, no retailsale) (5205)

Iron and steel (72)


Sensitive articles of iron or steel (73)

2%13%

28%

24%

4%4%

25%


The share of Indian exports to the EU of products that could be affected by possible BCAs is quite high (23.75%). In combination with the fact that the EU is an important export market for India, and that the country is likely to face border carbon adjustments, this makes India very vulnerable to possible EU BCAs. Further, the sensitive Indian products singled out due to the fact that they were heavily exported to the EU areagainmostlyproductsthatareidentifiedasusual suspects with respect to carbon leakage. This means that if the EU indeed implements BCAs but chooses a narrower sectoral coverage, it is still quite likely that these heavily-traded sensitive products from India will face BCAs. Finally, the fact that the EU is an extremely important export market for the Indian ‘leather articles of apparel’ (HS 4203.10) sector needs to be underlined. This means that this sector could face serious problems if the EU were indeed to impose BCAs on these products.

Brazil

In 2005, Brazil, with a contribution of 2.68 percent to global emissions, was the largest GHG emitting country in Latin America and the seventhglobally.BrazilisabeneficiaryoftheEU GSP, but some of its tariff preferences have been removed (HS 16-24 and 44-46). Certain sensitive products fall under the HS chapters from which tariff preferences were removed, but, importantly, not all of these products enjoyedGSPpreferencesinthefirstplace.Forexample, the preferences for ‘undenatured ethyl alcohol etc.’ (HS 2207) have been removed, but ‘solid cane or beet sugar and chemically pure sucrose’ (HS 1701) never enjoyed preferences. Further, as a member of the Mercado Común del Sur (Southern Common Market, MERCOSUR), Brazil is part of ongoing negotiations between the EU and this economic region on an FTA.

Over the years 2007 to 2009, 13.80 percent of Brazilian exports to the EU consisted of the identified sensitive goods (see Figure 5). Onaverage, the value of these exports of sensitive goods to the EU was USD 6,117 million per year. Figure 6 gives an overview of the composition of these sensitive products exported to the EU. The EU is an important export market for Brazil; 23.66 percent of its total 2007-09 exports were destined there.

Oftheidentifiedsensitivegoods,Brazilexportedparticularly high values of the following: ‘solid cane or beet sugar and chemically pure sucrose’ (HS 1701); ‘undenatured ethyl alcohol

etc.’ (HS 2207); ‘petroleum oils and oils from bituminous minerals’ (HS 2710.19); ‘inorganic chemicals’ (HS 28); ‘organic chemicals’ (HS 29); ‘iron and steel’ (HS 72); ‘refined copperand copper alloys’ (HS 4703); and ‘unwrought aluminium’ (HS 7601). In addition, Brazil exportedhighvaluesoftheproductsidentifiedas sensitive from the paper and paperboard sector (HS 48). Brazil is especially vulnerable to EU BCAs imposed on these heavily-traded sensitive products. The corresponding trade flowscanbefoundinTable5,whichalsoshowsthe share of the EU as a destination for these Brazilian exports.

Figure 5: Brazilian exports to the EU, 2007-09


14%

86%


Figure 6: Brazilian exports of sensitive products to the EU, 2007-09

Table 5: BRAZIL – Carbon leakage-sensitive exports to the EU, 2007-09



Sectors with largest trade flows of sensitive products to the EUa


the EU

Average annual trade value of

exports of sensitive products to the EU

(in million USD)

Exports to the EU as % of total / sector

exportsb


Solid cane or beet sugar and chemically pure sucrose – HS 1701

0.70% $310 2.98%


0.86% $382 28.89%


0.82% $365 16.80%




0.70% $309

Iron and steel – HS 72 4.05% $1,794 16.89%

Refinedcopperorcopperalloys,unwrought – HS 7403

0.81% $358 61.13%

Unwrought aluminium – HS 7601 1.44% $639 25.49%

6%

11%

12%5%

6%

6%

6%

5%

14%

29%

Solid cane or beet sugar and chemicallypure sucrose (1701)

Undenatured ethyl alcohol, >80% alcoholand denatured ethyl alcohol/sprits (2207)




Sensitive paper, paperboard and articlesthereof (also of paper pulp) (48)

Iron and steel (72)

Refined copper and cooper alloys, unwrought (7403)

Unwrought aluminium (7601)



This analysis shows that Brazil is particularly vulnerable to EU BCAs imposed on ‘iron and steel’ (HS 72), as the products from this sector were heavily traded from Brazil to the EU. Indeed, 4.05 percent of Brazil’s exports to the EU consisted of products from the iron and steel sector, translating to an annual average of USD 1,794 million. Moreover, the EU is not an unimportant export market for this sector. In addition, the EU is a very important export market for Brazilian ‘unwrought refined copper and copper alloys’ (HS 7403); 61.13 percent of Brazil’s exports of these products were destined for the EU. This means that this sector could experience large problem if EU BCAs are indeed imposed on its products. Overall, the EU is an important export market for Brazil, which means that if indeed a share

of 13.80 percent of its exports to the EU faces BCAs, it would have serious consequences for Brazil’s economy.

Mexico

Mexico was responsible for 1.71 percent of global GHG emissions in 2005, ranking 10th in the world. Mexico is a beneficiary of theEU GSP and has not had any preferences removed. In addition, Mexico and the EU have an FTA, meaning that Mexican products face comparatively low trade barriers when imported into the EU. This implies that for any given carbon cost imposed at the EU border, the relative strength of this cost and the related trade barrier will be higher for Mexican products than for products not enjoying similar FTA preferences.

During 2007-09, 10.56 percent of Mexican exports to the EU consisted of sensitive products, at an average annual value of USD 1,786 million. Figure 8 gives an impression of the composition of the exports of these sensitive products. The EU is in general not a very important export market for Mexico; 5.45 percent of its total 2007-09 exports were destined there.

Oftheidentifiedsensitivegoods,Mexicoexportedto the EU large values of ‘malt beer’ (HS 2203), ‘petroleum oils and oils from bituminous minerals’ (HS 2710.19), ‘organic chemicals’ (HS 29), ‘iron and steel’ (HS 72) and ‘zinc and articles thereof’ (HS 79). Mexico is thus particularly vulnerable to EU BCAs imposed on these sensitive products. Table 6 presents data on these heavily-traded sensitive exports, and on the share of the EU as a destination for them.

Figure 7: Mexican exports to the EU, 2007-09


11%

89%

b These percentages have been calculated using export data from UN Comtrade. It should be remembered that at exportation, the final destination of a commodity is not always known. Only 2008 and 2009 Brazilian export data is classified according to HS 2007. However, for the codes mentioned in this table, the authors checked the concordances and decided that it poses no major problems that an older HS classification (HS 2002) is used. Data is missing for the HS 48 sector because it is not completely comprised of identified sensitive products (hence the italics), and therefore information on the importance of the EU as an export market for this sector as a whole would not serve the purpose of this study.


Even though the EU is not generally speaking an important export market for Mexico, it seems to be so for some specific sensitive products, particularly ‘organic chemicals’ (HS 29) and ‘zinc and articles thereof’ (HS 79), which were heavily traded between Mexico and the EU. This suggests that if EU BCAs would be imposed on these Mexican products, their

sectors could experience large problems. In addition, it should be mentioned that the trade flows of iron and steel (HS 72) from Mexico to the EU were of particularly high value; they represented 3.17 percent of Mexico’s total exports to the EU. This means that Mexico is especially vulnerable to EU BCAs imposed on these products.

Figure 8: Mexican exports of sensitive products to the EU, 2007-09

Table 6: MEXICO – Carbon leakage-sensitive exports to the EU, 2007-09



the EU



(in million USD)


exportsb


Malt beer - HS 2203 0.99% $167 7.08%


0.54% $92 3.00%


Iron and steel – HS 72 3.17% $536 11.17%


0.99% $167 36.31%


b These percentages have been calculated using export data from UN Comtrade. It should be remembered that at exportation, the final destination of a commodity is not always known. Only 2008 and 2009 Mexican export data is classified according to HS 2007. However, for the codes mentioned in this table, the authors checked the concordances and decided that it poses no major problems that an older HS classification (HS 2002) is used.

Malt beer (2203)

Petroleum oils & oils frombituminous minerals (2710.19)


Iron and steel (72)

Zinc and articles thereof (79)


25%

9%

5%

22%

30%

9%


Indonesia

With a contribution of 1.54 percent to global GHG emissions in 2005, Indonesia ranked 12th

overall. Indonesia is a beneficiary of the EU GSP, but has some tariff preferences removed (HS 15). No tariff preferences have been removed for Indonesian sensitive products.

Of Indonesia’s total exports to the EU in 2007-09, 17.51 percent consisted of sensitive products (see Figure 9). On average, these trade flows of sensitive goods amounted to USD 3,133 million per year. Of Indonesia’s total 2007-09 exports, 11.58 percent were destined for the EU market. Figure 10 presents an overview of the composition of the country’s sensitive exports in terms of specific products.

By far the largest value of sensitive goods exported from Indonesia to the EU was in the coal (HS 2701) sector. The value of ‘bituminous coal’ (HS 2701.12) exports was an average USD 773 million per year, and that of ‘coal other

than anthracite and bituminous’ (HS 2701.19) exports a further USD 658 million. Other sensitive goods exported heavily to the EU were: ‘petroleum oils and oils from bituminous minerals’ (HS 2710.19); ‘organic chemicals’ (HS 29); ‘industrial monocarboxylic fatty acids; acid oilsfromrefining,andindustrialfattyalcohols’(HS 3823); ‘uncoated paper and paperboard’ (HS 4802);‘yarnofsyntheticstaplefibres’(HS5509);‘iron and steel’ (HS 72); and ‘unwrought tin’ (HS 8001). Indonesia is particularly vulnerable to EU BCAs imposed on these heavily-traded sensitive exports. Table 7 gives an overview of them and, inaddition,presentsfiguresonthesharedestined for the EU.

Figure 9: Indonesian exports to the EU, 2007-09

Figure 10: Indonesian Exports of Sensitive Products to the EU, 2007-09


18%

82%

Bituminous coal, not agglomerated (2701.12)

Coal other than anthracite & bituminous, not

agglomerated (2701.19)

Petroleum oils & oils from bituminous minerals (2701.19)


Industrial monocarboxylic fatty acids; acid oils from

refining; industrial fatty alcohols (3823)

Uncoated paper and paperboard (4802)

Yarn of synthetic staple fibres, no retail sale (5509)

Iron and steel (72)

Unwrought tin (8001)


9%

25%

21%

4%7%

6%

4%

3%

12%

9%


As mentioned above, it is clear that if the EU implements BCAs on coal products (HS 2701) from Indonesia, this would affect very high values of Indonesian exports. Indonesia’s exports to the EU of bituminous coal and coal other than anthracite and bituminous represented respectively 4.32 and 3.68 percent of the country’s total exports to the EU, corresponding to average annual values

of USD 773 and 658 million. This is despite that fact that the EU does not seem to be an extremely important export market for Indonesia regarding these specific products. Overall, the EU is not an extremely important export market for Indonesia either, but quite a large share (17.5%) of its exports to the EU would likely face EU BCAs if they are implemented.

Table 7: INDONESIA – Carbon leakage-sensitive exports to the EU, 2007-09Sectors with largest trade flows of sensitive products to the EUa


products to the EU as % of total

exports to the EU



(in million USD)


exportsb



4.32% $773 8.04%


3.68% $658 8.49%


0.64% $114


Industrial monocarboxylic fatty acids;acidoilsfromrefining;industrial fatty alcohols – HS 3823

0.99% $178 26.23%

Uncoated paper and paperboard – HS 4802

0.74% $133

Yarnofsyntheticstaplefibres,noretail sale – HS 5509

0.51% $91 14.40%

Iron and steel – HS 72 2.08% $371 11.11%a A sector was included in this list if its trade value of exports of sensitive products to the EU was larger than 0.5 percent of the trade value of total exports to the EU (over the years 2007-09).

b These percentages have been calculated using export data from UN Comtrade. It should be remembered that at exportation, the final destination of a commodity is not always known. Indonesian export data is classified according to HS 1996. For most of the codes mentioned in this table, the authors checked the concordances and decided that it poses no major problems that this older HS classification is used. However, the reason why data is missing for the HS 2710.19 and 4802 sectors is that there are no codes in HS 1996 that appropriately correspond to these HS 2007 codes. Further, the reason data is missing for the HS 81 sector is that the corresponding export data deviates so much from the EU-27 import data that it is highly unlikely that this difference is due to the general dynamics that cause import and export data to differ (for examples, see supra note 24).


South Korea

South Korea contributed 1.50 percent of global emissions in 2005, some 568.9 million Mt CO2e, ranking 13th overall. On a per capita

basis, it ranks quite highly compared to the other developing countries discussed here, namely 29th. South Korea’s new FTA with the EU entered into force on the 1st of July (2011). It is not a beneficiary of the EU GSP.

Of South Korea’s total exports to the EU in 2007-09, 8.94 percent constituted products identified as most sensitive to carbon leakage (see Figure 11). These vulnerable trade flows were on average worth USD 4,752 million per year. Figure 12 provides information on the specific products comprising these sensitive exports. Of South Korea’s total exports in 2007-09, 13.94 percent were destined for the EU.

Particularly high values of sensitive ‘petroleum oils and oils from bituminous minerals’ (HS 2710.19), ‘organic chemicals’ (HS 29), and ‘iron and steel’ (HS 72) were exported to the EU by South Korea. The country is thus especially vulnerable to EU BCAs imposed of these products. Information on the corresponding trade flows,and the share of the EU as a destination for these heavily-traded South Korean sensitive products, can be found in Table 8.

Figure 11: South Korean exports to the EU, 2007-09

Figure 12: South Korean exports of sensitive products to the EU, 2007-09


9%

91%

Petroleum oils & oils from bituminouminerals (2710.19)


Iron and steel (72)

Other sensitive products44%

14%

31%

11%


Figure 13: Iranian exports to the EU, 2007-09

Table 8: SOUTH KOREA – Carbon leakage-sensitive exports to the EU, 2007-09


Exports of sensitive products to the EU

as % of total exports to the EU




exportsb



2.72% $1,446 10.12%


Iron and steel – HS 72 3.95% $2,102 10.85%

The South Korean sensitive products that have been singled out as particularly heavily traded with the EU – petroleum oils and oils from bituminous minerals, organic chemicals, and iron and steel – are again those most likely to face BCAs. In other words, if the EU does indeed implement BCAs, but used a narrower sectoral coverage than assumed in this paper, the sensitive products most heavily traded between South Korea and the EU are still very likely to face these measures. These three groups of products also make up a surprisingly large part (86%) of the total sensitive products exported from South Korea to the EU. However, it seems that overall South Korea would not be very much affected by EU BACs, as these total sensitive products only made up 8.94 percent of its total exports to the EU, and

the EU does not seem to be a very important export market for the country with respect to the sensitive products singled out.

Iran

In 2005, Iran emitted 559.2 million Mt CO2e and thereby contributed 1.48 percent of global emissions, ranking 15th overall. Iran is not a Member of the WTO and has no bilateral trade agreement with the EU. Further, even though Iran is a beneficiary of the EU GSP and has not had any tariff preferences removed, its benefits from this scheme are minimal because it mostly exports oil products to the EU for which there are no import duties. Finally, due to sanctions against Iran, trade between the EU and Iran is generally restricted.




6%

94%


During 2007-09, Iran’s exports of sensitive goods to the EU amounted to 6.34 percent of its total exports to the EU (see Figure 13). On average, the value of these exports was USD 1,095 million per year. An overview of the composition of these sensitive exports in terms of specific products can be found in Figure 12.

Iran exported particularly high values of sensitive ‘organic chemicals’ (HS 29), ‘iron and steel’ (HS 72) and ‘unwrought refined copper and copper alloys’ (HS 7403) to the EU. This means that Iran is especially vulnerable to EU BCAs imposed on these products. An overview of these heavily-traded sensitive exports is given in Table 9.

For Iran it can be concluded that the country would be most vulnerable to EU BCAs imposed on products from its organic chemicals sector (HS 29). Exports of these products to the EU were 3.09 percent of Iran’s total 2007-09

exports to the EU, corresponding to an annual average of USD 553 million. Overall, however, sensitive products made up only a small proportion (6.34%) of Iran’s total exports to the EU.

Figure 14: Iranian exports of sensitive products to the EU, 2007-09

Table 9: IRAN – Carbon leakage-sensitive exports to the EU, 2007-09a


a For Iran, no 2007-09 trade data is available. Thus, no data is presented on the importance of the EU as an export market for Iran.

b A sector was included in this list if its trade value of exports of sensitive products to the EU was larger than 0.5 percent of the trade value of total exports to the EU (over the years 2007-09).

Sectors with largest trade flows of sensitive products to the EUb

Exports of sensitive products to the EU as % of

total exports to the EU

Average annual trade value of exports of sensitive products to

the EU (in million USD)All sensitive products 6.34% $1,095Organic chemicals – HS 29 3.09% $533



0.94% $162

Sensitive mineral fuels, oils, waxesand bituminous substances (27)


Iron and steel (72)

Refined cooper and cooperalloys, unwrought (7403)

Other sensitive products19%

14%

15%7%

45%


South Africa

South Africa was responsible for 1.12 percent of the global emissions in 2005, which results in a country ranking of twentieth20th overall. It is a beneficiary of the EU GSP, and in addition has an FTA with the EU. Trade barriers into the

EU are thus comparatively low for South Africa. This means that for any given carbon cost that BCAs impose, the trade barrier created by this cost will be relatively higher for South African products than for products from countries not enjoying similar FTA preferences.

Over the years 2007-09, no less than 28.10 percent of South Africa’s exports to the EU were constituted by the identified carbon leakage-sensitive products (see Figure 15). On average, thevalueof these tradeflowswasUSD7,672million per year. Figure 16 provides an overview of the composition of these sensitive exports. The EU is also a very important export market for South Africa, which makes the country even more vulnerable to potential EU BCAs. Specifically, 30.75 percent of South Africa’s2007-09 exports were destined for the EU.

The following sensitive products were most heavily exported from South Africa to the

EU: ‘bituminous coal’ (HS 2701.12); ‘coal other than anthracite and bituminous’ (HS 2701.19); ‘inorganic chemicals’ (HS 28); ‘organic chemicals’ (HS 29); ‘iron and steel’ (HS 72); and ‘unwrought aluminium’ (HS 7601). In addition, the goods from the ‘paper and paperboard’ (HS 48) and ‘copper’ (HS 74) sectors that have been identified assensitive were also heavily traded between South Africa and the EU. South Africa is particularly vulnerable to EU BCAs imposed on these sensitive products. Table 10 gives an overview of thecorresponding tradeflowsand, inaddition,presents information on the importance of the EU as an export market for most of these heavily-traded sensitive products.

Figure 15: South African exports to the EU, 2007-09

Figure 16: South African exports of sensitive products to the EU, 2007-09



28%

72%

Bituminous coal, not agglomerated(2701.12)

Coal other than anthracite &bituminous, not agglomerated (2701.19)



Iron and steel (72)



Sensitive paper, paperboard and articlesthereof (also of paper pulp) (48)

Sensitive copper and articles thereof (74)

32%

2%2%

8%

34%

12%

3%4%3%


Table 10: SOUTH AFRICA – Carbon leakage-sensitive exports to the EU, 2007-09




exports to the EU



(in million USD)




9.51% $2,596 54.18%


3.41% $931




0.72% $196

Iron and steel – HS 72 9.00% $2,456 29.66%

Sensitive copper and articles thereof – HS 74

0.55% $150

Unwrought aluminium - HS 7601 0.70% $192 14.34%a A sector was included in this list if its trade value of exports of sensitive products to the EU was larger than 0.5 percent of the trade value of total exports to the EU (over the years 2007-09). Sectors in italics are those from which not all goods are identified as sensitive. The data however only refers to those goods from the sector that have been identified as sensitive.

b These percentages have been calculated using export data from UN Comtrade. It should be remembered that at exportation, the final destination of a commodity is not always known. Data is missing for the HS 48 and 74 sectors because they are not completely comprised of identified sensitive products (hence the italics), and therefore information on the importance of the EU as an export market for these sectors as a whole would not serve the purpose of this study. Further, the reason data is missing for the HS 2701.19 sector is that the corresponding export data deviates so much from the EU-27 import data that it is highly unlikely that this difference is due to the general dynamics that cause import and export data to differ (for examples, see supra note 24).

It can be concluded from this analysis that South Africa would be hard hit by possible EU BCAs, as a large share (28.10%) of its 2007-09 exports to the EU consisted of sensitive products, and the EU is an important export market for the country generally. Of South Africa’s total 2007-09 exports, 30.75 percent were destined for the EU. In particular, South Africa is most vulnerable to EU BCAs imposed on its coal products and iron and steel. Sensitive exports from these sectors constituted very large shares of total South African exports to the EU: ‘bituminous coal’ (HS 2701.12) made up 9.51 percent of exports; ‘coal other than anthracite and bituminous’ (HS 2701.19) 3.41 percent; and ‘iron and steel’ (HS 72) 9 percent.

Moreover, the EU seems to be an even more important export market when it comes to these specific sensitive products.

Saudi Arabia

In 2005, Saudi Arabia emitted 376.6 million Mt CO2e, contributing exactly 1 percent of global emissions and ranking 22nd overall. Unlike most of the developing countries discussed here, Saudi Arabia ranks higher when considering its per capita emissions, ranking 16th with 16.3 Mt CO2e per person in 2005. This makes the country the largest emitter in per capita terms of the countries discussed in this paper. Saudi Arabia is a beneficiary of the EU GSP and has not had any tariff preferences removed.


Figure 17: Saudi Arabian exports to the EU, 2007-09

Figure 18: Saudi Arabian exports of sensitive products to the EU, 2007-09

Of Saudi Arabia’s total exports to the EU in the period 2007-09, 16.24 percent consisted of goods identified as most carbon leakage-sensitive (see Figure 17). On average, the value of these sensitive exports was USD 3,889 million per year. However, the EU does not seem to be a very important export market for Saudi Arabia; of its total 2007-09 exports, 7.05 percent were destined for the EU market. Figure 18 provides an overview of the composition of these sensitive exports in terms of specific products.

Saudi Arabia exported particularly high values of sensitive ‘petroleum oils and oils from bituminous minerals’ (HS 2710.19), ‘liquefied propane’ (HS 2711.12) and ‘organic chemicals’ (HS 29) to the EU. The country is thus especially vulnerable to EU BCAs imposed on these specific sensitive products. Data on the corresponding trade flows, and on the share of the EU as an export market, can be found in Table 11.


16%

84%


Propane, liquefied (2711.12)



38%

5%

52%

5%


Table 11: SAUDI ARABIA – Carbon leakage-sensitive exports to the EU, 2007-09

Figure 19: Thai exports to the EU, 2007-09




exports to the EU



(in million USD)




8.42% $2,017


0.85% $205 8.83%



b These percentages have been calculated using export data from UN Comtrade. It should be remembered that at exportation, the final destination of a commodity is not always known. For Saudi Arabia, no export data specifying the country of origin is available for the years 2008 and 2009, and these figures thus represent the year 2007 only. The reason data is missing for the HS 2710.19 sector is that the corresponding export data deviates so much from the EU-27 import data that it is highly unlikely that this difference is due to the general dynamics that cause import and export data to differ (for examples, see supra note 24).

Certain sensitive products represent very high percentages of the country’s exports to the EU. This means that how the sectoral coverage of possible EU BCAs is defined will be very important, and, specifically, whether ‘petroleum oils and oils from bituminous minerals’ (HS 2710.19) and ‘organic chemicals’ (HS 29) are covered. These products represented respectively 8.42 and 6.24 percent of Saudi Arabia’s total exports to the EU in 2007-09, and together 90 percent of its sensitive exports to the EU. On an overall

level, however, the EU does not seem to be a very important export market for Saudi Arabian products.

Thailand

Thailand emitted 351.1 million Mt CO2e in the year 2005, contributing 0.93 percent of global emissions and ranking 24th overall. Thailand is a beneficiary of the EU GSP, but has had some tariff preferences removed (HS 71). However, no tariff preferences with respect to sensitive products have been removed.


5%

95%


Figure 20: Thai exports of sensitive products to the EU, 2007-09

Table 12: THAILAND – Carbon leakage-sensitive exports to the EU, 2007-09



A share of 5.03 percent of Thailand’s total 2007-09 exports to the EU consisted of products identified as most sensitive to carbon leakage (see Figure 19). On average, the value of these Thai exports of sensitive goods to the EU was USD 1,139 million per year. Figure 20 gives an overview of the composition of these sensitive exports to the EU. As an export market, the EU represented 13.04 percent of Thailand’s total 2007-09 exports.

Particularly high values of sensitive ‘petroleum oils and oils from bituminous minerals’ (HS 2710.19), ‘organic chemicals’ (HS 29) and ‘iron and steel’ (HS 72) were exported to the EU. This means that Thailand is especially vulnerable to EU BCAs imposed on these specific sensitive products. Figures on the corresponding trade flows can be found in Table 12. In addition, the table provides information on the share of the EU as an export market for these heavily-traded sensitive products from Thailand.

From this analysis it can be concluded that compared to other countries in this study, Thailand seems less vulnerable to possible EU BCAs. This statement is mainly based on the fact that only 5.03 percent of Thailand’s total 2007-09 exports to the EU consisted of

sensitive products. In addition, for the specific sensitive products that have been singled out on the basis of the relative value of their exports to the EU, the EU does not seem to be a very important export market.



the EU

Average annual trade value of exports of sensitive products to the EU (in

million USD)


All sensitive products

5.03% $1,139 13.04% (of total exports)


0.81% $183 3.55%

Organic chemicals – HS 29

1.17% $265 9.73%

Iron and steel – HS 72 0.80% $181 7.26%

Portland cement, aluminous cement, slagcement, supersulphate cement (2523)



Dextrins & other modified starches (3505.10)

Iron and steel (72)


30%

8%

16%

23%

7%

16%


Argentina

In 2005, Argentina contributed 0.86 percent of global emissions, ranking 25th overall. Argentina is a beneficiary of the EU GSP and

has not had any tariff preferences removed. Like Brazil, Argentina is part of MERCOSUR, and thus part of ongoing regional negotiations with the EU on an FTA.

Figure 21: Argentinean exports to the EU, 2007-09

Figure 22: Argentinean exports of sensitive products to the EU, 2007-09


5%

95%


Of Argentina’s total exports to the EU in the period 2007-09, only 4.84 percent consisted of sensitive products (see Figure 21). On average, the value of these trade flows of sensitive products was USD 624 million per year. Figure 22 provides an overview of the composition of these sensitive exports in terms of the products involved. Of Argentina’s total 2007-09 exports, 18.32 percent were destined for the EU market.

Argentina exported particularly high values of the following sensitive products to the EU: ‘organic chemicals’ (HS 29); ‘iron and steel’

(HS 72); and ‘iron and steel tubes, pipes and hollow profiles’ (HS 7304). In addition, those products from the aluminium sector (HS 76) that have been identified as sensitive were also heavily traded from Argentina to the EU. Because of the high values of exports of sensitive products to the EU from these sectors, it will be particularly important for Argentina whether they are indeed covered by potential EU BCAs. Table 13 provides an overview of these high-value sensitive exports, and additionally presents information on the importance of the EU as an export market for them.

Sensitive mineral fuels, oils, waxes andbituminous substances (27)

Sensitive aluminium and articles thereof (76)


Wood charcoal (4402)

Iron and steel (72)

Iron or steeltubes, pipes and hollow profiles(seamless) (7304)


18%

10%

17%8%

19%

9%

19%


Table 13: ARGENTINA – Carbon leakage-sensitive exports to the EU, 2007-09


b These percentages have been calculated using export data from UN Comtrade. It should be remembered that at exportation, the final destination of a commodity is not always known. Data is missing for the HS 76 sector because it is not completely comprised of identified sensitive products (hence the italics), and therefore information on the importance of the EU as an export market for this sector as a whole would not serve the purpose of this study.

Only 4.84 percent of Argentina’s total exports to the EU in 2007-09 consisted of sensitive products. However, the EU is not an unimportant export market for Argentina; almost a fifth of its total 2007-09 exports were destined there. This suggests that the proportion of the exports to the EU that could be affected by EU BCAs does not have to be very large for it to have an impact on the overall economy. Moreover, for certain sensitive sectors that have been singled out because of the high value of their exports to the EU, the region also represents about one fifth of their exports market, suggesting that for these sectors any development in the EU

regarding imports is important and can have large consequences. This goes particularly for the ‘organic chemicals’ (HS 29) and the ‘iron and steel’ (HS 72) sectors, which are likely to face BCAs even if the EU decides on narrower sectoral coverage.

Nigeria

In 2005, Nigeria was responsible for 0.79 percent of global GHG emissions, ranking 26th overall. Importantly, after South Africa, Nigeria is the highest-ranking African country in terms of national emissions. Nigeria is a beneficiary of the EU GSP and has not had any tariff preferences removed.



exports to the EU




exportsb

All sensitive products 4.84% $624 18.32% (of total exports)

Organic chemicals – HS 29

0.91% $118 22.28%

Iron and steel – HS 72 0.92% $119 17.22%

Iron or steel tubes, pipes and hollow profiles(seamless)–HS7304

0.86% $110 8.77%

Sensitive aluminium and articles thereof – HS 76

0.51% $66


Figure 23: Nigerian exports to the EU, 2007-09

Of Nigeria’s total exports to the EU in 2007-09, the identified sensitive products comprised only 2.49 percent (see Figure 23). On average, the value of these sensitive exports was USD 424 million per year. Figure 24 gives a schematic overview of the main sensitive products that constituted these sensitive exports. Of Nigeria’s total 2007-09 exports, 20.73 percent were destined for the EU.

Particularly high values of Nigerian liquefied propane and butanes (HS 2711.12 and 2711.13) were exported to the EU. As can be seen in Figure 24, these products make up 70 percent of the total sensitive trade flow from Nigeria to the EU. It would thus be crucial for Nigeria whether EU BCAs, if implemented, indeed cover these products. Information on the related trade flows can be found in Table 14.


2%

98%

Figure 24: Nigerian exports of sensitive products to the EU, 2007-09

Light petroleum oils & preparations(2710.11)


Butanes, liquefied (2711.13)



26%

6%8% 16%

44%


Figure 25: Taiwanese exports to the EU, 2007-09

It is very clear from this analysis that only a small proportion (2.49%) of Nigeria’s 2007-09 exports to the EU consisted of sensitive goods, and that of these sensitive goods a very large proportion (70%) consisted of liquefied propane and butanes (HS 2711.12 and 2711.13). This means that the value of Nigerian exports facing EU BCAs could be limited but focused. As mentioned above, if EU BCAs are implemented, it will be crucial for Nigeria whether liquefied propane and butanes are indeed covered. However, it should be stressed that more than a fifth of Nigeria’s exports in 2007-09 were destined for the EU market, which means that the share of Nigerian exports to the EU

facing BCAs does not have to be very large for these measures to have a large impact on the country’s economy.

Taiwan

Taiwan contributed 0.75 percent of global GHG emissions in 2005, ranking 27th overall. On a per capita basis, it ranks slightly higher (26th) with emissions of 12.4 MtCO2 per person in 2005.33 Taiwan is neither a beneficiary of the EU GSP, nor has it signed an FTA with the EU. This means that compared to most of the other countries studied in this research, Taiwan faces higher trade barriers when exporting to the EU.

Table 14: NIGERIA – Carbon leakage-sensitive exports to the EU, 2007-09


b These percentages have been calculated using export data from UN Comtrade. It should be remembered that at exportation, the final destination of a commodity is not always known. Only 2009 Nigerian export data is classified according to HS 2007. For the codes mentioned in this table, the authors checked the concordances and decided that it poses no major problems that an older HS classification (HS 2002) is used. However, the data is nonetheless missing, because for the HS 27110.12 and 2711.13 sectors, the corresponding export data deviates so much from the EU-27 import data that it is highly unlikely that this difference is due to the general dynamics that cause import and export data to differ (for examples, see supra note 24).









1.08% $185

Butanes,liquefied–HS2711.13

0.66% $112


7%

93%


Of Taiwan’s total exports to the EU in 2007-09, 6.98percentconsistedoftheidentifiedsensitivegoods (see Figure 25). On average, the value of these vulnerable exports was USD 2,222 million annually. Figure 26 gives a schematic overview ofthemainspecificsensitiveproductsmakingupthisvulnerabletradeflow.

Taiwan exported particularly high values of the following sensitive products to the EU: ‘petroleum oils and oils from bituminous minerals’ (HS 2710.19); ‘organic chemicals’ (HS 29); and ‘iron and steel’ (HS 72). An overview of these trade flows can be found in Table 15.

Quite a small proportion of Taiwan’s 2007-09 exports to the EU consisted of sensitive products. Unfortunately this percentage cannot be interpreted in light of the importance of the EU as an export market for the country overall,

as no export data is available for Taiwan. It is relevant to observe, however, that for Taiwan, too,thespecificsensitiveproductssingledoutbecause of the relative values of their exports to the EU would be very likely to face BCAs.

Figure 26: Taiwanese exports of sensitive products to the EU, 2007-09

Table 15: TAIWAN – Carbon leakage-sensitive exports to the EU, 2007-09a


a For Taiwan, no trade data is available. Thus, no data is presented on the importance of the EU as an export market for Taiwan. The other figures have been calculated using the assumption that the imports of the EU-27 from Taiwan are equal to the imports from the region classified as ‘Other Asia, nes’.

b A sector was included in this list if its trade value of exports of sensitive products to the EU was larger than 0.5 percent of the trade value of total exports to the EU (over the years 2007-09).

Sectors with largest trade flows of sensitive products to the EUb

Exports of sensitive products to the EU as % of

total exports to the EU

Average annual trade value of exports of sensitive products to the EU (in

million USD)All sensitive products 6.98% $2,222Petroleum oils & oils from bituminous minerals - HS 2710.19

1.45% $463



Light petroleum oils & preparations(2710.11)


Butanes, liquefied (2711.13)



26%

6%8%

16%

44%


Venezuela

Venezuela contributed 0.69 percent of global GHG emissions in 2005, ranking 28th overall. With respect to per capita emissions, Venezuela ranks 48th, having emitted 9.8 Mt CO2e per person in 2005. Venezuela is the only country studiedinthispaperthatisabeneficiaryof the

EU GSP Plus. Compared to the countries that are only beneficiaries of theGSP, Venezuela thusfaces lower trade barriers when importing into the EU. This means that any new trade barrier, such as a carbon cost imposed by BCAs, will be relatively higher for Venezuelan products than for products facing higher barriers in the firstplace.

No less than 41.83 percent of Venezuela’s total 2007-09 exports to the EU consisted of products identified as most sensitive to carbon leakage (see Figure 27). On average, the value of these sensitive exports was USD 3,098 million annually. Figure 28 specifies the main sensitive products that comprise this vulnerable trade flow. The EU does not, however, seem to be a very important export market for Venezuela, at least at a general (non-product specific) level; of Venezuela’s total exports in 2007-09, 4.42 percent were destined for the EU.

Venezuela exported particularly high values of the following sensitive products to the EU: ‘bituminous coal’ (HS 2701.12); ‘coal other than anthracite and bituminous’ (HS 2701.19); ‘petroleum oils and oils from bituminous minerals’ (HS 2710.19); ‘petroleum coke’ (HS 2713); ‘organic chemicals’ (HS 29); ‘iron and steel’ (HS 72); ‘unwrought aluminium’ (HS 7601); and ‘aluminium wire’ (HS 7605). An overview of these specifically vulnerable trade flows is given in Table 16. In addition, information is provided on the importance of the EU as an export market for Venezuela with respect to some of these specific products.

Figure 27: Venezuelan exports to the EU, 2007-09

Figure 28: Venezuelan exports of sensitive products to the EU, 2007-09


42%

58%

Bituminous coal, not agglomerated(2701.12)

Coal other than anthracite &bituminous, not agglomerated (2701.19)


Petroleum coke (2713)


Iron and steel (72)


Aluminium wire (7605)


47%

8%

6%

18%

4%2%

6% 8%1%


An extremely large proportion (41.83%) of Venezuela’s 2007-09 exports to the EU consisted of the identified sensitive products, whichsuggeststhatthecountrycouldbesignificantlyaffected by possible EU BCAs. Almost half of the sensitive exports are comprised of

‘petroleum oils and oils of bituminous minerals’ (HS 2710.19). Further, the ‘iron and steel’ (HS 72) sector could also face possible EU BCAs on relatively high values of exports, given that they represented 7.61 percent of Venezuela’s total 2007-09 exports to the EU.

Table 16: VENEZUELA – Carbon leakage-sensitive exports to the EU, 2007-09


b These percentages have been calculated using export data from UN Comtrade. It should be remembered that at exportation, the final destination of a commodity is not always known. For Venezuela, no export data is available for the year 2007, and these figures thus represent the years 2008 and 2009 only. The 2008 and 2009 export data is classified according to HS 2002. However, for the codes mentioned in this table, the authors checked the concordances and decided that it poses no major problems that this older HS classification is used. However, certain data is nonetheless missing, because, first, for the HS 2701.12, 29, and 7601 sectors, the corresponding export data deviates so much from the EU-27 import data that it is highly unlikely that this difference is due to the general dynamics that cause import and export data to differ (for examples, see supra note 24). Second, no 2008-09 export data is available for the HS 2701.19, 2710.19 and 2713 sectors.



the EU



(in million USD)


exportsb



3.28% $243


0.53% $39


19.67% $1,456

Petroleum coke - HS 2713 3.25% $240

Organic chemicals - HS 29 2.33% $172

Iron and steel - HS 72 7.61% $564 23.17%

Unwrought aluminium - HS 7601

1.59% $117

Aluminium wire - HS 7605 1.06% $79 82.89%


Pakistan

In 2005, Pakistan contributed 0.63 percent of global GHG emissions, ranking 29th overall. On a per capita basis, however, Pakistan ranks

154th, which is the lowest of all the developing countries studied in this paper. In 2005, Pakistan emitted only 1.5 Mt CO2e per person. Pakistan isabeneficiaryoftheEUGSPandhasnothadany tariff preferences removed.

Of Pakistan’s total exports to the EU during the years 2007 to 2009, 13.61 percent consisted of the products identified as most sensitive tocarbon leakage (see Figure 29). On average, the value of these sensitive Pakistani exports was USD 668 million per year. Figure 30 gives an overview of the composition of these exports in terms of sensitive products. The EU seems to be an important export market for Pakistan overall; of Pakistan’s total exports in 2007-09, 25.70 percent were destined there.

Particularly high values were exported from Pakistan to the EU of the following sensitive products: ‘molasses from sugar’ (HS 1703); ‘undenatured alcohol etc.’ (HS 2207); ‘leather articles of apparel’ (HS 4203.10); ‘leather gloves etc.’ (HS 4203.29); ‘cotton yarn’ (HS 5205); and ‘yarnofsyntheticstaplefibres’(HS5509).Anoverview of these particularly vulnerable trade flows can be found in Table 17, which alsoprovides information on the importance of the EU as an export market for them.

Figure 29: Pakistani exports to the EU, 2007-09

Figure 30: Pakistani exports of sensitive products to the EU, 2007-09


14%

86%

Molasses from sugar (1703)

Undenatured ethylalcohol, >80% alcohol anddenatured ethyl alcohol/sprits (2207)

Leather articles of apparel (4203.10)

Gloves etc. of leather, not for sports (4203.29)

Cotton yarn (>85% cotton, no retail sale) (5205)

Yarn of synthetic staple fibres, no retail sale (5509)


14%

21%

4%

20%

12%

8%

21%


The sensitive sectors that have been singled out for Pakistan, on the basis of the relatively high values of their exports to the EU in 2007-09, are clearly different from most of the other countries studied here (although some similarities exist, unsurprisingly, with India). Further, the EU is a very important export market for these specific Pakistani sensitiveproducts, above all for ‘molasses from sugar’ (HS 1703).

Malaysia

Malaysia contributed 0.62 percent of global emissions in 2005, ranking 30th overall. On a per capita basis, it emitted 9.2 Mt CO2e, ranking 52nd in the world.34Malaysiaisabeneficiaryofthe EU GSP, but has had some tariff preferences removed (HS 15). However, these removed tariff preferences do not concern any sensitive products. Further, negotiations between the EU and Malaysia for an FTA were launched at the end of 2010.

Table 17: PAKISTAN – Carbon leakage-sensitive exports to the EU, 2007-09

Figure 31: Malaysian exports to the EU, 2007-09


b These percentages have been calculated using export data from UN Comtrade. It should be remembered that at exportation, the final destination of a commodity is not always known. Only 2008 and 2009 Pakistani export data is classified according to HS 2007. However, for the codes mentioned in this table, the authors checked the concordances and decided that it poses no major problems that an older HS classification (HS 2002) is used.



exports to the EU




exportsb


Molasses from sugar – HS 1703 1.68% $82 97.83%


1.17% $57 37.64%


4.71% $231 56.78%

Gloves etc. of leather, not for sports – HS 4203.29

1.88% $92 58.34%

Cotton yarn (>85% cotton, not for retail sale) – HS 5205

2.82% $138 10.84%

Yarnofsyntheticstaplefibres,no retail sale – HS 5509

0.55% $27 41.93%


5%

95%


Of Malaysia’s total 2007-09 exports to the EU, only 5.15 percent constituted sensitive products (see Figure 31). On average, the value of these sensitive exports was USD 1,222 million annually. Figure 32 gives an overview of the specificsensitive products these exports were made up of. As for the importance of the EU as an export market for Malaysia, 11.69 percent of its total exports were destined for the EU market.

Malaysia exported particularly high values of the following sensitive products to the EU:

‘petroleum oils and oils of bituminous minerals’ (HS 2710.19); ‘inorganic chemicals’ (HS 29); ‘industrial monocarboxylic fatty acids’ (HS 3823); and ‘iron and steel’ (HS 72). This means that the Malaysian economy is particularly vulnerable toEUBCAsimposedonthesespecificsensitiveproducts.AnoverviewoftheirtradeflowscanbefoundinTable18,aswellasfiguresontheimportance of the EU as an export market for Malaysia with respect to these products.

Table 18: MALAYSIA – Carbon leakage-sensitive exports to the EU, 2007-09

Figure 32: Malaysian exports of sensitive products to the EU, 2007-09


b These percentages have been calculated using export data from UN Comtrade. It should be remembered that at exportation, the final destination of a commodity is not always known. Only 2009 Malaysian export data is classified according to HS 2007. However, for the codes mentioned in this table, the authors checked the concordances and decided that it poses no major problems that an older HS classification (HS 2002) is used.




exports to the EU




exportsb



1.12% $266 4.56%


Industrial monocarboxylic fatty acids; acid oils from refining1;industrialfattyalcohols – HS 3823

1.52% $361 27.37%

Iron and steel – HS 72 0.52% $125 4.94%



Industrial monocarboxylic fatty acids; acid oilsfrom refining; industrial fatty alcohols (3823)

Iron and steel (72)


Sensitive other mineral fuels, oils, waxes andbituminous substances (27, excl. 2810.19)

10%

20% 22%

6%

12%

30%


Only a small proportion (5.15%) of Malaysia’s 2007-09 exports to the EU were comprised of sensitive products. Although not unimportant, the EU is also not an extremely important export market for Malaysia. Industrial monocarboxylic fatty acids, acid oils from refining, andindustrial fatty alcohols (HS 3823) constitute the greatest share (30%) of Malaysia’s sensitive exports to the EU, and the EU seems to be quite an important market for these products specifically. This means that for Malaysia itwill be very important, if the EU implements BCAs, whether they are indeed covered under the system.

Egypt

Egypt emitted 227.2 million Mt CO2e in 2005, contributing 0.60 percent of global GHG emissions and ranking 31st overall. Egypt is a beneficiary of the EU GSP, and, in addition,has an FTA with the EU. Thus, Egypt faces low trade barriers compared to most of the other developing countries studied in this paper. A trade barrier resulting from carbon costs imposed by EU BCAs will therefore be relatively higher for Egyptian products than for products from countries not already enjoying similar FTA preferences.

In 2007-09, 31.19 percent of Egypt’s total exports totheEUconsistedoftheidentifiedsensitiveproducts (see Figure 33). On average, this trade flowhadanannualvalueofUSD3,122million.Figure 34 shows the main sensitive products comprising it. As an export market, the EU was important for Egypt; 32.97 percent of its total 2007-09 exports were destined there.

Egypt exported particularly high values of the following sensitive products to the EU: ‘portland, aluminous, slag, supersulphate and similar hydraulic cements’ (HS 2523); ‘light oils and preparations’ (HS 2710.11); ‘petroleum oils and oils from bituminous minerals’ (HS 2710.19); ‘liquefied propane’ (HS 2711.12);

‘inorganic chemicals’ (HS 28); ‘fertilisers’ (HS 31); ‘cotton yarn’ (HS 5205); ‘iron and steel’ (HS 72); ‘copper wire’ (HS 7408); ‘unwrought aluminium’ (HS 7601); and ‘aluminium plates etc.’ (HS 7606). In addition, those other products from the ‘mineral fuels, oils, waxes and bituminous substances’ (HS 27) sector that wereidentifiedassensitivetocarbonleakagewere also heavily traded between Egypt and the EU. Egypt is thus particularly vulnerable toEUBCAsimposedonthesespecificsensitiveproducts. Table 19 outlines the corresponding trade flows, and additionally providesinformation on the importance of the EU as an export market for some of these Egyptian products.

Figure 33: Egyptian exports to the EU, 2007-09


31%

69%


Figure 34: Egyptian exports of sensitive products to the EU, 2007-09


Portland, aluminous, slag, supersulphate

and similar hydraulic cements (2523)

Light petroleum oils and preparations(2710.11)

Petroleum oils & oils from bituminous minerals(2710.19)



Fertilisers (31)

Cotton yarn (>85% cotton,no retail sale) (5205)

Iron and steel (72)

Copper wire (7408)


Aluminium plates etc., >0.2 mm (7606)


Sensitive other mineral fuels, oils waxes and

bituminous substances (27, excl.2710.11,2710.19 & 2711.12)

20%

3%

17%

5%

5%

4%

7%

2%

15%

6%

10%

2%4%


Table 19: EGYPT – Carbon leakage-sensitive exports to the EU, 2007-09

a A sector was included in this list if its trade value of exports of sensitive products to the EU was larger than 0.5 percent of the trade value of total exports to the EU (over the years 2007-09). Sectors in italics are those from which not all goods are identified as sensitive. The data however only refers to those goods from the sector that have been identified as sensitive.b These percentages have been calculated using export data from UN Comtrade. It should be remembered that at exportation, the final destination of a commodity is not always known. For Egypt, no trade data is available for the year 2009. In addition, Egypt’s export data for 2007 is classified according to HS 1992, for which no correspondence tables are available on the UN Statistics Division website. Therefore, these figures represent the year 2008 only. Data is missing for the HS 27, excl. 2710.11, 2710.19 & 2711.12 sector because it is not completely comprised of identified sensitive products (hence the italics), and therefore information on the importance of the EU as an export market for this sector as a whole would not serve the purpose of this study. Further, data is also missing for the HS 7408 and 7606 sectors, because the corresponding export data deviates so much from the EU-27 import data that it is highly unlikely that this difference is due to the general dynamics that cause import and export data to differ (for examples, see supra note 24).


Exports of sensi-tive products to

the EU as % of total exports to the EU




exportsb


Portland, aluminous, slag, supersulphate and similar hydraulic cements – HS 2523

0.52% $52 12.68%

Light petroleum oils and preparations – HS 2710.11

4.78% $478 18.15%


1.93% $193 32.44%

Propane,liquefied–HS2711.12 3.30% $331 100%

Sensitive other mineral fuels, oils, waxes and bituminous substances – HS 27, excl. 2710.11, 2710.19 & 2711.12

0.61% $61


Fertilisers – HS 31 6.20% $621 55.44%


0.83% $83 57.74%

Iron and steel - HS 72 5.30% $530 46.26%

Copper wire – HS 7408 1.53% $153

Unwrought aluminium – HS 7601 1.52% $152 94.43%

Aluminium plates etc., >0.2mm – HS 7606

1.33% $133

A large proportion (31.19%) of Egypt’s 2007-09 exports to the EU consisted of sensitive products. This, in combination with the fact that about one third (32.97%) of the country’s exports were destined for the EU, makes the country very vulnerable to possible EU BCAs. Further, certain sensitiveproducts,specifically‘lightpetroleumoils and preparations’ (HS 2710.11), ‘fertilisers’ (HS 31), and ‘iron and steel’ (HS 72), constituted relatively large shares of Egypt’s total exports

to the EU, making the country particularly vulnerable to EU BCAs imposed on them. Finally, for some of the sensitive products that have been singled out on the basis of the value of their exports to the EU, the EU is a shockingly important export market. This is especially the caseforliquefiedpropane(HS2711.12),ofwhichall Egyptian exports were destined for the EU, but also for unwrought aluminium (HS 7601), of which 94.43 percent were.


Figure 35: Kazakhstani exports to the EU, 2007-09

Of Kazakhstan’s total exports to the EU in 2007-09, 14.05 percent consisted of the identifiedsensitive products (See Figure 35). On average, the value of these sensitive exports was USD 2,727 million. Figure 36 provides an overview of themainspecificsensitiveproductscomprisingthem. In general, the value of these sensitive exports should be interpreted in light of the fact that the EU is an important export market for Kazakhstan; of its total 2007-09 exports, 43.83 percent were destined for the EU market.

Particularly high values were exported to the EU of the following Kazakhstani sensitive products: ‘petroleum oils and oils from bituminous minerals’ (HS 2710.19); ‘liquefied propane’ (HS 2711.12); ‘inorganic chemicals’

(HS 28); ‘iron and steel’ (HS 72); ‘unwrought refined copper and copper alloys’ (HS 7403); ‘zinc and articles thereof’ (HS 79); and ‘other base metals, cermets and articles thereof’ (HS 81). In addition, those other products from the sector covering ‘mineral fuels, oils, waxes and bituminous substances’ (HS 27) that were identified as sensitive to carbon leakage were also heavily traded between Kazakhstan and the EU. For Kazakhstan, if the EU does implement BCAs, whether these products are indeed covered will be very important. Table 20 gives an overview of these trade flows, and additionally presents information on the importance of the EU as an export market for some of these sensitive Kazakhstani products.

Kazakhstan

In 2005 Kazakhstan was responsible for 0.54 percent of global GHG emissions, ranking 33rd overall. On a per capita basis, it ranks 22nd, which is very high compared to the other

countries analyzed in this paper. Kazakhstan is a beneficiary of the EU GSP and has not had any tariff preferences removed. It is also in the process of working towards accession to the WTO.


14%

86%


Figure 36: Kazakhstani exports of sensitive products to the EU, 2007-09


Petroleum oils & oils frombituminous minerals (2710.19)



Iron and steel (72)

Refined copper and copperalloys, unwrought (7403)

Zinc and articles thereof (79)

Other base metals; cermets;articles thereof (81)


Sensitive other mineral fuels, oils, waxesand bituminous substances (27, excl.2710.19 & 2711.12)

14%

9%

9%

10%

29%

12%

8%

4%5%


Table 20: KAZAKHSTAN – Carbon leakage-sensitive exports to the EU, 2007-09








exportsb



2.04% $395 43.86%


1.31% $255 65.27%

Sensitive other mineral fuels and oils – HS 27, excl. 2710.19 & 2711.12

1.20% $232


Iron and steel – HS 72 4.04% $784 21.60%


1.71% $331


1.14% $221 45.86%

Other base metals; cermets; articles thereof – HS 81

0.52% $101 33.40%

Most interesting from the analysis of Kazakh-stan’s vulnerability to EU BCAs seems to be the findingthattheEUisaveryimportantexportmarketforthecountryoverallandforspecificsensitive products. Considering that 43.83 percent of Kazakhstan’s total exports were destined for the EU, the fact that sensitive products constitute 14.05 percent of them

suggests the country is highly vulnerable to possible EU BCAs. In addition, the fact that the EU is an important export market for many sensitive products that were heavily traded between Kazakhstan and the EU means that their sectors will be significantly affected ifthese products do indeed face EU BCAs.

b These percentages have been calculated using export data from UN Comtrade. It should be remembered that at exportation, the final destination of a commodity is not always known. Only 2009 Kazakhstani export data is classified according to HS 2007. However, for the codes mentioned in this table, the authors checked the concordances and decided that it poses no major problems that an older HS classification (HS 2002) is used. Data is missing for the HS 27, excl. 2710.19 & 2711.12 sector because it is not completely comprised of identified sensitive products (hence the italics), and therefore information on the importance of the EU as an export market for this sector as a whole would not serve the purpose of this study. Further, data is also missing for the HS 7403 sector, because the corresponding export data deviates so much from the EU-27 import data that it is highly unlikely that this difference is due to the general dynamics that cause import and export data to differ (for examples, see supra note 24).

SELECTES ICTSD ISSUE PAPERS Agriculture Trade and Sustainable Development The Impact of US Biofuel Policies on Agricultural Price Levels and Volatility. By Bruce Babcock. Issue Paper No. 35, 2011.Risk Management in Agriculture and the Future of the EU’s Common Agricultural Policy. By Stefan Tangermann. Issue Paper No. 34, 2011.Policy Solutions To Agricultural Market Volatility: A Synthesis. By Stefan Tangermann. Issue Paper No. 33, 2011.Composite Index of Market Access for the Export of Rice from the United States. By Eric Wailes. Issue Paper No. 32, 2011.Composite Index of Market Access for the Export of Rice from Thailand. By T. Dechachete. Issue Paper No. 31, 2011.Composite Index of Market Access for the Export of Poultry from Brazil. By H. L. Burnquist, C. C. da Costa, M. J. P. de Souza, L. M. Fassarella. Issue Paper No. 30, 2011.How Might the EU’s Common Agricultural Policy Affect Trade and Development After 2013? By A. Matthews. Issue Paper No. 29, 2010.Food Security, Price Volatility and Trade: Some Reflections for Developing Countries. By Eugenio Díaz-Bonilla and Juan Francisco Ron. Issue Paper No. 28, 2010.Composite Index of Market Access for the Export of Rice from Uruguay. By Carlos Perez Del Castillo and Daniela Alfaro. Issue Paper No. 27, 2010.How Would A Trade Deal On Cotton Affect Exporting And Importing Countries? By Mario Jales. Issue Paper No. 26, 2010.Simulations on the Special Safeguard Mechanism: A Look at the December Draft Agriculture Modalities. By Raul Montemayor. Issue Paper No. 25, 2010.

Competitiveness and Sustainable DevelopmentThe Role of International Trade, Technology and Structural Change in Shifting Labour Demands in South Africa. By H. Bhorat, C. van der Westhuizen and S.Goga. Issue Paper No. 17, 2010.Trade Integration and Labour Market Trends in India: an Unresolved Unemployment Problem. By C.P. Chandrasekhar. Issue Paper No. 16, 2010.The Impact of Trade Liberalization and the Global Economic Crisis on the Productive Sectors, Employment and Incomes in Mexico. By A. Puyana. Issue Paper No. 15, 2010.Globalization in Chile: A Positive Sum of Winners and Losers. By V. E. Tokman. Issue Paper No. 14, 2010.Practical Aspects of Border Carbon Adjustment Measures – Using a Trade Facilitation Perspective to Assess Trade Costs. By Sofia Persson. Issue Paper No.13, 2010.Trade, Economic Vulnerability, Resilience and the Implications of Climate Change in Small Island and Littoral Developing Economies. By Robert Read. Issue Paper No.12, 2010.The Potential Role of Non Traditional Donors ‘Aid in Africa. By Peter Kragelund. Issue Paper No.11, 2010.Aid for Trade and Climate Change Financing Mechanisms: Best Practices and Lessons Learned for LDCs and SVEs in Africa. By Vinaye Dey Ancharaz. Issue Paper No.10, 2010.Resilience Amidst Rising Tides: An Issue Paper on Trade, Climate Change and Competitiveness in the Tourism Sector in the Caribbean. By Keron Niles. Issue Paper No. 9, 2010.

Dispute Settlement and Legal Aspects of International TradeConflicting Rules and Clashing Courts. The Case of Multilateral Environmental Agreements, Free Trade Agreements and the WTO. By Pieter Jan Kuijper. Issue Paper No.10, 2010.Burden of Proof in WTO Dispute Settlement: Contemplating Preponderance of the Evidence. By James Headen Pfitzer and Sheila Sabune. Issue Paper No. 9, 2009.Suspension of Concessions in the Services Sector: Legal, Technical and Economic Problems. By Arthur E. Appleton. Issue Paper No. 7, 2009.Trading Profiles and Developing Country Participation in the WTO Dispute Settlement System. By Henrik Horn, Joseph Francois and Niklas Kaunitz. Issue Paper No. 6, 2009.

Fisheries, International Trade and Sustainable DevelopmentThe Importance of Sanitary and Phytosanitary Measures to Fisheries Negotiations in Economic Partnership Agreements. By Martin Doherty. Issue Paper No. 7, 2008.Fisheries, Aspects of ACP-EU Interim Economic Partnership Agreements: Trade and Sustainable Development Implications. By Liam Campling. Issue Paper No. 6, 2008.Fisheries, International Trade and Sustainable Development. By ICTSD. Policy Discussion Paper, 2006.

Innovation, Technology and Intellectual PropertyIntellectual Property Rights and International Technology Transfer to Address Climate Change: Risks, Opportunities and Policy Options. By K. E. Maskus and R. L. Okediji. Issue Paper No. 32, 2010Intellectual Property Training and Education: A Development Perspective. By Jeremy de Beer and Chidi Oguamanam. Issue Paper No. 31, 2010.An International Legal Framework for the Sharing of Pathogens: Issues and Challenges. By Frederick M. Abbott. Issue Paper No. 30, 2010.Sustainable Development In International Intellectual Property Law – New Approaches From EU Economic Partnership Agreements? By Henning GrosseRuse – Khan. Issue Paper No. 29, 2010.

Trade in Services and Sustainable DevelopmentFacilitating Temporary Labour Mobility in African Least-Developed Countries: Addressing Mode 4 Supply-Side Constraints. By Sabrina Varma. Issue Paper No.10, 2009.Advancing Services Export Interests of Least-Developed Countries: Towards GATS Commitments on the Temporary Movement of natural Persons for the Supply of Low-Skilled and Semi-Skilled Services. By Daniel Crosby, Issue Paper No. 9, 2009.Maritime Transport and Related Logistics Services in Egypt. By Ahmed F. Ghoneim, and Omneia A. Helmy. Issue Paper No. 8, 2007.

Environmental Goods and Services ProgrammeHarmonising Energy Efficiency Requirements – Building Foundations for Co-operative Action. By Rod Janssen. Issue Paper No. 14, 2010Climate-related single-use environmental goods. By Rene Vossenaar. Issue Paper No.13, 2010.Technology Mapping of the Renewable Energy, Buildings, and transport Sectors: Policy Drivers and International Trade Aspects: An ICTSD Synthesis Paper. By Renee Vossenaar and Veena Jha. Issue Paper No.12, 2010.

Trade and Sustainable EnergyInternational Transport, Climate Change and Trade: What are the Options for Regulating Emissions from Aviation and Shipping and what will be their Impact on Trade? By Joachim Monkelbaan. Background Paper, 2010.Climate Change and Trade on the Road to Copenhagen. Policy Discussion Paper, 2009.Trade, Climate Change and Global Competitiveness: Opportunities and Challenge for Sustainable Development in China and Beyond. By ICTSD. Selected Issue Briefs No. 3, 2008.Intellectual Property and Access to Clean Energy Technologies in Developing Countries: An Analysis of Solar Photovoltaic, Biofuel and Wind Technologies. By John H. Barton. Issue Paper No. 2, 2007.

Regionalism and EPAsQuestions Juridiques et Systémiques Dans les Accords de Partenariat économique : Quelle Voie Suivre à Présent ? By Cosmas Milton Obote Ochieng. Issue Paper No. 8, 2010.Rules of Origin in EU-ACP Economic Partnership Agreements. By Eckart Naumann. Issue Paper No. 7, 2010SPS and TBT in the EPAs between the EU and the ACP Countries. By Denise Prévost. Issue Paper No. 6, 2010.Los acuerdos comerciales y su relación con las normas laborales: Estado actual del arte. By Pablo Lazo Grandi. Issue Paper No. 5, 2010.Revisiting Regional Trade Agreements and their Impact on Services and Trade. By Mario Marconini. Issue Paper No. 4, 2010.Trade Agreements and their Relation to Labour Standards: The Current Situation. By Pablo Lazo Grandi. Issue Paper No. 3, 2009.

Global Economic Policy and InstitutionsThe Microcosm of Climate Change Negotiations: What Can the World Learn from the European Union? By Håkan Nordström, Issue Paper No. 1, 2009.

These and other ICTSD resources are available at http://www.ictsd.org

www.ictsd.org

Other Publications from ICTSD’s Programme on Competitiveness and Sustainable Development include:

• TheAllocationofEmissionAllowancesFreeofCharge:LegalandEconomicConsiderations.Issue Paper No. 18 by I. Jegou and L. Rubini, 2011

• The Role of International Trade, Technology and Structural Change in Shifting LabourDemands in South Africa. Issue Paper No. 17 by H. Bhorat, C. van der Westhuizen and S. Goga, 2010.

• Trade Integration and Labour Market Trends in India: an Unresolved UnemploymentProblem. Issue Paper No. 16 by C.P. Chandrasekhar, 2010.

• TheImpactofTradeLiberalizationandtheGlobalEconomicCrisisontheProductiveSectors,EmploymentandIncomesinMexico.IssuePaperNo.15byA.Puyana,2010.

• Globalization inChile:APositiveSumofWinnersandLosers. IssuePaperNo.14byV.E.Tokman, 2010.

• Practical Aspects of Border Carbon Adjustment Measures – Using a Trade FacilitationPerspective to Assess Trade Costs. Issue Paper No. 13 by S. Persson, 2010.

• Trade,EconomicVulnerability,ResilienceandtheImplicationsofClimateChangeonSmallIsland and Littoral Developing Economies. Issue Paper No. 12 by Robert Read, 2010.

• The Potential RoleofNon-TraditionalDonor’sAid inAfrica. Issue PaperNo. 11by PeterKragelund, 2010.

• ResilienceAmidstRisingTides:AnIssuePaperonTrade,ClimateChangeandCompetitivenessin the Tourism Sector in the Caribbean. Issue Paper No. 9 by Keron Niles, 2010.

• AidforTradeandClimateChangeFinancingMechanisms:BestPracticesandLessonsLearnedfor LDCs and SVEs in Africa. Issue Paper No. 8 by Vinaye Dey Ancharaz, 2010.

• ElsectortextilyconfecciónyeldesarrollosostenibleenNicaragua.DocumentodeFondoNo. 7 por Ana Victoria Portocarrero Lacayo, 2010.

• ElsectortextilyconfecciónyeldesarrollosostenibleenGuatemala.DocumentodeFondoNo. 6 por Pedro Prado et al, 2009.

• Estrategias para la reconversión de la industria textil y confecciones en Guatemala yNicaragua.DocumentodeFondoNo.5porEduardoBurgaBartra,2009.

• Looking for a meaningful Duty Free Quota Free Market Access Initiative in the DohaDevelopmentAgenda.IssuePaperNo.4byDavidLaborde,2008.

About ICTSD

Founded in 1996, the International Centre for Trade and Sustainable Development (ICTSD) is an independent non-profit and non-governmental organisation based in Geneva. By empowering stakeholders in trade policy through information, networking, dialogue, well-targeted research and capacity building, the Centre aims to influence the international trade system so that it advances the goal of sustainable development.

Documents

EU Climate Policies and Developing Country Trade Vulnerability