Politico Trade newsletter – Europe

EU-LATIN AMERICA MEETING TODAY: Top politicians from the EU, Latin America and the Caribbean are set to meet virtually today. The high-level meeting isn’t set to focus on trade, with agenda topics ranging from the economic impacts of the coronavirus pandemic to the green transition, digital agendas and fighting inequalities. But we’ll still be watching since it’s a rare occasion to see the leaders of the EU and Mercosur countries come together to talk in one space.

European Council President Charles Michel will chair the meeting, with EU foreign affairs chief Josep Borrell and European Commission President Ursula von der Leyen also in attendance.

BELGIAN BUSINESSES PLEAD FOR PRAGMATISM ON DUE DILIGENCE: Belgian businesses support the principles behind the upcoming European due diligence legislation, but ask for enough legal certainty and pragmatism, especially for SMEs, according to Arie Van Hoe, who covers the file at the Federation of Enterprises in Belgium.

Leave it to EU: The Belgian parliament is also looking to draft due diligence legislation, but Belgian businesses argue this issue should be tackled at the European level, not the national level, for the sake of clarity and legal certainty. 

Look out for SMEs: The scope of the due diligence rules will be an important question for SMEs, Van Hoe told Morning Trade. If the obligations for SMEs go too far, he said he fears “many Belgian companies will not be able to meet them. Even when they have good intentions, SMEs don’t have the resources to deal with this worldwide.”

Van Hoe also argued the biggest improvements will likely be seen among the biggest companies: “Large Belgian enterprises are already looking into their supply chains. This new legislation will give an extra impulse, but they are increasingly aware of their role and their responsibility. It’s precisely these large, global companies who will have the biggest impact for this legislation.”

WAIVE CBAM FOR UKRAINE, DEPUTY PM SAYS: Ukraine shouldn’t be hit by carbon border taxes, a top official from the Kyiv government said on Wednesday. “We expect that there will be specific calculations of equivalency of measures taken on national level in terms of nonapplication of this mechanism towards Ukraine,” said Olha Stefanishyna, deputy prime minister for European and Euro-Atlantic integration, during POLITICO’s Sustainable Future Summit.

Pointing to existing and planned carbon rules in Ukraine, Stefanishyna said the European Commission should view her country’s rules as equivalent to environmental protections in the bloc. Ukraine plans to launch an emissions trading system by 2025. 

Have no fear here: She also argued her country poses no threat of so-called carbon leakage — when companies move carbon-intensive industrial production to places with laxer legislation. “Ukraine has never been a source of carbon leakage to the European Union,” she said. “No evidence has been identified that EU companies have shifted their production … to Ukraine, therefore no carbon leakage has been detected so far.”

Tale of two companies: Gerassimos Thomas, head of the Commission’s taxation and customs department, said “it is important to keep in mind that we are looking at the carbon content of products of the ton of steel.” Thomas also didn’t explicitly rule out the notion that entire countries could be exempt from the measures in the future.

“There could be two companies in Ukraine or two companies in Turkey and they will get a different treatment in buying the ETS. There would be one which is slightly greener than the other, and then they will get the carbon pricing … discount,” he said.

Excluding poorer countries would be legal: Trade policy veteran Pascal Lamy, president emeritus of the Jacques Delors Institute think tank, urged the Commission to exclude poorer countries from the scheme. Lamy, who previously served as EU trade commissioner and later WTO boss, argued this would be legal under international trading rules. 

‘Don’t use it for your own budget’: Lamy also said that in order to be compatible with WTO rules, the revenues generated through CBAM shouldn’t go to the bloc’s own budget. Instead, he said it should be used for assisting developing countries with their environmental policies.

Potential workaround: Thomas acknowledged that big multinational companies could potentially avoid paying the carbon levy by having one clean factory and sending all their products that face carbon scrutiny to the EU from there. “I will not claim here whether there is no risk of circumvention of CBAM,” Thomas said.