“CBAM is a bad instrument. It is wrongly conceived, it is almost impossible to apply, it is limited to the first phase of the cycle (Scope 1) and it’s not going to work,” declared Antonio Marcegaglia, the CEO of Italian steelmaker Marcegaglia, to a steel conference in Rome in September. “I do believe it has been used so far as an idea of increasing protectionism rather than balancing efforts as it was originally conceived,” he added. The CBAM he was referring to is the European Union´s carbon border adjustment mechanism which will take full effect in 2026. It will put a tariff on carbon-intensive products – such as steel and cement – when they enter Europe. However, what is CBAM really? Is it a genuine attempt to encourage the world towards more eco-friendly products? Or is its true purpose to stop cheaper imports gaining market share from European steelmakers? The main “culprit” in all this is China which produces almost 60% of all global steel. A significant slowing of China´s economy and, especially, a dramatic

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fall in its steel-hungry property market over the past three years has prompted a major increase in its steel exports at prices which many of its international competitors can´t match.

The Indian Steel Association (ISA) has called on its government to double tariffs on imports to dissuade cheaper steel from China. “The surge in imports at predatory prices, due to diversion and due to a major reduction in steel consumption in China is a double whammy for us,” the secretary general of ISA, Alok Sahay, told the news agency Reuters. ISA represents major steel producers including JSW Steel, Tata Steel, ArcelorMittal Nippon Steel India and the state-run Steel Authority of India. Despite being the world’s second-biggest crude steel producer, India became a net importer of the alloy in the fiscal year through March 2024 and the trend has continued into the current year. ISA says the decision by Joe Biden´s administration during September to lock in 25% tariffs on steel and aluminium from China will only make matters worse for India as Chinese exporters turn to other markets.

ISA´s use of the words “predatory prices” was intentionally provocative. An industry wishing to protect itself from competitors (whether local or international) might well characterise the actions of its opponents as predatory. The implication is that the predator is bad, perhaps even evil, and doesn´t play by the rules. Of course, just because a local industry makes such a claim, doesn´t mean that it´s true. In Australia, the federal government´s Anti-Dumping Commission investigates claims that dumped and subsidised imports have injured Australian industry. When an Australian company makes a claim, the investigation process ties the parties up in a bureaucratic process that can drag on for years. Many importers believe the system is open to abuse or at least is used as a tool to stifle competition. They believe the anti-dumping accusations are often scurrilous and that initiating an anti-dumping action has a similar effect to putting on a tariff.

In August, Canada followed the lead of the UK, US and European Union by announcing it would impose a 25% tariff on some steel and aluminium products from China. The tariffs are due to take effect from October 22. Again, was this a justifiable action, or a local industry trying to protect itself during a downturn in the global steel market? Either way, China’s commerce ministry has asked the World Trade Organisation (WTO) to rule on Canada’s decision. The ministry said: “China has raised a litigation to the WTO over Canada’s unilateral and trade protectionist measures and will conduct an anti-discriminatory probe into these restrictive measures.” China is between a rock and a hard place. Its local market has slumped, so it´s looking elsewhere for sales. Who wouldn´t? However, the developed world has recently instigated a host of environmentally-friendly steelmaking standards which many of China´s older steel mills can´t meet. Thus, they run up against new inventions such as CBAM, which itself has its detractors.

“CBAM has to be enlarged to Scope 3 emissions, otherwise it’s completely useless. But this is complex, and complexity means inapplicability and circumvention,” Dimitri Menecali, the CEO of Italian producer Arvedi AST, told the same conference in Rome. As a reminder: Scope 1 refers to a company’s direct emissions, Scope 2 includes indirect emissions such as from the generation of purchased electricity, and Scope 3 covers wider indirect emissions including business travel and end-of-life treatment of sold products. The CEO of Aperam, Timoteo Di Maulo, told the conference: “If there is not a level playing field, then European industry will disappear. CBAM is bad, it’s an experiment and no one knows how it will work. We should have something more global across the value chain, including for finished products.”

When politics enters the fray, common sense often leaves. Joe Biden has said he opposes the $14.9 billion merger of Nippon Steel with US Steel, citing only that he thinks it´s better for American steel to be made by Americans. Such jingoistic posturing would be unlikely to survive the blowtorch of economic scrutiny and, again, implies there is a threat beyond our borders. Nevertheless, such decisions are made in a climate of the US election less than a month away and American steel interests wanting to defend their patch. Karmala Harris has aligned with Biden, and Donald Trump has said he will block the merger. As a result, the national security panel reviewing the deal – the Committee on Foreign Investment in the US (CFIUS) – has postponed a decision until after the election. The delay is yet another cost to business. It is also perhaps an example of self interest far outweighing national interest, even though implementing the tariff or protectionism is portrayed as being the opposite.