1. CGE Analysis of Border Tax Adjustments for Imported/Exported Steel Products Masato YAMAZAKI National Institute of Advanced Industrial Science and Technology, Japan 1

2. Outline of the Presentation I.Background of the research Competitiveness issues, Japanese iron and steel industries, and Border tax adjustments. II.Research approach Computable General Equilibrium model and simulation scenarios III.Results and Implications The simulation results and implications of policy scenarios IV.Concluding Remark 2

3. Emission Trading and Competitiveness Issues Japan pledged to reduce domestic CO 2 emissions by 25% relative to 1990 levels by 2020 at the UN summit in 2009. Japan plans to introduce a nationwide emission trading scheme for CO2. 3 Emissions trading scheme could causes a drastic increase in the production costs of Japanese carbon-intensive sectors (e.g. Steel products). Competitiveness issues Unfairness: Carbon-intensive sectors of non- or less CO 2 emission- regulated countries would have their competitiveness increased by Japanese regulations on CO 2 emissions. Carbon leakage: Increase in the competitiveness of carbon-intensive sectors in non- or less regulated countries could lead to increase in CO 2 emissions in these countries because of increased production. Background

4. Changes in Volume of Steel Production, Exports, and Imports in Japan 4 Source: The Japan Iron and Steel Federation (2009) Background

5. Trade Partners of Japanese Iron and Steel Products Share of countries exporting to Japan in 2008 Share of countries importing from Japan in 2008 5 Source:UN comtrade Background

6. The Top 10 Ranking of The World’s Biggest Steel- Producing Companies in 2005 and 2008 Rank FirmShare in 2008 1 Arcelor Mittal (Luxembourg) 7.79% 2 Nippon Steel (Japan)2.78% 3 Baosteel Group (China)2.67% 4 POSCO (Rep. of Korea)2.62% 5 JFE (Japan)2.55% 6 Hebei Iron and Steel Group (China) 2.51% 7 Wuhan Steel Group (China) 2.09% 8 Tata Steel (India)1.84% 9 Jiangsu Shagang Group (China) 1.76% 10 US Steel (USA)1.75% Rank FirmShare in 2005 1 Mittal Steel (Nederland)4.41% 2 Arcelor (Luxembourg)4.12% 3 Nippon Steel (Japan)2.91% 4 POSCO (Rep. of Korea)2.78% 5 JFE (Japan)2.61% 6 Baosteel Group (China)2.01% 7 US Steel (USA)1.70% 8 Nucor (USA)1.63% 9 Corus Group (UK)1.61% 10 Riva (Italy)1.55% 6 Source: The Japan Iron and Steel Federation (2009) Background

7. What are Border Tax Adjustments ?  Imposition of carbon tariffs on imports from non- or less regulated countries. In essence, the tax rate is decided on the basis of the amount of CO2 emitted by the production of imports.  previously paid emission cost rebates on exports to non- or less regulated countries. BTAs are government trade measures that could ensure fair competition between regulated and non- or less regulated countries. The Basic concept of BTAs Carbon tariffs Costs rebates 7 Background

8. The Focuses of This Study The Impacts of BTAs on  The production of domestic sectors, Japan’s GDP, and the price of emission permits. We also investigate  The economic implications of BTAs by comparing their effects with those of sectoral exemptions. 8 Examinations by using Computable General Equilibrium (CGE) model. Background

9. What is a CGE model? Mathematical economic simulation model (a system of non-linear simultaneous equations) Based on the General Equilibrium theory in economics Used for economic simulations worldwide to assess the economic impact of climate change and trade policies Our model focuses on the Japanese economy (using the 2005 input-output table for Japan) Treats iron and steel sectors in detail. (capture the differences in production methods and types of steel products) 9 Approach

10. Simulation Scenarios 10 BTAsExemption 1 ETS ×× 2 ETS ○× 3 ETS×○ Competitiveness policies 1.Non-competitiveness policies 2.BTAs for imported/exported steel products 3.Exemption for iron and steel sectors The cap on CO 2 emissions is set for Japan to attain the target of 25% reduction in domestic CO 2 emissions relative to 1990 levels. Approach

11. The Sectoral Output Impacts of The ETS 11 Results

12. Side effects of competitiveness policies. Changes in GDP compared to no reduction case (%) Prices of the emission permit (JPY) 12 Results

13. Changes in the market shares of imported steel products (%) 13 Results

14. Results and Implications 14 Mitigation of decrease in iron and steel productionBTAs < Exemptions Fairness of burden sharing among domestic industriesBTAs > Exemptions Nationwide economic impactsBTAs > Exemptions Protection of market shareBTAs ≒ Exemptions Results

15. Concluding Remark I.Although BTAs is less effective than sectoral exemptions in the mitigation of steel production decreases, it does not lead to serious unfairness in burden sharing among domestic industries and serious negative economic impacts compared to sectoral exemptions. II.Sectoral exemptions could replace international unfairness between regulated countries and non- or less regulated countries with domestic unfairness between exempted sectors and non-exempted sectors. III.BTAs are worth considering as an option for ensuring fair international competition via their domestic economic impact. 15