India has raised concerns at the WTO on the EU’s climate and environment related policies – particularly the Carbon Border Adjustment Mechanism (CBAM) and regulation on deforestation – acting as non-tariff barriers and possibly not meeting multilateral trade rules.

“At the EU’s Trade Policy Review (TPR) at the WTO this week, India said that it was worried that  environmental measures such as the CBAM and  regulation on deforestation and forest degradation had far reaching implications on existing trade volumes and future trade potential,” a Geneva-based official told businessline.

In its response, the EU said any effective carbon price paid outside of the EU will be taken into account and that the CBAM will be applied in a non-discriminatory manner.

TPRs are an exercise, mandated in the WTO agreements, in which member countries’ trade and related policies are examined and evaluated at regular intervals. Significant developments that may have an impact on the global trading system are also monitored. The EU’s 15th TPR was carried out by the WTO on June 5 and June 7 2023 and covered a three-year period following its previous review in January 2020.

“India noted that certain irritants were acting as barriers, preventing India and the EU from achieving the full potential of its economic partnership. It said that during the review period, there had been a general upswing in the unilateral trade policy measures implemented by the EU that had a negative impact on trading partners including India,” the source said.

import tariff

Under the proposed CBAM, the EU will levy an import tariff on carbon-intensive goods, such as steel, from 2026 onwards.The CBAM will enter a transitional phase from  October 1 2023 when importers of goods into the EU, covered by the new rules, have to report the greenhouse gas emissions (GHGs) for data collection purposes, which will increase costs.

India is likely to get substantially affected once CBAM is imposed. It may lose $ 1-1.7 billion worth of exports of energy intensive products, including steel and aluminium, per various estimates.

The EU’s Deforestation Regulation (EU-DR), wherein exporters to the EU must ensure that the identified products have been grown on the land which has not been deforested after December 31, 2020, may also affect exports of a number of items from India such as meat, leather hide, wood furniture, paper and coffee, according to experts.

India also questioned the WTO compatibility of the measures and said it required deeper discussions among the WTO members, the source said. 

The EU assured that the CBAM will be applied to imported products in an even handed and non-discriminatory manner based on their actual emissions. “Any effective carbon price paid outside of the EU will be taken into account and the phasing of CBAM will be gradual; no financial adjustments will be paid before 2026,” it said.

In a paper presented to the WTO earlier this year, India stressed that the principle of common but differentiated responsibilities should not be ignored in the protection of the environment.

Last month, Commerce & Industry Minister Piyush Goyal said that India was engaging with the EU on its CBAM as it was not the bloc’s intention to create a barrier to trade but to find a way forward towards sustainability as part of collective efforts.

The Bureau of Energy Efficiency under the Power Ministry is already working on the Energy Conservation (Amendment) Bill, 2022 passed by Parliament, and will put in place a carbon trading system.  There will be a carbon auditor who will give certification. India wants the EU to recognise its certificates when the CBAM kicks in.