India And Other Developing Countries To Raise Concerns Over EU’s Climate And Trade-Related Regulations In WTO Next Year: Report

In 2023, EU has announced four regulations - carbon border adjustment mechanism (CBAM), deforestation regulation, adding shipping in EU’s emissions trade system, and foreign subsidies regulation.

For 2022-23, India exported products worth $74.9 billion to the EU, an increase from $65 billion in 2021-22.

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India and other developing countries are expected to raise their concerns about the European Union’s (EU) climate change and trade-related regulations in the ministerial meeting of the World Trade Organisation (WTO) next year, an official stated. 

The countries are worried about the impact of these regulations on their domestic industries, the government official who wishes to remain anonymous told PTI. Abu Dhabi is scheduled to host the four-day ministerial conference (MC) on February 26 in the upcoming year. MC represents the highest decision-making body of WTO.

“These issues will come up in the WTO in a big way. Countries like India will oppose these measures in the WTO,” the report said while quoting the official. In 2023 so far, EU has announced four regulations regarding climate change and trade, which are carbon border adjustment mechanism (CBAM), deforestation regulation, adding shipping in EU’s emissions trade system, and foreign subsidies regulation.

Additionally, member country Germany has also introduced a supply chain due diligence act (SCDDA). The official noted, “This will become a major issue in the MC13. Many member countries have already submitted papers against some of these regulations in the WTO. It looks like discussions will happen on these regulations and a general view will also converge.”

WTO is a multilateral body, based out of Geneva. Consisting of 164 members, the organisation regulates and facilitates international trade. It also mediates trade-related disputes between member countries. 

Think tank Global Trade Research Initiative (GTRI) believes the EU will collect billions of dollars on an annual basis once these regulations are implemented, the report said. 

The carbon border adjustment mechanism (CBAM) is expected to be unfavourable towards Indian metal exports to the EU, like iron, steel, and aluminium products. It is expected to to be implemented from October 1, 2023. The regulation will result in 20-35 per cent tax on certain imports into the EU from January 1, 2026. Additionally, the EU will start collecting a carbon tax on every load of steel, aluminium, cement, fertiliser, hydrogen, and electricity, starting January 1, 2026. 27 per cent of India’s exports of iron, steel, and aluminium products worth $8.2 billion went to the EU in 2022, the report added. 

EU’s European Union Deforestation-Free Products Regulation (EU-DR) is expected to impact Indian coffee, leather hides and paperboard exports, worth $1.3 billion annually. Exporters will have to ensure that products like oil cake, soya beans, palm oil, cocoa bean, and many more have been grown on land which has not been deforested since December 31, 2020, under the regulation. Large firms will have to comply with the new rules after December 2024, while small firms will have time till June, 2025.

After including shipping in its emissions trade system on April 18, 2023, EU will levy a carbon tax from its inbound and outbound shipping firms, applicable from January 1, 2027. The foreign subsidies regulation already came into effect on January 12 this year. It allows EU the right to investigate cases where foreign subsidies affect competition inside the region.

According to the GTRI report, Germany's SCDDA law, which prohibits forced labour and protects human rights in global business supply chains, will not impact India much as the latter already has rules in place to deal with these issues. SCDDA applies to firms with an employee force of more than 3000 and came into effect since January 1 this year. 

For 2022-23, India exported products worth $74.9 billion to the EU, an increase from $65 billion in 2021-22. While imports from the EU increased to about $60 billion in 2022-23 from $51.4 billion in 2021-22. India sends 16 per cent of its total merchandise exports to the EU.