European carbon tax could torpedo FTA talks: Experts

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In New Delhi: According to trade experts, India should discuss the proposed carbon tax with the EU because it could result in a 20–35% charge on important shipments from that country and jeopardise free trade negotiations.

On October 1st, the EU’s Carbon Border Adjustment Mechanism (CBAM), a tax on imported iron and steel, cement, fertilisers, aluminium, and electricity, goes into effect.

The policy aims to shield domestic companies from being outbid by cheap imports of harmful goods from nations with less stringent carbon laws than the 27-nation bloc.

The planned levy, according to Indian experts, is discriminatory and may go against WTO regulations. Additionally, it means that the tariff reductions being discussed under the India-EU FTA are no longer guaranteed.

India’s third-largest economic partner, the EU will represent over 10% of all trade with India in 2022. On March 17, the parties’ fourth round of FTA negotiations came to an end.

According to WTO regulations, the border tax on “embedded” carbon dioxide emissions has aspects that are discriminatory, according to Prof. Sunitha Raju of the Indian Institute of Foreign Trade, and India should concentrate on those provisions.

“EU enterprises receive carbon credits or allowances, beyond which they must acquire carbon credits from trade to cover their emissions. This clause, which does not apply to exporting nations, amounts to a subsidy for domestic businesses “explained Raju.

The tax levies the difference in price between the EU emissions trading system (ETS) and other nations, regardless of whether countries have a mechanism for pricing carbon.

This entails, according to her, “not respecting pricing structures of other nations or providing European enterprises with CBAM protection.”

The policy also aims to stop “carbon leakage,” which occurs when EU businesses evade strict regulation and purchase goods from nations with laxer regulations.

“This issue won’t arise if all nations agree to have strong regulations. Then, any discriminatory actions can be effectively stopped. A recent UNCTAD report demonstrates that the 2030 climate pledges may be met provided all nations enact rules “Added she.

The EU and US are still among the greatest carbon emitters, and they historically bear blame for the global crisis, according to some experts. Developing nations should exert pressure on developed nations to fulfil their pledge to transfer $100 billion to support developing nations’ efforts to combat climate change, they stressed.

Arun Kumar Garodia, head of the Engineering Export Promotion Council of India (EEPC) India, stated that the steel industry is looking into greener options. Huge expenditures are needed, and the government is working with business to lessen its carbon footprint. Nonetheless, we are aware that carbon emissions will be taxed in Europe. But currently, they switch to burning coal when there is a serious difficulty at home “Garodia threw in.

There are worries that the carbon fee could scuttle the FTA negotiations. Even if both nations agree to zero tariffs under the FTA, CBAM will make sure that while EU goods enter India with zero tariffs, Indian goods pay very high CBAM duties “a report from the Global Trade Research Initiative stated. Nidhi Mani Tripathi, Joint Secretary in the Department of Commerce and India’s chief negotiator for the UK and EU FTAs, stated at an industry event that India feels “(a) little challenged with the announcement of CBAM recently.” “which includes five to six industries that are crucial to Indian supply chains.

“When you begin an FTA discussion, a number of studies are undertaken. Nevertheless, all of your assessments go haywire when you keep receiving such new laws with such new challenging measures. I’ve been saying all along that India presents a unique opportunity and that the strategy the EU has used in all of its past free trade agreements may not be exactly the same,” Tripathi remarked, according to a report from PTI.

Source: mint