India plans to challenge EU carbon tax at WTO: Sources

The EU wants to impose 20 per cent to 35 per cent tariffs on imports of high-carbon goods like cement and steel from India. PHOTO: REUTERS

NEW DELHI - The Indian government plans to file a complaint to the World Trade Organisation (WTO) over the European Union’s proposal to impose 20 per cent to 35 per cent tariffs on imports of high-carbon goods like steel, iron ore and cement from India, top government and industry sources said.

This is part of New Delhi’s strategy to combat the EU’s Carbon Border Adjustment Mechanism (CBAM) designed to push local industries to invest in new technologies to bring down carbon emissions, while also raising the issue in bilateral talks.

Mr Piyush Goyal, India’s trade minister, is on a visit to Brussels to meet EU leaders to address bilateral issues and promote trade. “I’m sure the intention is not to create a barrier to trade,” he told a news conference after his meetings. “We remain engaged, we are discussing the issue and we have a long time ahead of us in which we will be working together to find the right solutions to this.”

EU trade chief Valdis Dombrovskis said the European Commission had designed CBAM carefully so that it was compatible with WTO rules, applying the same carbon price on imported goods as on domestic EU producers.

In April, the EU approved the world’s first plan to impose a levy on high-carbon goods imports from 2026, targeting imports of steel, cement, aluminium, fertiliser, electricity and hydrogen, aiming to become a net zero emitter of greenhouse gases by 2050, ahead of India’s target of 2070.

“In the name of environment protection, EU is introducing a trade barrier that would hit not only Indian exports but also those of many other developing countries,” said a top government official with direct knowledge of the matter.

The government was planning to file a complaint to the WTO against the EU’s unilateral decision and would seek relief for exporters, particularly small companies, the official said without disclosing further details.

India sees the proposed levy as discriminatory and a trade barrier, and will question its legality while citing that New Delhi was already following the protocols pledged in the United Nations Paris climate agreement, said another government official involved in the team dealing with WTO matters.

Three industry sources who attended a meeting last week called by the government to discuss the issue confirmed the plans to raise the issue at the WTO. Officials declined to be named as they were not authorised to speak to the media. The commerce ministry and steel companies did not comment.

‘Need more time’

Policymakers are examining proposals from the steel industry that has sought a “level playing field” through safeguard measures against imports as a reciprocal measure.

“Sectors like steel and small manufacturers need more time to meet EU guidelines,” said Mr Ajay Sahai, director-general of the Federation of Indian Export Organisations, adding they will ultimately need to cut emissions to remain globally competitive.

The exporters’ body warned that the EU plan could make India’s free trade agreements with other countries and a proposed pact with the EU “redundant” as the prices of many exporters’ goods would rise by nearly one-fifth after the carbon tax, and other trade partners hurt by the tax may dump goods in India.

Initially, nearly US$8 billion (S$10.7 billion) of exports mainly steel, iron ore and aluminium will face tariffs, Mr Sahai said, but by 2034, it will cover all goods exported to the EU.

The carbon border adjustment is likely to be followed by other advanced countries including the UK, Canada, Japan and the United States as they push to cut carbon emissions, he said.

A ministerial panel is looking into the impact of EU plans and steps to deal with it including mutual recognition of energy audit and carbon trading certificates, Mr Santosh Kumar Sarangi, director-general foreign trade, said on Monday. REUTERS

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