June 1, 2023

The European Union stands ready to work with India to ease the administrative burden on businesses while enforcing its Carbon Boundary Adjustment Mechanism (CBAM), which aims to impose tariffs on high-carbon imports entering the 27-member bloc.

The proposal to address the issue comes after the Mint said India was considering imposing retaliatory tariffs on EU imports in response to a carbon tax that India called “undue discrimination” against developing countries.

“We are interested in continuing fruitful negotiations with the Government of India and Indian industry. We would like to have an open conversation, taking into account the common goal of reducing greenhouse gas (GHG) emissions on a global scale, and we are ready to contribute to the understanding and implementation of the system as much as possible,” said the EU representative.

The CBAM regulation provides for the possibility of signing an agreement with the EU in order to better understand the carbon prices in these countries. This could help reduce the administrative burden on operators, the official added.

However, the EU’s first carbon tax raised concerns among industry experts who feared it could hurt trade, especially India’s metals exports to the 27-member bloc after it was introduced.

“CBAM is completed, only notification remains. From October 1 this year, all exports of steel, aluminum, etc. will be controlled and Indian exporters will declare the carbon content per ton of these products to their importers. But from January 1, 2026, taxes will begin. This means that the transition period is for getting the correct data. The default tax rate in the EU is €100 per ton,” said Ajay Srivastava, co-founder of the Global Trade Research Initiative (GTRI).

Stating that the CBAM is neither a trading tool nor a protectionist tool, the EU official mentioned above clarified that the measure was taken to help combat climate change and will be applied impartially in a way that is not arbitrary or unjustified. discrimination against producers from third countries or a disguised trade restriction, the official added.

“It helps fight climate change in three ways: first and foremost, it reduces the risk that European efforts to fight climate change will be offset by carbon leakage. Any carbon price paid by a third country producer, be it the market price from the Emissions Trading System (ETS) or the carbon tax, is 100% deductible from the CBAM, encouraging third countries to adopt similar carbon pricing policies. Third countries with the same prevailing carbon price will ensure that their producers actually pay no CBAM fees at all. Finally, it can also provide incentives for third-country producers to reduce their carbon footprint. Any reduction in their emissions will reduce the number of CBAM certificates that the importer will have to submit,” the official explained.

In defending the CBAM, the EU representative stated that, in accordance with the case law of the WTO, members can take measures to protect the environment, human health and life, if such measures fall under one of the established exceptions to the rules of the GATT.

“These exceptions, which are quite strict in that the measure must be of a truly environmental (climate) and not objective protectionist nature, and must be applied impartially to avoid that they constitute arbitrary or unjustified discrimination or a trade restriction in disguise. added the representatives of the EU.

However, while challenging the carbon tax at the WTO, India said in a statement that any measures taken to combat climate change, including unilateral ones, should not constitute a means of “arbitrary or unjustified discrimination or disguised restriction of international trade.”

The EU representative further explained that the slow and gradual implementation of CBAM will allow interested companies to prepare and invest in green technologies in order to receive full compensation for the adjustment.

“In this regard, the EU wishes to continue to support decarbonization globally and in particular to work with India through our EU-India Clean Energy and Climate Partnership, as well as projects such as the Smart Infrastructure for Climate Acceleration programme.” in South Asia with IFC, which will generate several hundred million dollars worth of infrastructure investment – ​​through public and private sector advisory services – in India alone, especially in the energy storage and green finance sectors,” the official added.

However, GTRI believes that CBAM will result in average tariffs in the range of 20-35% for iron, steel and aluminum products compared to the current average bound tariffs of 2.2% agreed by the EU at the WTO for manufacturers.

High tariff walls will disrupt global trade, and developing countries will suffer the most as they produce the most carbon-intensive industries. According to GTRI, global value chains led by developed countries provide cleaner production in developed countries, while the polluting part of the production takes place in developing countries.

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