India Plans to Challenge EU Carbon Tax at WTO, sources say

Indian plans to file a complaint to the World Trade Organisation over the European Union's proposal to impose 20% to 35% 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.

Piyush Goyal, India's trade minister, is on a visit to Brussels to meet EU leaders to address bilateral issues and promote trade.

Last month, the European Union approved the world's first plan to impose a levy on high-carbon goods imports from 2026, targeting imports of steel, cement, aluminium, fertilisers, 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 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 would question its legality while citing that New Delhi was already following the protocols pledged in the U.N. 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 Ajay Sahai, director general, Federation of Indian Export Organisations, adding they would ultimately need to cut emissions to remain globally competitive.

The exporters' body warned 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 $8 billion of exports mainly steel, iron ore and aluminium would face tariffs, 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, Santosh Kumar Sarangi, director general foreign trade, said on Monday (15.05.2023).