No Strong Measures On International Trade Rules In The G20 Communique

The G20 countries lost a good opportunity to strongly oppose carbon trade taxes. The G-20 communique strongly underscores the need to ensure that there are no restrictions on International Trades Rules like Carbon Border Adjustment Mechanism (CBAM) of Europe and UK, with the WTO at its core. Since these carbon trading taxes exporters from developing nation on one hand are likely to face increased compliance cost, making their products less competitive in the European market and cripple the carbon intensive industry of developing nations . On the other hand, it will make Europe and UK richer by collection of taxes.

The international trade rules- should be based, non-discriminatory, fair, open, inclusive, equitable, sustainable trading system and measures to combat climate change should not constitute disguised restrictions on international trade.

International trade is an important engine for inclusive economic growth, combating poverty and hunger and promoting sustainable development and the Sustainable Development Goals.

To enable trade and investment to fully realise its potential and act as a driver of global growth and prosperity, The developing countries like India and China need rules-based on transparent multilateral trading system, with the WTO at its core.

CBAM :

European Union’s Carbon Border Adjustment Mechanism (CBAM) that seeks a level playing field for EU producers by imposing tariffs on carbon-intensive imports. However, its implementation has significant implications on global trade and geopolitical relations, especially in the context of developing and least developed countries, which are reliant on carbon-intensive exports.

The Phase-1 of CBAM, in which a 27-month transition period starting October 1, 2023 during which exporters won’t be needed to pay tax but share details of carbon content of steel and aluminium to EU importers, is over.

The Phase 2 of CBAM starts from January 2026 and Exporters will start paying carbon border tax on aluminium, steel and other covered products.

Phase 3 of CBAM will be extended from 2026-34 where new products will be brought under the ambit.

In Phase 4 , from 2034 onwards: All goods and materials imported into the EU will be taxed.

UK introduced CBAM from 2027

The UK government confirmed the introduction of a carbon border adjustment mechanism (CBAM) from January 2027. CBAM will be a levy on certain carbon-heavy goods being imported into the country. One change as a result of the consultation is an increase in the annual imported products threshold to £50,000 from £10,000. It also removed ceramics and glass from the list of products subject to the levy.
CBAM imposes a carbon price on imported products entering EU &UK markets based on their embedded carbon emissions. Products that will be taxed: Steel products, Iron and iron ore concentrates, Cement, Aluminum products, Fertiliser, Hydrogen and Electrical energy. The tariff is as high as 20-35% on imports of these high-carbon goods

The G20 Brazil communique on International Trade mentioned that that measures taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade. It didn’t tackle the bull by its horns . It further emphasised that international trade is an important engine for inclusive economic growth, combating poverty and hunger and promoting sustainable development Goals.

Impacts on Developing Nations & India

• In 2022, 27% of India’s exports of iron, steel and aluminium products worth USD$8.2 billion went to the EU
• With this high tax value, the EU’s income is expected to surge by leaps and bounds while disrupting earnings for major Indian conglomerates.
• India has expressed serious concerns regarding the increasing use of trade protectionist unilateral measures, which are sought to be justified in the guise of environmental protection
• The World Trade Organization (WTO) has also raised concerns about the fairness of the EU’s taxation policy when India is already adherent to the Paris climate agreement protocols of becoming carbon neutral by 2070.
• European Commission Director-General Gerassimos Thomas, led by representatives of the Directorate-General for Taxation and Customs Union (DG TAXUD), visited New Delhi in early July to hold discussions on CBAM and other critical economic issues.
• The CBAM transition assessment report is to be submitted to the European Council and the European Parliament by the end of next year.
• This document will be made public, giving Indian industry and authorities the opportunity to comment and participate in further discussions with the European Commission.
• India’s carbon tax rate is currently among the lowest in the world at just USD$1.6 per tonne of CO2 emissions. But The EU’s CBAM is poised to cripple India’s exports of energy-intensive items
• Indian exporters are likely to face increased compliance cost, making their products less competitive in the European market
• CBAM has the potential to start off trade disputes with like minded nations and the Global south countries having similar economic aspirations
• The steel industry is the toughest to decarbonize and has the highest carbon intensity, responsible for ~ 8% of global emissions
• Products with high carbon intensity will face increased charges and low competition
• Concerns have been raised about how CBAM can comprise confidential trade data of exporters
• CBAM also raises concerns about potential violations of the Common but Differentiated Responsibilities (CBDR) principle under the UNFCCC
• Considering import volumes, India, Brazil, and South Africa stand out as the developing countries most vulnerable to CBAM
• Mozambique emerges as the most vulnerable least developed country (LDC)

The writer of this article is Dr. Seema Javed, an environmentalist & a communications professional in the field of climate and energy