India and the E.U. are working to resolve a looming issue in their trade relationship — the E.U.’s Carbon Border Adjustment Mechanism (CBAM), with the two sides discussing it during a Minister-level meeting in Brussels on May 15 (Monday) and May 16 (Tuesday). The E.U. is India’s second-largest trading partner (after the U.S.) and India’s second-largest export market.
The E.U. describes the Carbon Border Adjustment Mechanism (CBAM) as a “landmark tool” which places a “fair price” on carbon emitted during the production of goods that are entering the E.U. and a mechanism to “encourage cleaner industrial “production outside the E.U.
The CBAM regulations came into effect on May 16 and will begin their transitional phase of implementation on October 1, 2023. The tax was discussed during a visit by Commerce Minister Piyush Goyal, External Affairs Minister S Jaishankar and Minister of State for Skill Development and Entrepreneurship to Brussels for bilateral meetings and the first edition of the E.U.-India Trade and Technology Council (TTC).
The joint statement from the TTC said the two parties would “intensify their engagement to address the issues that emerge in implementation” of the CBAM.
Following the meeting, the Ministers on May 16 evening, Mr. Goyal said the two sides “remain engaged” and are discussing the issue.
“And we have a long time ahead of us within which we’ll be working together to find the right solutions to this,” he said, during a press conference of the ministers and their E.U. counterparts — EU Competition Commissioner Margrethe Vestager and Trade Commissioner Valdis Dombrovskis.
“I am sure the intention is not to create a barrier to trade,” Mr. Goyal said, emphasizing that the measure was about sustainability.
The Europeans insisted that the mechanism did not run afoul of WTO rules.
”…We were of course very careful to ensure WTO compatibility of the initiative. And a key word for this is ‘non-discrimination’. So we apply the same price of carbon to imported goods that we are going to apply also on our domestic producers,” Mr. Dombrovskis said.
“There are about six-seven commodities on which the E.U. has proposed carbon taxes, of which the two sectors where India is likely to feel some impact is steel and aluminium,” a senior Commerce Ministry official said in New Delhi. “In the rest of the areas, we don’t export much to Europe,” he added.
The Ministry is still calculating the likely monetary impact as the EU has prescribed different mechanisms of imposing carbon tax. “For example, in steel manufacturing through electric arc furnace and blast furnace, the carbon border tax will be different. So an assessment of how much of steel is going out of which furnace – that segregation has to be done. That will take some time. It will definitely impact to some degree,” the official said.
While the move will likely impact less than 2% of India’s exports, the government is examining the extent to which the overall carbon tax and the differential tax treatment proposed for instance, for steel using different furnace technologies, is compatible with WTO (World Trade Organisation) norms, said another official. “The verification process could be very complex and tedious and mutual recognition agreements will be vital,” the second official noted.
Trade and Technology Council Meet Announces Semiconductor MoU
The first meeting of the TTC included working groups covering Strategic Technologies, Digital Governance and Digital Connectivity; Green and Clean Energy Technologies; and Trade, Investment and Resilient Value Chains.
In a joint statement, the two sides listed the progress made and said that an MoU on semiconductors would be concluded by September 2023. Mr. Goyal said the TTC would supplement trade deal talks between India and the EU and that it would help make the relationship “the defining partnership of the 21st Century”. The Working Group on trade discussed resilient value chains, market access issues, screening of FDI and multilateral trade issues.
The TTC was launched in early 2022 by Prime Minister Narendra Modi and European Commission President Ursula von der Leyen. The EU has a similar platform with the U.S., the only other country, apart from India, with which it shares such a forum.