EU carbon tax and other laws to impact $37 billion of India’s exports: Report

New Delhi: The Council on Energy, Environment and Water has said that India’s exports of around $37 billion, which is approximately 43% of the country’s exports to the EU as of 2022, are likely to be impacted due to the bloc’s various non-tariff measures (NTM) including the Carbon Border Adjustment Mechanism (CBAM).

Some of the recent regulations that can prove to be NTMs include the EU’s CBAM and Deforestation-free Regulation (EUDR), and the United States’ Inflation Reduction Act, it said. NTMs are policy measures other than ordinary customs tariffs that can have an economic effect on trade.

“While developed countries have lowered their tariff levels over time, they have gradually increased the issuance of NTMs,” the think tank said.

As per the report titled ‘Sustainability-driven Non-tariff Measures: Assessing Risks to India’s Foreign Trade’, the product categories at risk due to the proposed sustainability-focused EU regulations include textiles, chemicals, selected consumer electronics products, plastics, and vehicles.

These items accounted for 32% of India’s exports to the EU in 2022, valued at approximately $27 billion.

It noted that regulatory differences between trading partners make compliance with these complex measures difficult for countries without equivalent regulations, leading to restrictions in market access, specifically for emerging economies such as India.

The think tank has suggested trade pacts, stronger compliance through common information-sharing platform for firms to register and the information can be tracked, and introduction of India’s own standards and non-tariff measures to ensure the quality of its manufactured items.

Sustainability-driven NTMs are increasing at a high rate and their proportion of the total NTM notifications to WTO has increased to 19% in 2021 from 8% in 1997.

NTMs implemented by the EU have impacted India’s rice and chemical exports in the past, according to the report.

“With an increase in the issuance of E-NTMs by developed countries, India faces a serious challenge concerning its key export items,” the centre said.

It has suggested a “structured approach” to deal with these measures to ensure that India’s exports are not impacted. It includes developing mutual recognition of compliance assessment activities in the respective countries through bilateral trade pacts, raising specific trade concerns, preparing the industry to comply with these strict regulations and ramping up its regulatory mechanism to introduce its own standards and NTMs.