India plans to protest the European Union’s proposed carbon tax at the next WTO meeting. File
| Photo Credit: Reuters

India plans to protest the European Union’s proposed carbon tax on imports of steel, iron ore and cement at the next meeting of World Trade Organization (WTO) later this month, saying it would emerge as a new trade barrier, two Government sources said.

India, along with South Africa and other like-minded countries, is planning to push its demand to rein in the European Union’s unilateral measure at the WTO’s Ministerial Conference (MC13), to be held in Abu Dhabi from Feb. 26 to 29, senior officials said.

“Any unilateral measures taken to combat climate change should not constitute a means of arbitrary or unjustifiable discrimination or disguised restriction on global trade,” one of the officials, with direct knowledge of WTO discussions, told reporters on February 7.

India had earlier decided to file a complaint in the WTO over the EU’s proposal to impose 20-35% tariffs on imports of high-carbon goods like steel, iron ore and cement, while raising the issue with EU officials in bilateral meetings.

EU’s carbon tax

The EU has said it designed the Carbon Border Adjustment Mechanism (CBAM) carefully so that it was compatible with WTO rules, applying the same carbon price on imported goods as on domestic EU producers.

India and China are among several countries that have aired concerns within the WTO over the EU’s carbon tax designated to prevent European industry being undercut by cheaper goods from countries with weaker environment rules.

“Climate change is a real issue, and knows no territorial borders,” said the second official. The officials declined to be identified according to government policy on discussions at international forums.

The Commerce Ministry, which is leading India’s negotiations at the WTO, declined to comment. The official said developed countries had missed an agreed annual target of mobilising $100 billion by 2020 for climate action in developing countries.

New Delhi has also opposed EU regulations banning the import of products based on deforestation in the country of origin, likely to hit billions of dollars worth of exports from India.

Members of the World Trade Organization will have a tough task ahead to make WTO’s dispute settlement system fully functional by 2024 due to divergent approaches proposed by countries like China, and the European Union, experts say.

On September 9, G-20 leaders expressed their commitment to conducting discussions for having a fully and well-functioning dispute settlement system of WTO by 2024.

Besides formulating norms for global exports and imports, the Geneva-based 164-member multi-lateral body adjudicates trade disputes among the member countries.

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The dispute settlement mechanism of WTO has been derailed due to a non-functional appellate body since December 2019.

“We reiterate the need to pursue WTO reform to improve all its functions through an inclusive member-driven process, and remain committed to conducting discussions with a view to having a fully and well-functioning dispute settlement system accessible to all members by 2024, ” the G-20 declaration has said.

Trade experts said that all the members would have to work together to achieve this 2024 goal.

“G-20 members have agreed to pursue WTO reforms, specifically aiming for a functional dispute settlement system accessible to all members by 2024. Members will have a tough task ahead considering the divergent approaches proposed by the U.S., EU, China, India, and other countries,” think tank Global Trade Research Initiative (GTRI) Co-Founder Ajay Srivastava said.

Trade expert and Hi-Tech Gears Chairman Deep Kapuria said G-20 leaders’ reiteration to pursue WTO reforms is a much needed political boost to the WTO Secretariat as they have now started preparing for the 13th Ministerial Conference.

Also Read | Dispute settlements that have no parallel 

“But what is more important is the leaders’ call to make WTO dispute settlement system functional and accessible to all members by 2024. Giving a deadline of 2024 would build pressure on WTO and its members to work out a system which is acceptable to all on priority basis,” Mr. Kapuria said.

Besides formulating norms for global exports and imports, WTO adjudicates trade disputes among the member countries.  There are two main ways to settle a dispute once a complaint has been filed in WTO — the countries can find a mutually agreed solution, particularly during the phase of bilateral consultations; and through adjudication which includes ruling by a panel and if not satisfied, challenging that ruling at the appellate body.

The main problem at present in the WTO dispute settlement mechanism is its non-functional appellate body. The appellate body is WTO’s highest court.  It hears appeals of decisions made by WTO panels.

Mr. Srivastava said WTO member countries are supportive of reforming the appellate body, but they have different views on the specific reforms that are needed.

The U.S. has blocked the appointment of new appellate body members since 2017, arguing that the body has become too politicized and has overstepped its authority, he said.

He added that the European Union has called for reducing the number of members on the body and changing the way they are appointed.

“India wants to ensure that the appellate body remains an independent and impartial body, he said. The appellate body currently has seven members.  Some countries have proposed reducing the number of members to five or three. This would make the body more efficient and easier to manage,” another expert said.

Its members are currently appointed by consensus of WTO member countries. This has made it difficult to appoint new members in recent years. Some countries have proposed changing the appointment process to make it more transparent and democratic.

The U.S. has expressed concerns that the appellate body has become too politicized, Mr. Srivastava said. Some proposals have been made to strengthen the independence of the appellate body, such as requiring members to serve fixed terms and prohibiting them from lobbying for future appointments.

Further he said while all members stress the need for reforms at WTO, they differ on type and scope of reforms. “The key challenge in WTO reforms is to find a solution that is acceptable to all member countries. This is a difficult task, but it is essential for WTO to remain relevant and effective in the 21st century,” he said.

India submitted a comprehensive proposal to WTO on May 1 for improving the functioning of various WTO bodies/committees. The Indian proposal called “30 For 30” contains 30 suggestions that coincide with WTO’s completion of 30 years of functioning by the end of 2024.