India Criticizes EU Carbon Tax, Highlights Impact on Global Trade Equity

India has criticised the European Union's carbon tax, stating it undermines equitable global trade and disregards principles of fairness. Commerce Secretary Sunil Barthwal highlighted that the Global South faces challenges in developing climate strategies and responding to such unilateral measures. He made these remarks during a virtual address at the third Voice of Global South Summit.

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Impact on Developing Nations

Barthwal emphasised that developing and least-developed countries (LDCs) need to enhance cooperation in food security and global value chains. He also pointed out the necessity of addressing challenges faced by MSMEs and the current international trading system. Investments in advanced manufacturing and skill development are crucial for these nations to advance up the value chain.

The EU's carbon border adjustment mechanism (CBAM), set to start on January 1, 2026, will initially target seven carbon-intensive sectors, including steel, cement, fertiliser, aluminium, and hydrocarbon products. According to think tank GTRI, this could result in a 20-35 per cent import tax on Indian firms. Additionally, Indian industries will need to share detailed plant and production information with the EU.

Challenges for MSMEs

Barthwal noted that MSMEs play a vital role in trade growth and employment but face high trade finance costs, information gaps, and difficulties accessing foreign markets. He suggested that digital solutions could help reduce trade costs for MSMEs. Implementing payment systems interoperability among Global South countries could enhance trade linkages and market access for these enterprises.

India has consistently raised concerns about the EU's carbon tax on various platforms, arguing it would harm the country's exports. Discussions with the EU on this matter are ongoing. Barthwal stressed that unilateral environmental measures do not align with equity principles or common but differentiated responsibilities.

Services Exports and Remittances

On services exports, Barthwal mentioned that developing countries account for 24 per cent of global services trade, while LDCs contribute only 0.61 per cent. He highlighted the importance of developing a vibrant services sector, noting that remittances from citizens working abroad significantly contribute to global wealth. In 2023, developing countries, including LDCs, received about USD 687 billion in remittances.

However, Barthwal expressed concern over the high cost of remittance transfers for developing countries and LDCs. He cited an example where reducing transfer costs by 5 per cent could provide an additional USD 40 billion to recipient countries. India's proposal to lower cross-border remittance costs has garnered support from several WTO members.

Food Security Collaboration

Barthwal also addressed the issue of food security, urging Global South countries to collaborate on finding solutions to secure food supplies. He added that MSMEs face barriers in accessing foreign markets due to high compliance costs related to customs clearances and other regulations. Digital solutions could help mitigate these issues by improving trade logistics and market access.

The secretary stressed the importance of providing flexibility through special and differential treatment (SDT) and Common but Differentiated Responsibilities (CBDR) principles for developing nations and LDCs. This flexibility is essential for preserving policy space to achieve development goals. Barthwal concluded by stating that SDT remains a crucial right under the WTO framework to ensure fair, inclusive, and sustainable global trade.