Carbon Tax Hamper's Global Trade: India

New Delhi, Aug 17 (PTI) India on Saturday said that unilateral environmental measures such as the European Union's (EU) carbon tax do not reflect the principles of equity and hamper equitable world trade.

Commerce Secretary Sunil Barthwal said that the Global South countries are facing challenges both in terms of developing climate and sustainable development strategies and responding to unilateral measures such as CBAM (carbon border adjustment mechanism).

"Unilateral environment measures do not reflect the principles of equity and common but differentiated responsibilities; and hamper equitable world trade," he said in a virtual address at the third Voice of Global South Summit.

India has on different platforms raised its concerns over the EU's decision to impose carbon tax on certain sectors as it would hurt the country's exports. The country is in discussions with the EU on the subject.

The EU has decided to impose a CBAM, or carbon tax, which will come into effect from January 1, 2026. Initially, it would be imposed on seven carbon-intensive sectors, including steel, cement, fertiliser, aluminium and hydrocarbon products.

According to the think tank GTRI, the EU-CBAM when fully implemented will result in a 20-35 per cent import tax on Indian firms and the domestic industry will have to share all plant and production details with the EU.

The Global South countries include both developing and least developed nations (LDCs).

The secretary also said that these countries need to increase cooperation in areas of food security and global value chains; address challenges faced by MSMEs and also the challenges posed by the current international trading system.

He advocated for investments in advanced manufacturing while also nurturing a workforce with requisite skills to take up high end manufacturing as it is crucial for developing and least-developed countries (LDCs) to move up the value chain.

On services exports, the secretary said that developing countries account for 24 per cent of global services trade and LDCs share is only 0.61 per cent.

"We need to develop a vibrant services sector … our people providing services in other countries is the major contribution to the global wealth," Barthwal said adding in 2023, developing countries including LDCs received about USD 687 billion in remittances.

However, the high cost of the transfer of remittances is a concern for developing and LDCs, he said.

Citing an example, he said reduction in cost by 5 per cent would provide an additional USD 40 billion to recipient countries.

India's proposal to lower the cost of cross-border remittances has found support from several members of the WTO (World Trade Organisation).

On the issue of food security, the secretary said that the Global South countries need to collaborate and find solutions to address the challenges of securing food security.

Further, he said that the MSMEs play a key role in trade growth and employment generation but they face problems such as high trade finance cost, information gaps and lack of capacity to access foreign export markets.

"I must emphasise that digital solutions offer promise in addressing issues of trade cost in accessing the export markets for MSMEs. In this regard, Global South countries should consider implementing payment systems interoperability to enable greater trade linkages and benefit MSMEs to improve their access to global markets," Barthwal said.

He added that these enterprises also face issues with regard to trade and logistics facilitation infrastructure.

The secretary said that they face barriers in accessing foreign markets due to high trade compliance costs related to custom clearances, procedures and other regulations.

"We need to address all of these through our united voice," he said.

He added that the developing nations and LDCs need to be provided flexibility in the forms of SDT (special and differential treatment) and CBDR (Common but Differentiated Responsibilities) principles so that they may preserve their policy space to achieve development goals.

"SDT remains crucial and non-negotiable right under the WTO framework to ensure that global trade is fair, inclusive and sustainable," he said.