India's interests at stake as world trade talks take a green turn

Country has raised objections to European Union's Carbon Border Adjustment Mechanism

In April, the Panama Canal authority said it would put restrictions on the largest ships passing through because the water levels in the nearby lakes were falling. The canal handles 6 per cent of global maritime trade and uses freshwater in its operations. There have also been changes in the way ships pass through the Yangtze river in China.

Effects of production patterns and international trade on climate are increasingly being probed and remain highly contested. This is the context in which the upcoming United Nations Climate Change Conference (COP28), that is scheduled to begin in Dubai on November 30, will for the first time highlight trade as a specific theme. The aim is to elevate trade as a lever in climate action by setting the stage “for the international trade community to step up their role”.

It is no coincidence that the World Trade Organization (WTO), which will spearhead this discussion, is slated to hold its 13th Ministerial Conference (MC13) in February next year, in Abu Dhabi, also in the United Arab Emirates.

The trade-environment tango has brought much discomfort to India and many other developing countries. A discussion paper India circulated along with South Africa at the WTO said the attempt to bring trade measures instead of focusing on implementing NDCs and enabling concrete solutions on climate finance and technology transfer undermined fairness and equity. NDCs, or Nationally Determined Contributions, are at the heart of the Paris agreement.

“Any proposed environment- and climate-related trade measures should respect the social and economic development needs of WTO members. These proposals should not constitute arbitrary or disguised restrictions or unjustifiable discrimination in international trade,” the two countries said.

Back on the table

A plethora of measures by the European Union, such as the Carbon Border Adjustment Mechanism (CBAM) and regulations on deforestation, seek to punish exporting countries that use carbon-intensive measures or cause deforestation for production and export. While India has raised strong objections to the CBAM, calling it a trade barrier, a similar proposal at the consultation stage by the United Kingdom to address carbon leakage risk to support decarbonisation has raised eyebrows in India amid advanced negotiations for a bilateral trade deal.

The focus extends beyond the individual carbon border tax measures taken by economies. It encompasses the intensified discussion on forming climate regulations at the WTO, a topic that has received relatively little attention.

In July 2014, a group of WTO members initiated negotiations for the Environmental Goods Agreement (EGA), aiming to eliminate tariffs on key environmental products such as solar panels and wind turbines. However, disagreements between China and the Western countries on the definition of “environmental goods” led to the collapse of the EGA talks in 2016. Recently, though, environmental issues have resurfaced, with efforts to put together a climate deal at the upcoming WTO ministerial (MC13).

In January, the EU and more than 50 nations launched the Coalition of Trade Ministers on Climate to foster international cooperation on climate, trade, and sustainable development. Another group, Trade and Environmental Sustainability Structured Discussions (TESSD), formed in November 2020, is identifying areas for the future work of WTO.

Plastic pollution discussions and the Fossil Fuel Subsidy Reform initiative are also actively seeking to address environmental concerns within the WTO. These discussions hold implications for India, given its role as a major plastic exporter and provider of fossil fuel subsidies. The Committee on Trade and Environment at the WTO has become active in generating debate among member countries on the way forward for multilateral trade rules on climate change.

India’s view is that since most WTO members are represented at the United Nations Framework Conven­tion on Climate Change (UNFCCC) and participate in its negotiated outcomes, non-trade matters such as the environment need to be handled at such forums. The country, jointly with South Africa, has urged WTO members to ensure that any environment and climate-related trade measures take into account the common but differentiated responsibilities and capabilities of all members.

“There are no sector-specific targets (at UNFCCC), and each country has the regulatory flexibility to achieve its emission reductions through measures as it deems fit to achieve economy-wide emission reductions. Regulatory heterogeneity is inherent in the concept of NDCs under the Paris Agreement of the UNFCCC,” said the paper.

Agreements at the UNFCCC are based on the principles of common but differentiated responsibilities and respective capabilities (CBDR-RC), in the light of different national circumstances, and the NDCs made by the parties to the UN convention. These principles recognise that the largest share of historical and current global emissions of greenhouse gases originated in developed countries and that per capita emissions in developing countries were still relatively low.

The United States opposed India’s proposal to bring the concept of common but differentiated responsibilities into WTO, saying trade had a role to play in addressing climate change, including by facilitating and promoting trade in environmental goods and services, and incentivising decarbonisation in energy-intensive traded commodities.

The way forward

Biswajit Dhar, distinguished professor at the Council for Social Development, says once India accepts discussing climate-related issues at the WTO, it will open a Pandora’s box.

“That will create a hugely discriminatory trading system. National standards by developed countries will be adopted as international standards by pushing these through the WTO. For example, what will happen if the developed countries claim that India’s rice cultivation is environmentally-damaging as it produces methane and other greenhouse gases?” Dhar asks.

However, Anwarul Hoda, former deputy director general of the WTO, says the environmental damage is so pressing a concern that India should not avoid discussing climate action at the WTO.

“My argument is not based on buckling down under pressure, rather on the fact that the climate issues are too urgent a reality. With rising temperature, wheat and milk productivity of hot countries like India will further go down. Countries should certainly start negotiating climate action at MC13, otherwise there is not much time,” argues Hoda. “A multilateral agreement will also prevent unilateral measures like CBAM.” According to him, India should negotiate and try to take the longest possible transition period on an environment deal at the WTO.

Dhar favours letting the specialised agencies of the UN develop enforcement mechanisms to ensure that global warm­ing is kept in check. “For instance, it is a well-appreciated fact that without acc­ess to technology and finance, develop­ing countries will not be able to meet any climate commitment. Despite the Kyoto Protocol and Paris Agreement, how much commitment did the developed countries show towards developing countries? And then they will say if you are not UNFCCC-compliant, we will hit you with sanctions like the carbon border tax,” he says.

With the WTO already struggling with perceptions of being dysfunctional, the climate divisions are likely to give it another jolt.