Trade sustainability rules are evolving and India must respond promptly

Trade and sustainability has become a contentious issue in global economic governance. It is likely to appear in the forthcoming Ministerial Conference of the World Trade Organization (WTO), directly or embedded in another proposal. For India and many other developing countries, this debate revives long-standing concerns about the appropriateness of introducing non-trade issues into the multilateral trading system. 

India’s guarded approach has deep roots. When these issues first surfaced at the Singapore Ministerial Conference in 1996, developing countries strongly opposed their inclusion in the WTO’s negotiating agenda. The Doha Round significantly rolled back ambitions on non-trade issues. Labour standards were dropped entirely, while environmental issues were truncated to a narrow and carefully circumscribed mandate: Examining the relationship between WTO rules and multilateral environmental agreements (MEAs), promoting trade in environmental goods and services, and enhancing information exchange between the WTO and MEA secretariats. 

India accepted this limited mandate, while firmly reiterating the principles of development, equity, and common but differentiated responsibilities. For nearly two decades, India and many others have maintained their position. Labour issues have remained outside. Environmental issues, however, have repeatedly surfaced, especially through plurilateral and Joint Statement Initiatives (JSIs)  such as those on trade and environmental sustainability, fuel subsidy reforms, unilateral measures, circular economy, etc. India has stayed out of these initiatives on grounds of principles, warning that they risk diluting the WTO’s consensus-based decision-making and encroaching upon mandates better handled elsewhere. 

Yet, the global landscape has changed significantly. Blocked at the multilateral level, developed countries have pursued sustainability issues through free trade agreements and plurilateral arrangements. At the bilateral and regional level, the United States (US) and the European Union (EU) have been particularly aggressive. The US relies on stringent, sanction-based dispute settlement mechanisms to enforce labour and environmental commitments. The EU traditionally preferred dialogue-based approaches, but recent FTAs show a clear move towards stronger enforcement. 

India’s own approach has, however, evolved. Since the India-Japan FTA in 2011, and more notably in recent agreements with the European Free Trade Association (EFTA), the United Kingdom and the EU, India has accepted comprehensive trade and sustainability chapters, albeit with soft enforcement mechanisms based on consultations. The recently concluded India-EU FTA reflects this pragmatism, though the details are not yet known. The urgency on both sides to conclude the agreement amid trade uncertainties unleashed by the US may have resulted in a relatively benign outcome for India, particularly in the design of the dispute settlement section in the sustainability chapter.

 

India’s environmental credentials have strengthened considerably since 2015. It has maintained pace in the green transition, and if the availability of resources, both financial and technical, is eased over time, it may achieve its targets in due course. It is a party to all major MEAs, including those on biodiversity, ozone protection, hazardous wastes, chemicals, and endangered species. It has taken stewardship in adopting environmentally friendly technologies such as various forms of renewable energy.

 

The most consequential shift, however, lies in the rapid proliferation of unilateral environmental measures with extraterritorial impacts.

 

The EU’s Green Deal has spawned a slew of regulatory instruments, most notably the Carbon Border Adjustment Mechanism (CBAM), the EU Deforestation Regulation, and corporate sustainability reporting requirements. CBAM has entered its definitive phase from January 1, 2026. These measures have already begun eroding the competitiveness of developing-country exports.

 

India is not immune to adverse consequences of these developments. The EU is India’s second-largest export destination, and Indian exports of steel and aluminium — both CBAM-covered products — declined sharply in 2024, even during its trial phase. The complex emissions reporting requirements may have deterred smaller firms, while EU importers might have reoriented sourcing towards more CBAM-aligned suppliers. Similar measures are being contemplated by the UK, Canada and Japan, each with distinct methodologies and compliance regimes. For exporters, especially micro, small and medium enterprises, navigating this regulatory fragmentation will be extremely costly.

 

India faces three broad choices at the WTO.  First, maintain the status quo of non-engagement, which is increasingly untenable. Rules are being written anyway, but outside the WTO.

 

Second, accept developed-country agenda wholesale, and lock itself in asymmetrical obligations without adequate safeguards for development and equity.

 

The third option, while viable but challenging, is for India to actively shape the emerging trade-sustainability interface by building strong coalitions of like-minded countries.

 

The real question today is no longer whether trade and sustainability should be linked, but where, how, and under whose rules that linkage is designed. The Ministerial Conference offers India an opportunity to reassert the centrality of the WTO by pushing for multilateral principles governing trade-related environmental measures and principles that recognise equity, proportionality, capacity constraints, and policy diversity.

 

Rather than rejecting plurilateral approaches outright, India could advocate open, inclusive, and WTO-consistent frameworks that discipline unilateralism and provide predictability for developing-country exporters.

 

In a world where sustainability norms are increasingly shaping market access, staying out of the conversation is no longer a strategy. Shaping the rules from inside can be.

 

The authors are, respectively, distinguished fellow and consultant at RIS. The views are personal