India’s exports to the European Union (EU), valued at USD 37 billion, face significant challenges as a result of the EU’s proposed Carbon Border Adjustment Mechanism (CBAM) and other eco-focused measures. A detailed report released earlier this week by the Delhi-based think tank Centre for Energy, Environment, and Water, says that these challenges could impact 43% of India’s vital EU exports.
The report, authored by Prerna Prabhakar and Hemant Mallya, highlights the vulnerability of various sectors in India’s foreign trade when view under the lens of EU’s regulations and initiatives to maintain sustainable trade and supply chains. These sectors, including textiles, chemicals, select consumer electronics, plastics, and vehicles, constitute 32% of India’s 2022 exports to the EU. When CBAM sectors are factored in, the value of at-risk exports reaches USD 37 billion, equivalent to nearly half of India’s EU exports in 2022.
The report underscores a global trend of developed nations adopting non-tariff measures to address sustainability and environmental issues, encompassing energy efficiency, carbon reduction, waste management, water conservation, and sustainable forestry. The report suggests that India needs to establish a structured approach to safeguard its interests and mitigate these measures’ impact on exports.
To protect its exports, India can explore bilateral free trade agreements (FTAs) that encourage mutual recognition of compliance assessments, drawing inspiration from successful agreements like the EU-Canada Comprehensive Economic and Trade Agreement (CETA) and the EU-Vietnam Free Trade Agreement.
Additionally, the report emphasizes India’s need to leverage the World Trade Organization (WTO) framework to voice concerns about non-trade measures imposed by other WTO member nations. While India has increased its participation in the WTO, the report calls for strategic formulation to effectively use the WTO mechanism to address future concerns and seek solutions.