What is fuelling EU’s aggressive trade measures?

What are these laws? What’s driving them?

Among the laws are a carbon tax, a regulation on deforestation and a directive on due diligence for corporate sustainability. Climate goals are the big factor fuelling these legislation. EU lawmakers, representing a technologically and economically advanced bloc, are addressing climate change with great urgency. The laws are in line with the EU’s ambition to be climate-neutral by 2050. But they could raise trade tension with developing countries. Poor countries argue that the rich world, by pushing stringent trade legislation, are shifting the burden of climate change mitigation on developing countries.

Are there any other motives for EU?

Yes. The EU faces a key roadblock in implementing strict climate policies—their industries are moving manufacturing bases to developing nations that have lax emission norms. This is called carbon leakage. So the EU carbon tax targets industries such as cement, iron and steel, aluminium, fertilizers, electricity and hydrogen, which are more prone to moving away from the EU. The bloc now plans to widen the scope of carbon tax going forward. It has also introduced legislation that pushes businesses toward renewable means of production to cut its dependence on Russian oil and gas.

What are the concerns voiced by India?

The sheer number of laws for one. They complicate trade. India is also concerned about the cost of compliance for small and medium businesses. Most Indian exporters to the EU are small businesses, which is why India has sought exemptions for them from the carbon tax. India aims to take on the laws at the WTO on the grounds they breach international environmental laws.

Is there nothing good for Indian businesses?

Arpita Mukherjee, professor at ICRIER, a think tank, believes the EU legislation can benefit India as regulatory requirements have in fact been made easier. Mukherjee says prior to these laws, EU states had separate laws that meant multiple entry certificates. With a uniform law, Indian exporters would find it simpler to enter and operate in the EU. She added that the EU’s corporate sustainability due- diligence directive is in line with India’s UN commitments that discourage child labour and human rights violations.

What should India do about these laws?

Sangeeta Godbole, a former civil servant and EU expert, suggested a coalition of developing nations to defend their interest as EU legislation will impact developing nations the most. Such pressure worked in the past—after intense international pressure, the EU had to block a law that proposed making all airlines using EU airports to buy carbon allowances. Godbole said that India should create a legal framework to enable businesses pay taxes on carbon emission within India rather than to the EU.

Updated: 28 Jun 2023, 11:48 PM IST