India intends to file a complaint to the WTO over the EU's proposal to impose a 20% to 35% levy on carbon-intensive imports such as steel, iron ore, and cement from India, according to top government and industry sources.
The EU approved last month the carbon border adjustment mechanism (CBAM) to impose a tariff on high-carbon goods imports starting 2026, including steel, cement, aluminum, fertilizers, electricity, and hydrogen. This is the world's first plan to impose such a levy, with the aim of becoming a net-zero emitter of greenhouse gases by 2050, ahead of India's target of 2070.
Read More: How the Carbon Border Adjustment Mechanism affects businesses
"In the name of environment protection, the EU is introducing a trade barrier that would hit not only Indian exports but also many other developing countries," a top government official familiar with the matter said.
India plans to file a complaint to the WTO against the EU's unilateral decision and would seek relief for exporters, especially small companies, the official said without providing further details.
India considers the proposed levy as a trade barrier and discriminatory, and would challenge its legality while citing that New Delhi has adhered to the U.N. Paris climate agreement, another government official said.
CBAM has been carefully designed by the European Commission to ensure its compatibility with WTO rules and applies the same carbon price on imported goods as on domestic EU producers, EU trade chief Valdis Dombrovskis said.
Need more time
Ajay Sahai, director general of the Federation of Indian Export Organizations (FIEO), said that steel and small manufacturers need more time to meet EU standards, adding that they would ultimately need to reduce emissions to remain globally competitive.
FIEO also warned that the EU plan could make India's free trade agreements with other countries and a proposed pact with the EU "redundant,” as the prices of many exporters' goods would rise by nearly one-fifth after the carbon tax and other trade partners hurt by the tax may dump goods in India.