Indian Official says Trade and Environment Should Not Mix

24 February 2010

India's chief WTO negotiator has spoken out against the possibility of bringing border carbon adjustments (BCAs) into trade talks at the WTO. Without providing specifics, Rahul Khullar, India's commerce secretary, said that some countries are trying to bring environmental issues through a "back door" into multilateral trade talks and that India is against such a move.

BCAs are unilateral measures that a state imposes when a good is imported from an industry or firm in a country that has not ‘comparably offset' the greenhouse gas emissions associated with the good's production. The BCA could be a flat tariff, a tax, or a requirement for the importer to purchase carbon credits that would compensate the country with more stringent regulations for the loss of competitiveness that it incurs because of its emissions standards.

While there is currently no legislation in place that would impose a tax or tariff on exports from countries with more lax environmental standards, the idea has been floated by the EU and the US, among others, as a means to prevent ‘carbon leakage' - the movement of industry overseas to avoid strict emissions standards in a given country.

New issues need further debate: Khullar

Speaking at the release of a new information package on the issue on 18 February in New Delhi, Khullar said that the imposition of BCAs was inevitable. "It is not possible to pretend any longer that this is not going to happen," he told reporters.

The secretary said he believes that BCAs will be a reality in two to three years' time. He added that a new publication on the measures published by the Centre for WTO Studies - a research body under the Indian Ministry of Commerce - is intended to stimulate "intellectual debates" on whether the proposed environmental laws would be WTO compatible.

Khullar stressed that India is opposed to the inclusion of environmental issues in trade liberalisation negotiations, adding that the WTO is not the proper venue for such talks. "There are other forums for framing global environmental laws," he said.

Certain environmental issues have long been discussed at the WTO. Some, such as the liberalisation of trade in environmental goods and services, have even been the subject of formal negations at the body's Committee on Trade and Environment (see related article, this issue). However, Khullar says there are new issues emerging - such as BCAs - that are not being subject to proper international debate.

Despite Khullar's objections to the mixture of trade and environment, the two issues have collided frequently in recent weeks. In fact, Brussels has suggested that environmental issues be included in the ongoing bilateral trade talks between the EU and India and trade issues such as BCAs featured prominently at last December's UN Climate Conference in Copenhagen, Denmark.

While developed economies - including the US and the EU - are now contemplating how or whether these measures should be implemented, developing countries - especially India and China - say they are concerned that the measures could be used primarily to protect local markets, particularly given the continued slump in the global economy.

Report is a "starting point" for discussions

Khullar called the Centre for WTO Studies' publication a "starting point" for discussion on the issue. The secretary said that because the WTO has been unclear on how it stands on the issue thus far, India should be prepared once the need arises.

The report, entitled "Frequently Asked Questions: WTO Compatibility of Border Trade Measures for Environmental Protection," outlines key issues regarding the WTO compatibility of BCAs and suggests the possible effects such measures would have on India and global trade relations in general.

The report outlines the various forms under which environmental taxes can be levied and the various ways in which they could be challenged at the WTO. It concludes that if proposed BCA measures fail to address the specific development conditions in developing countries and efforts made towards adopting nationally appropriate mitigation actions (NAMAs), the taxes are likely to be considered "arbitrary or unjustifiable discrimination."

While India refrained from making any binding commitments at Copenhagen, it agreed to voluntarily bring down its carbon intensity - carbon dioxide emissions per each unit of economic output - by 20 to 25 percent by 2020.

Publication warns of "impending trade war"

The report suggests that several Indian products - including iron, steel, aluminium, pulp and paper products, cement, glass and chemicals - would immediately suffer if BCAs were implemented. It goes on to say that India and other developing countries will undoubtedly challenge the true impetus behind the measures.

"Such measures imposing restrictions on imports on the grounds of providing a ‘level playing field', or maintaining the ‘competitiveness' of the domestic industry, etc are likely to be viewed as mere protectionist measures by the developed world to block the exports of the poorer nations," the report reads. "This is because there is little empirical evidence that companies relocate to take advantage of lax pollution controls."

The information package argues that such unilateral trade measures will inevitably lead to tit-for-tat trade retaliation that could spiral into an all-out trade war. Such warnings have also been raised by China and several think tanks following the issue.

Speaking at the official release, Khullar was careful to clarify that the report did not represent official government policy, but was rather meant to act as a "pre-emptive strike" against mixing trade and non-trade issues at the WTO. "The idea is to make everybody understand what the issues are in simple terms and generate a debate," he said.

Khullar said that if BCAs were to be discussed at the WTO, he did not believe they would be included in the protracted Doha Round of negotiations.

ICTSD reporting; "Clubbing environment with trade wrong," REDIFF BUSINESS, 18 February 2010; "India gets ready to confront EU on ‘impending' carbon tax," THE ECONOMIC TIMES, 19 February 2010.

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