Protectionism to take centre stage at Abu Dhabi WTO meet

Many developing nations, including India, are set to oppose the European Union’s (EU’s) carbon border adjustment mechanism (CBAM) that aims to tax imports of carbon-intensive products such as steel, aluminium, cement, and electricity. The EU is also expected to file a complaint against the US’s Inflation Reduction Act because the $430 billion subsidy to manufacturers of green technology will distort international prices and is against WTO norms.

In addition, escalating trade tensions between the US and China have seen China restricting exports of gallium and germanium—metals crucial to semiconductor manufacturing—and the US prohibiting Chinese investment in sensitive sectors such as computer chips and other technology sectors.

Trade tensions are flaring globally due to the crisis in WTO’s dispute settlement body. The top court is not functional since 2019 as the US is blocking appointments to the appellate body on the grounds that its concerns about the dispute system remain unaddressed.

Experts said the US is keeping the body dysfunctional to counter China’s influence at WTO, which has hit the organisation’s most crucial role of enforcing multilateral trade rules. “MC13 is happening against the backdrop of a fundamental shift in trade. Bilateralism and domestic protectionism are increasing, which was never the case since the start of WTO. There are a lot of papers coming in. August was a summer break at WTO, but by July-end, a lot of papers had been filed. The speed at which it is coming is very high. Africa has filed a number of them. China filed a paper on CBAM. Pakistan has given a paper on domestic subsidies in agriculture. An increasing number of environmental issues are also being raised," the official said on condition of anonymity.

India has already filed a paper with WTO expressing its concern about the carbon tax imposed by the EU that is expected to hit Indian metal exports worth over $8 billion.

CBAM is set to come into force from 1 October, which from 2026, will take the form of 20-35% tax on select imports into the EU.

“In the absence of a proper dispute settlement mechanism, countries can face and themselves implement protectionist measures," said Arpita Mukherjee, a professor at Indian Council for Research on International Economic Relations (ICRIER).

“India should use targeted and precise retaliation to counter the unilateral policy decisions like CBAM or EU Deforestation Regulation. India did this effectively in 2019 by raising tariffs on the US products when the US in 2018 raised tariffs on steel and aluminium," said Ajay Srivastava, former Indian trade service officer and the founder of New Delhi-based think tank, Global Trade Research Initiative (GTRI).

Srivastava added the EU and the US are taking actions that violate the basic principles of WTO, and in the absence of a functioning appellate body, WTO cannot decisively deliberate on these issues.

Queries sent to the spokesperson for the commerce ministry remained unanswered.

While India is already in talks with the EU to soften the blow of CBAM, it recently agreed to mutually settle six trade disputes with its largest trade partner, the US, at WTO. Trade tension between the two countries rose in 2018 when the US imposed an import duty of 25% on steel products and 10% on certain aluminium products. In a retaliatory move, India imposed customs duties on 28 American products in 2019.

Meanwhile, India is expected to reiterate its demand for a permanent solution for public stockholding of foodgrains along with a grouping of 33 developing nations (G33) along with African countries. As part of a permanent solution, India has asked for measures like amendments in the formula to calculate the food subsidy cap and inclusion of programmes implemented after 2013 under a ‘Peace Clause’.

Under global trade rules, a WTO member country’s food subsidy bill should not breach the limit of 10% of the production value based on the reference price of 1986-88.

Experts further said India’s recent decision to impose restrictions on laptops and tablets could also result in a WTO dispute. However, the government believes that the recent restrictions are short-term moves in the “national interest" and won’t result in the opening of a formal dispute at the international trade body.