POLICY MEASURES BY THE EU (Syllabus: GS Paper 3 - Economy)

Context: India and other developing countries, including China, Indonesia, and South Africa, have questioned unilateral trade policy measures by the European Union (EU), such as the Carbon Border Adjustment Mechanism (CBAM) and the Deforestation Act at the World Trade Organization (WTO).

• During the Trade Policy Review of the EU, India said that while bilateral economic and commercial relations have been on the upswing, certain “irritants” are acting as barriers, preventing both sides from achieving the full potential of their economic partnership.

Carbon border adjustment mechanism (CBAM)

• About: It is a mechanism to be introduced by the European Union (EU) to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries.
• The EU plans a gradual introduction of CBAM from 1st October 2023 and this will translate into a 20-35% tax on selected imports to the EU nations by 1st January 2026.
• From 1st January 2026, the EU will start levying the carbon tax on multiple products exported to the EU.
• The products included in the CBAM list will be expanded over a period of time and by 2034, it will cover all products entering the EU.

EU Deforestation Regulation ("EUDR") 

• The European Union Deforestation-Free Products Regulation puts the onus on companies registered in EU member states to ensure seven agricultural commodities – cattle, cocoa, coffee, oil palm, rubber, soy, and wood – that they import or export have not been produced on land deforested after December 31, 2020.
• Under the EUDR, "deforestation-free" means that the good does not contain, has not been fed with or been made using, relevant commodities that were produced on land not subject to deforestation since 31 December 2020.