Context: 

A formal submission by India, China and some other countries was made to discuss climate-driven trade measures at COP-29.

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• India's Opposition: India has expressed strong disapproval of protectionist measures linking trade barriers to carbon emissions at the COP29 climate talks in Baku, Azerbaijan.
• BASIC Initiative: China, representing the BASIC countries (Brazil, South Africa, India, China), petitioned to include discussions on "climate change-related unilateral restrictive trade measures" in the conference agenda.
• Key Concern: India emphasized that unilateral trade measures unfairly impose transition costs on developing and low-income countries, violating principles of equity.
• Diplomatic Approach: The opposition carefully avoided directly naming specific measures like CBAM, instead using terms like "arbitrary and unjustifiable unilateral measures" to maintain diplomatic protocol.

About Climate-Driven Trade Restrictions

• Definition: These are measures implemented by countries to regulate international trade based on climate-related criteria and carbon emission standards.
• Policy Integration: Generally, countries incorporate climate trade policies into consideration which increase the global commerce and supply chains.
• Implementation Methods: Restrictions can take various forms, including carbon taxes, border adjustment mechanisms, and environmental standards for imports.
• Global Impact: These measures significantly influence international trade patterns and affect the competitiveness of developing nations in global markets.
• Examples of Restrictions: Policies such as the Inflation Reduction Act (by the USA) and CBAM (by the EU) are focussing on incentivizing local clean technology production.

About CBAM (Carbon Border Adjustment Mechanism)

• EU Initiative: The European Union's CBAM is designed to tax imports based on their carbon content, affecting approximately 15% of global imports. The CBAM will be fully implemented from January 1, 2026.
• Product Coverage: Initially focuses on emission-intensive products such as steel, aluminium, and cement, with plans for expansion to other sectors.
• Operational Mechanism: The system requires importers to purchase carbon certificates corresponding to the carbon price that would have been paid had the goods been produced under EU carbon pricing rules.

Impacts of Climate-Driven Trade Restrictions

• Economic Effects: These measures can significantly impact the export competitiveness of developing nations while potentially benefiting industries in developed countries.
• Supply Chain Restructuring: Global supply chains are being reorganized through nearshoring and reshoring initiatives in response to climate-related trade measures.
  Nearshoring: A business strategy that involves moving production or sourcing activities to a nearby country.
  Reshoring: It is the process of moving a company's manufacturing or production back to its home country.
• Market Access: Developing countries face increased barriers to accessing developed markets due to stringent environmental standards and associated costs.
• Technology Transfer: The restrictions influence the transfer of clean technologies and sustainable practices across borders, affecting industrial development patterns.

Challenges

• Equity Concerns: Developing nations argue that these measures disproportionately affect their economic growth and development prospects.
• Implementation Complexities: Countries face difficulties in measuring and verifying carbon content in traded goods accurately and consistently.
• Regulatory Overlap: Multiple overlapping climate-related trade measures from different regions create compliance challenges for international businesses.
• Cost Burden: Additional compliance and certification costs particularly impact small and medium enterprises in developing countries.

Way Forward

• Collaborative Approach: Development of inclusive international frameworks that consider both environmental and developmental aspects.
• Financial Support: Establishment of mechanisms to provide technical and financial assistance to affected developing nations.
• Technology Transfer: Facilitation of clean technology transfer to help developing countries meet environmental standards.
• Policy Harmonization: Working towards harmonized global standards while respecting different national circumstances.

About BASIC Countries

• Formation: Established in 2009, as a bloc of four major newly industrialized countries: Brazil, South Africa, India, and China.
• Common Goals: United in their stance on climate change negotiations, particularly regarding equitable burden-sharing and development rights.
• Strategic Alliance: The group works together to define common positions on emission reductions and climate aid money.
• Development Focus: The group emphasizes the need for developed nations to provide financial and technical support to developing countries for climate action.