Introduction
International trade is driven by reigning forces of political, social, and economic powers. The fast-paced nature of trade, continuously growing and evolving, is deeply affected by movements that enter the realm of societal life. The past decade reflects this phenomenon, with the mission to preserve and protect the environment being at the forefront of national talks. International trade cannot escape the implications of the changing environment, and its role in the same. When we think of trade, we are limited to foreign exchange, the economy, and the GDP. The interplay between trade and climate change is perhaps the most need of the hour concern, since rising environmental costs, trade patterns, shifting supply chains and tariffs, etc. affect both the country’s trade agreements and its sustainable development.
India has a pivotal role to play in this movement. Not only does it have the highest population in the world, but it is still a developing country soon to be the third-largest economy in the world. Its greenhouse emissions are amongst the highest three, yet its per capita carbon footprint is 60% less than the international average. The Indian government has set lofty goals in transforming into an environmentally responsible economy and the changing green manufacturing processes and turn to renewable energy are examples of the same. Yet, do India’s trade practices and policies align with its goal to reach net-zero Greenhouse Gas (‘GHG’) emissions by 2070? Do its trade agreements reflect its promises to become a sustainable economy?
This piece tries to answer these questions in three parts. Part II traces the evolution of India’s trade policies and the place of environment preservation within its strategies, noting that India’s recent protectionist stance does not leave room for environment-friendly strategies. It analyses India’s most recent trade agreements, the CEPA and the ECTA through the lens of sustainability and points out the severe inadequacy of environmental provisions in both agreements, especially considering the nature of trade with these nations. In Part III, the paper analyses the FTA talks with the UK and the role and conflict over environmental sustainability within the same. Finally, the paper evaluates India’s policies and posits that it is high time to form a trade strategy concerning the environment. It concludes that giving significant space to environmental provisions within trade agreements is in India’s best interests and the FTA with the UK is an opportune moment to kickstart this approach.
Part II – India’s Trade Policies and Environmental Protection
In 1991, India liberalized its trade policies, which was part of a greater reform movement. Since then, India has witnessed a significant shift in its economic trajectory; with average annual growth rates rising to roughly 6.4% compared to the stagnant pre-reform growth rate of 4.2%. India’s economy has expanded to rank fifth in the world in 2019 because of this surge in trade. There are competing debates regarding the effect of liberalization on sustainable trade. However, several studies have proven that Indian trajectories of trade do not support the Pollution Haven Hypothesis i.e., trade liberalization did not cause dirty industries to migrate to less regulated nations. Moreover, India’s advantage was not the capital-intensive dirty products, but the manufacture and trade in labour-intensive and relatively cleaner goods.
Since 2018 however, India’s trade regime has become increasingly protectionist in nature. India’s objectives of curbing the trade deficit and promoting domestically manufactured goods (self-reliance) have impacted its trade agreements. India signed free trade agreements (‘FTAs’) with Australia and the United Arab Emirates (UAE) in 2022 after withdrawing from the Regional Comprehensive Economic Partnership (‘RCEP’) in 2019. This active approach to FTAs was noted by experts, noting that even though trade was open since 1991, it was lined by trade skepticism, and since 2019 India has been exercising strong trade protectionism in its agreements. However, the effect of India’s shifting trade policy on the UN’s sustainable development goals remains unclear, primarily with respect to climate change. The environmental impacts of the changing policies are multifaceted, with their own benefits and challenges. Protectionist measures have increased investment in domestic renewable energy sectors and climate tecnology. They have also led to growth of imports in environmental technology, opening doors for innovation within this sector. However, India lags behind in adoption of green trade practices, and protectionist policies may hinder this further by limiting access to advanced technologies. Moreover, trade barriers make clean technologies more expensive and unregulated domestic production, without sufficient safeguards, may lead to environmental degradation.
India’s traditional trade strategy is clear within these recent agreements, with environmental provisions scarce or missing, and no significant discussions having taken place on the same. This part highlights certain provisions within two recent agreements signed by India to prove the point.
Comprehensive Economic Partnership Agreement (CEPA) with the UAE
The agreement has more environmental provisions than any Indian agreement in the past, however, they are still largely cursory and limited. Article 14.5 titled ‘Environmental Protection’ includes seven clauses in which the parties have recognized a need for environmental protection and has included general provisions respecting the domestic environmental protection laws of each country. Not only do these provisions seem to be symbolic; to merely show a commitment to environmental protection, but they do not seriously curb or incentivize environmentally friendly trade. This symbolism is evidenced by the lack of binding commitments that require parties to adhere to strict environmental standards and the lack of enforceability and dispute-resolution mechanisms. Further, the CEPA lacks trade-linked environmental incentives such as tariff reductions for sustainable products or penalties for violations, which are features of effective environmental provisions. This is significant because India’s imports from the UAE are mainly petrochemical and oil products. Unfettered imports in this area, without constraints, assessments, or limitations are dangerous, and the CEPA is just the beginning of the same.
Economic Cooperation and Trade Agreement (ECTA) with Australia
The ECTA, however, paints a much bleaker picture of India’s commitment and cooperation for environmental protection. Only the preamble indicates a commitment to the protection of the environment, and no other provisions echo this sentiment. This is dangerous for several reasons. First, India and Australia have been cooperating on climate change in other areas, with the commitment to sustainability being at the forefront of their common interests as major stakeholders in the climate fight. The fact that the agreement lacks any provisions with respect to the same casts doubts on both countries’ commitment to fight for climate action. Further, this ECTA is being seen as paving the way for further agreements with the EU, the UK, and Canada, yet it does not set a good example for sustainable trade. It is concerning that the majority of Australia’s exports to India are coal, which is not only responsible for India’s trade deficit but is significantly detrimental to the environment. India’s national commitments to install 450 gigawatts of renewable energy capacity by 2030, along with the fast-falling costs of wind and solar technology, should have placed renewables at the focus of Indian-Australian ties. The recent agreements, which put forth the prospect of zero tariffs on gas and coal, along with five years without tariffs on oil, will most likely fuel an increased fossil fuel trade. This shift wouldn’t be concerning if India’s environmental policy in the meanwhile focused on building green infrastructure and on a transformative shift to renewable energy through sustainable trade. However, one cannot help but think when the right time for such a change is, and whether it will be too late by then.
Part III – The UK-India Free Trade Agreement: A Green Opportunity?
The FTA talks with the UK have been in motion since January 2022, with both nations failing to find common ground on certain contentious issues, one of them being environmental and labour standards. These include the implementation of a Carbon Border Adjustment Mechanism, promotion of trade in low-carbon goods through the inclusion of preferential tariffs and green technologies, stronger committments to labour rights, restriction of trade in products linked to deforestation, etc. The demand to include a sustainable development and trade chapter in the agreement also found opposition from India, who claimed that clauses of this kind infringe on the nation’s sovereignty. UK’s approach to the negotiations however is explicit in its goal to further environmental protection. It seeks provisions that support and help further the nation’s ambitions regarding climate change and Net Zero GHGs by 2050, including the promotion of trade in low-carbon goods and the pursuing of clean growth and exchange. Further, provisions that ensure that parties do not fail to enforce domestic climate and environment protections in their goal to gain competitive advantage are being pushed for.
India is hesitant to compromise on potential tariffs, especially considering the EU’s new Carbon Border Adjustment Mechanism (‘CBAM’), under which goods entering the countries that fail to implement GHG curbing measures would be taxed. India is fearful that its goods will become more expensive under this policy. However, it could avoid having to pay a steep price for goods produced in a carbon-efficient manner. Even though there is a long way to go before Indian exports can be green, Indian industries have an unprecedented opportunity at the moment to begin this transformation. UK’s FTAs tend to focus on sustainable development provisions, with the removal of barriers to trade and investment in renewable energy featuring high on the agenda. Their government is dedicated to upholding environmental protection norms in trade agreements, and a deal with India may be a significant chance for their globally dominant renewable energy sector to further shared interests. The knowledge and experience that UK businesses have in this field may be beneficial to both parties and strengthen their commitment to renewable energy.
Further, the UK seems to be highly committed to supporting India’s transition to green energy and this agreement can play a vital part in the same. It pledged a 1 billion dollar investment into Indian Green projects over the next five years and also adopted an India-UK Roadmap to 2030 to steer cooperation in the next decade. This FTA serves as an opportunity for both India and the UK to together solidify commitments to sustainable trade and promote a clean growth agenda at the WTO, where mutually beneficial environmental and economic outcomes of sustainable trade are being propounded.
Harnessing the Opportunity: India’s Moment for Transformation
India has always had a stark separation of its policies concerning trade and the environment. Trade-related challenges were tacked through trade policies and environmental through environment policies, with no intermingling of the same. For instance, the environmental policy introduced by the government outlined several crucial objectives, with none of them touching upon trade to further these goals. One cause of this separation may be India’s nature as a developing nation and the need to trade off between the two aims, sacrificing sustainability for short-term economic gains. However, this is not a long-term solution for sustained growth.
The paper suggests that it is time for there to be an integration of both policies. Specifically, India’s trade policy should incorporate environmental considerations to align the country’s trade objectives with its environmental priorities, including those linked to international commitments such as the Paris Agreement and India’s 2070 GHG targets. It is key to formulate holistic policies not only for fostering trade in certain relevant goods but also to facilitate investment in greener technology. It is imperative that the Ministry of Commerce study the sections on labour standards and environmental sustainability and strategy to see what the nation is up against and to motivate the country’s industry to modernize and transform in order to meet all of its objectives.
Moreover, the value of including environmental provisions in trade agreements must not be overlooked. Certain critics look at the same merely as ‘fig leafs’, included to make the agreement less controversial and symbolise a commitment to sustainability in the eyes of the public. Some even look at them as instruments of protectionism, with developed countries trying to keep cheaper goods out of the market. Intentions aside, such provisions are necessary to curb dirty trade and promote cleaner and environment-friendly exchange of products. One important question is whether a nation’s signature of FTAs with extensive environmental provisions and its domestic introduction of additional environmental legislation are related. TREND-based research indicates that environmental provisions and domestic environmental legislation have a beneficial association. Studies show that protectionism is not conducive to long-term environmental sustainability in developing countries since it leads to a reduction in environmental efficiency and does not incentivize green trade. India has the opportunity to increase the export of climate-friendly goods (‘CFGs’) since India’s labour-intensive market has led to most manufacturing being relatively clean and green, with the UK FTA being the ideal place to set these export targets. If India can collaborate to establish mutually beneficial trade agreements with respect to green goods, environmental benefits can be maximised.
Conclusion
Climate change has been described as a threat multiplier since it transforms the worse to worst and multiplies the problems faced by the human race. Not only does it affect individual nations and societies, but it also has the power to disrupt supply chains, shipping, and exchange and cause both trade wars and real wars. Regional climate change is speedily occupying space at the global forum, and India stands at a precipice where its fate could be determined by climate change and how it prepares for the same. It is time for India to bring its environmental policy into the trading forum, and the Free Trade Agreement with the UK provides an opportune moment for India to take its stance.
Arushi Singh is a third-year law student at the National Law School of India University, Bangalore
Picture Credit: UNCTAD
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