The World Trade Organization (WTO) on Tuesday flagged unilateral environmental measures such as the mechanism and other EU Green Deal measures, along with the US’ Inflation Reduction Act, as trade concerns.

It comes ahead of the implementation of the European Union’s Carbon Border Adjustment Mechanism (CBAM) rules for transition from October 1.

In its World Trade Report 2023, the global trade body said some WTO members had raised concerns regarding the proposed CBAM, citing potential discriminatory impacts on their exports and higher compliance costs.

The CBAM will be effective from January 1, 2026, which industry expects would translate into a 20-35% tax on select imports into the EU. Though the EU has said that CBAM is part of its climate action efforts, countries like India are of the view that it is a trade-related measure.

“Countries are taking the climate challenge seriously… it is crucial that whatever policy matters they have, shouldn’t be contradictory to the multilateral trading system,” said WTO chief economist Ralph Ossa.

As per the report, countries have raised concerns that the CBAM may also lead to the adoption of European standards by other economies and impose “significant” compliance costs on exporters. It also mentioned unilateral trade measures which had been allegedly used for “economic coercion”, Indonesia’s export restrictions on raw materials and China’s export restrictions on gallium and germanium, as other trade concerns.Bloc trade, security concerns
The multilateral trade watchdog has also flagged the involvement of security in trade policy leading to higher trade barriers. As per WTO officials, security concerns are increasingly being cited as a reason for trade restrictions by many countries.

“There is a risk that this might lead to fragmentation in the global economy as economies resort to re-shoring and friend-shoring,” it said in the report titled ‘Re-globalization for a secure, inclusive and sustainable future’.

Emphasising that trade is gradually becoming reoriented along geopolitical lines, the WTO said trade between these blocs has experienced a growth rate that is on average 4-6% lower than trade within blocs since the onset of the war in Ukraine in February 2022.

As per the report, a policy shift can also be observed in regional trade policies where new forms of cooperation do not systematically take the form of binding trade agreements.

It referred to the Indo-Pacific Economic Framework (IPEF), whose members represent 40% of the world’s GDP, and said it also covers trade and the digital economy, supply chains and resilience, clean energy and decarbonisation, in addition to tax and anticorruption.

The WTO said trade costs in developing economies are 30% higher than in high-income economies and that those in agriculture exceed those in manufacturing by 50%.

(The reporter is in Geneva at the invitation of the WTO)