Indian exporters may face higher costs once EU's ecodesign norms kick in

ESPR is a part of EU’s Green Deal that proposes a bunch of legislations aiming to make EU carbon neutral by 2050.

The European Union's ecodesign norms, which kick in from January 2026, and mandate a QR or bar code that outlines the environmental sustainability of a product, could spell trouble for the developing world, including India’s small businesses.

The Ecodesign for Sustainable Products Regulation or ESPR warrants that imported products meet EU's stringent sustainability standards, including a Digital Product Passport for traceability. This aims to ensure that all products entering the common market meet the bloc's high environmental standards.

ESPR will push up costs of products because of changes needed in production processes. This could hurt exports from developing countries as the competitiveness products from these economies enjoyed would be eroded due to the compliance cost involved in meeting high EU standards, Global Trade Research Initiative (GTRI) said in a report on June 19.

The report listed exporters of iron, steel, aluminium, textiles, furniture, mattresses, tyres, detergents, paints and lubricants as among the first to be affected by the new rules.

The EU will roll out these standards beginning with select products in January 2026 and then extend it to all by 2030.

What is ESPR?

Proposed in March 2022, will replace the EU’s existing Ecodesign Directive, introducing more norms for a broader range of products.

ESPR is a part of the EU’s Green Deal that proposes a bunch of legislations aiming to make the EU carbon neutral by 2050.

Officially adopted by both the European Parliament and the Council in April and May 2024, respectively, the ecodesign regulation itself is now in place, but product-specific requirements will be defined in separate delegated acts and are expected to be rolled out by 2030.

Textile troubles?

This could mean that companies within the EU will scale back imports so that the likelihood of surplus stocks reduces. And given that almost all textiles in global trade originate in Asia, the result could be a drop in orders.

However, according to Ajay Sahai, the director-general and CEO of the Federation of Indian Export Organisations, ascertaining the impact on Indian exports would be premature given that the norms kick in only after two years. He added that challenges, if at all, will depend on whether there are broad rules or specific ones for these items.

"If there are generic rules to be followed, India is already largely meeting them, be it recyclability or ensuring minimum impact on the environment," he said.

Specifically, on the ban on destruction of certain goods, Sahai said that seemingly only pertains to exceptional situations.

D. K .Singh, vice president, Textile Association (India), agrees that the impact on Indian exports of textiles should be limited.

"Textile exports are largely on garments. And India itself is a very large country of 1.4 billion and, therefore, the domestic market consumption is huge. Exports are requirement-based alone, so the impact should not be large on account of the EU rules. If you are doing a straight business, there is no problem. Restrictions come in if consignments that reach have an issue," Singh added.

Some challenges

According to Ajay Srivastava, founder of GTRI, one potential challenge for Indian exporters once the ecodesign norms come into play would be to ensure that a product is sustainable as well as of high quality.

A product can be of high quality without being sustainable if, for example, it uses non-renewable resources or cannot be recycled. Conversely, a sustainable product aims to minimise its environmental footprint while maintaining acceptable quality standards, he added.

India's exports to European countries stood at $98.88 billion in FY24, registering an on-year growth of 1.46. This includes exports to 38 countries or territories across 31 commodities.

Ready-made garments of all textiles are among the top 10 exported products from India to Europe, comprising 6 percent of the total share of outbound shipments to this region. In the top three are engineering goods, petroleum products and electronic goods.

GTRI suggested some key steps for Indian exporters to prepare for the upcoming ecodesign regulations, including conducting assessments to evaluate the environmental impact of their products throughout their lifecycle, developing compliance plans to create strategies to meet the ESPR requirements for affected categories, and engaging with suppliers to ensure that necessary sustainability data s provided for Digital Product Passports.

These rules comes at a time when Indian exports are already struggling with the EU's Carbon Border Adjustment Mechanism, deforestation and supply chain regulations, GTRI said, adding that Indian firms exporting to the European markets must proactively prepare to comply with ESPR requirements to maintain their market presence and leverage the shift towards sustainability for competitive advantage.

It is still early days to ascertain the full impact of the ecodesign norms, but given that the bloc has issued over 50 major legislative proposals and initiatives as part of the European Green Deal, the adverse implications on trade could be expansive and real.