Not covered in FTA, carbon tax may spoil India-UK free trade mood; here's why

The free trade agreement between India and the UK does not cover Britain’s proposed Carbon Border Adjustment Mechanism (CBAM). However, officials stated on Friday (July 25) that if such a tax is introduced later, India will have the right to take measures to offset its impact on domestic exports, reported Economic Times.

The CBAM is not included in the agreement because Britain has not yet formally notified the tax. In December 2023, the UK announced plans to implement the CBAM starting in 2027.

The issue was raised during negotiations for the Comprehensive Economic and Trade Agreement (CETA).

“If it is implemented and negates the trade benefits of India under the agreement, India will have the freedom to rebalance it. We can take counterbalancing measures. This much understanding has been made in the form of note verbale,” an official was quoted as saying by the ET..

More from World

With FTA, India and UK unveil new era of strategic partnership amid global turmoil PM Modi concludes UK visit with historic FTA, departs for Maldives for second leg of foreign trip

A note verbale refers to a diplomatic communication exchanged between two countries.

“There is an understanding that in case the UK make it effective against India in future, then we will also have the right to take counterbalance measures… India can take away the concessions and there will be a mechanism for that,” the official further noted.

India is also engaged in discussions with the European Union, which is planning its own CBAM.

The two parties are negotiating a trade agreement, expected to be finalised this year. India has labelled the CBAM as a trade barrier.

Impact Shorts

More Shorts

‘The cries of this widow will echo’: In first public remarks, Erika Kirk warns Charlie’s killers they’ve ‘unleashed a fire’

Trump urges Nato to back sanctions on Russia, calls for 50–100% tariffs on China

A carbon tax is considered a non-tariff barrier. The European Union has already implemented such a tax on imports exceeding a specific carbon emission threshold. For every tonne of excess carbon emission, a levy ranging from €1 to €100 per tonne is imposed.

India and the United Kingdom (UK) signed the Free Trade Agreement (FTA) on Thursday (July 24) during PM Narendra Modi’s visit to the UK.

New Delhi and London concluded talks in May to reach a bilateral Free Trade Agreement, discussions for which first began in January 2022.

As per the British government estimates, the FTA will boost its GDP by £4.8 billion ($6.5 billion) annually. Indian exports to the UK are expected to double by 2030.