Whalesbook
EU's CBAM Taxes Hit Indian Exports
The India-EU Free Trade Agreement (FTA) offers no sanctuary for Indian exporters of steel and aluminium products from the European Union's Carbon Border Adjustment Mechanism (CBAM) regulation. This means goods shipped from India will be subject to carbon taxes imposed by the bloc, a move designed to level the playing field on emissions.
No FTA Shield from Carbon Border Levy
The CBAM is integral to the EU's climate policy, aiming to prevent 'carbon leakage' – the phenomenon where EU companies relocate production to regions with less stringent environmental laws to avoid carbon costs. From January 1, the financial liability under CBAM has commenced for six key carbon-intensive sectors, with Indian exporters of steel and aluminium expected to absorb the initial impact.
Technical Dialogue to Chart Market Access
Commerce Secretary Rajesh Agrawal announced that a technical dialogue has been agreed upon to identify pathways for Indian industry to access EU markets despite CBAM. This initiative includes exploring the potential accreditation of CBAM verifiers within India. Furthermore, the EU has committed to extending any future flexibility offered to other trading partners automatically to India, providing a crucial 'Most Favoured Nation' (MFN) commitment.
Future Flexibility: A Key Indian Demand
While CBAM currently targets six products, its design suggests future expansion to encompass all industrial goods, potentially diminishing the tariff benefits secured under the FTA. Ajay Srivastava of the research body GTRI pointed out this risk. However, government sources indicate India may be positioned to challenge such expansions under the FTA, though this remains a grey area. The focus now shifts to how the technical dialogue will translate into actionable steps for Indian businesses to navigate these new climate-related trade regulations.