India should push for inclusion of protective provisions in its proposed free trade agreement (FTA) with the European Union to safeguard its interests against the EU’s carbon tax, think tank GTRI said on Thursday.
The EU has decided to impose Carbon Border Adjustment Mechanism (CBAM), or carbon tax, which will come into effect from January 1, 2026. It would mainly impact seven carbon-intensive sectors, including steel, cement, fertiliser, aluminium and hydrocarbon products.
The Global Trade Research Initiative (GTRI) said that if protective language is not included in the agreement, post FTA, EU goods will enter India duty-free, while Indian steel and aluminum could face high carbon charges under CBAM when exported to the EU.
“Since CBAM imposes tariffs based on production methods, it violates WTO (World Trade Organisation) rules. India must push for protective language in the FTA to address this issue,” GTRI Founder Ajay Srivastava said.
The suggestions came at a time when European Commission President Ursula von der Leyen, accompanied by the EU College of Commissioners or senior political leaders of the bloc, began a high-profile two-day visit to India on Thursday.
The issue is expected to figure in the meetings between the two sides.
So far nine rounds of talks have been completed between India and the European Union (EU) on the proposed agreement. The 10th round of talks are scheduled from March 10 to 14.
In June 2022, India and the EU resumed the negotiations after a gap of over eight years. It was stalled in 2013 due to differences over several issues.
In December last year, the commerce and industry ministry said that the proposed trade agreement negotiations need political directions to reach a commercially meaningful deal while understanding each other’s sensitivities.
In the pact, the EU is looking at duty cuts on products such as automobiles, wines and whiskey.
Indian goods’ exports to the EU, such as ready-made garments, pharmaceuticals, steel, petroleum products, and electrical machinery, will become more competitive, if the pact gets concluded successfully.
India’s bilateral trade in goods with the EU was $137.41 billion in 2023-24, making it the largest trading partner of India for goods.
In addition, the bilateral trade in services, in 2023, between India and the EU was estimated at $51.45 billion.
The agreement is aimed at further boosting bilateral trade and investments between the two regions. The two sides are negotiating a free trade agreement, an investment protection agreement and an agreement on geographical indications (GIs).
During the ninth round, both sides will discuss core trade issues covering goods, services, investment and government procurement along with necessary rules such as rules of origin, SPS (sanitary and phytosanitary), and technical barriers to trade.
According to the GTRI, In FY24, the EU exported $416 million worth of wine to India. Its automobile and auto parts exports exceeded $2 billion, including $416 million in fully built-up (CBU) vehicles.
Most EU car exports to India come in completely knocked-down (CKD) form, attracting a 15 per cent tariff for local assembly and sale. Such EU exports to India, including auto components, totalled over $1.4 billion.
Overall, the EU exported goods worth $61.5 billion to India in FY24.
