India-UK FTA: No formal provision on carbon tax but India can take balancing action
From January 1, 2027, the UK is scheduled to fully implement its CBAM that will impose a carbon price on imports of specified goods, reflecting the carbon emissions embedded in their production.
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WANAN YOSSINGKUM
The India-UK FTA does not formally incorporate measures to help India deal with the UK’s proposed carbon tax but there is an understanding that it can take appropriate measures to balance it out in case such a tax hurts exports in the future, sources have said.
“The UK’s Carbon Border Adjustment Mechanism is still at the preparatory stage and may get implemented only from 2027. In the event the UK’s proposed CBAM results in adverse effect for the covered products (under the FTA), India will take appropriate measures to ensure that the market access concessions provided under the FTA are not eroded,” a source tracking the matter said.
From January 1, 2027, the UK is scheduled to fully implement its CBAM that will impose a carbon price on imports of specified goods, reflecting the carbon emissions embedded in their production. These goods include aluminum, cement, fertilizer, hydrogen, iron and steel.
India’s concern
India is apprehensive that if CBAM levies are imposed on the country’s exports to the UK, it will take away some of the benefits that it got under the India-UK FTA signed on Thursday.
Sources said the matter has not been officially included in the pact as the UK had not yet notified CBAM levies. “But if it will be implemented and if it will negate trade benefits of India under the agreement, India will have the freedom to rebalance it. This much understanding has been made in the form of note verbale,” the source said.
A note verbale is a diplomatic communication between two countries.
“There is an understanding that in case the UK makes 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 source said.
Under the FTA, the UK will eliminate tariffs for India on 99 per cent of tariff lines. The pact will be implemented once the British Parliament ratifies it, which may take a year.
Published on July 25, 2025
