🗞️ Why in News?
The final India–UK Free Trade Agreement (FTA) failed to secure exemptions for Indian exporters—especially MSMEs—from the UK’s upcoming Carbon Border Adjustment Mechanism (CBAM) (effective Jan 2027).
This omission threatens India’s competitiveness in the U.K. market despite gaining zero-duty access on 99% product lines.
🌫️ UK’s Carbon Border Adjustment Mechanism (CBAM)
-
Start: Jan 2027
-
Scope (initial): Aluminium, Cement, Fertiliser, Hydrogen, Iron & Steel
-
Mechanism: Carbon tax levied based on embedded emissions in imported goods
-
Future Expansion: Likely to include more products as carbon accounting improves
⚠️ Risk for India
-
Threatens $775 million worth of high-emission exports (iron & steel, cement, aluminium).
-
Erodes duty-free benefits under the India–UK FTA.
❌ The Gap in India–UK FTA
-
India demanded MSME exemptions → Not included.
-
Result: Carbon duties may offset tariff-free access.
-
Long-Term Risk:
-
Weakens India’s leverage in FTAs with EU, US, and other Western economies.
-
Undermines “Make in India” exporters in carbon-intensive sectors.
-
⚖️ WTO Challenge — Limited Relief
-
Possible Ground: Violation of Special & Differential Treatment (SDT) for developing nations.
-
Hurdle: WTO’s Dispute Settlement Body (DSB) remains dysfunctional.
-
Reality: Even if challenged, India may at best secure adjustments, not a rollback.
-
Counterargument: EU & UK justify CBAM as an environmental measure, not a protectionist tariff.
📊 Strategic Concerns
-
Missed Legal Safeguard:
-
FTA does not shield exporters from climate-linked tariffs.
-
-
Global Trend:
-
CBAM-style climate tariffs are becoming the norm in developed nations.
-
-
Policy Gap in India:
-
Lack of large-scale green manufacturing adaptation.
-
No robust domestic carbon credit mechanism yet.
-
🧾 Conclusion
The India–UK FTA, while historic in tariff reduction, overlooks climate-linked trade barriers that could undercut India’s export competitiveness.
For future readiness, India must:
-
Accelerate low-carbon manufacturing transitions.
-
Develop domestic carbon markets/credits.
-
Use FTAs to negotiate climate tariff reliefs.
-
Push for a South-South coalition at WTO against unilateral CBAMs.