India misses chance to tackle UK carbon tax in trade pact. Why is it concerning?
The UK's CBAM, which is set to come into effect from January 1, 2027, is expected to impact India's exports of steel, aluminium and other carbon-intensive goods. India's steel and aluminium exports are already facing steep tariff restrictions from the US after US President Donald Trump raised the tariffs on the items to 50 per cent.
An absence of a resolution not only weakens India's position—as it missed the opportunity to address the levy within a legal framework—but also casts a shadow over the duty concessions won for 99 per cent of its exports to the UK under the long-negotiated trade deal as UK could raise tariffs on industrial imports once it implements CBAM.
Trade experts believe that if the UK has not conceded ground on the carbon tax, the EU may also refuse to offer any concessions on its own carbon measures. Hervé Delphin, EU Ambassador to India, told The Indian Express last month that the EU's CBAM is not part of negotiations. 'CBAM is not a trade measure. It is not part of trade and the FTA. It's about compliance with our climate agenda to accelerate decarbonisation,' Delphin told the newspaper.
While the Ministry of Commerce and Industry claims that the UK trade deal will allow around 99 per cent of Indian exports to benefit from zero-duty access to the UK market, CBAM significantly could alter that. The UK government has said that the carbon tax will apply to both 'direct and indirect emissions' embodied in imported CBAM goods, 'including those emissions embodied in relevant precursor goods at a point further up the value chain'.
This means that London, based on its carbon calculations, could impose duties on Indian intermediate exports as well as finished products. Indian goods exports worth at least $775 million to the UK, therefore, continue to face the risk of higher duties under its carbon tax mechanism.
As per the CBAM regulation, the UK will place a carbon price on some of the most emissions-intensive industrial goods imported to the UK—covering the aluminium, cement, fertiliser, hydrogen, and iron & steel sectors—which are considered at risk of carbon leakage. But the scope will increase going forward.
'The sectoral and product-level scope of the CBAM will be kept under review beyond 2027 as new evidence comes to light to reflect changes to carbon leakage risk, as well as methodological and technological advances,' a statement read.
India's exports to the UK rose by 12.6 per cent to $14.5 billion, while imports grew by 2.3 per cent to $8.6 billion in 2024–25. Bilateral goods trade between India and the UK increased to $21.34 billion in 2023–24 from $20.36 billion in 2022–23.
As no concession was secured under the FTA, India could challenge the regulation at the WTO on the grounds that CBAM violates special and differential treatment (SDT) provisions, which advocate longer implementation periods for developing countries to safeguard their trade interests.
However, trade law experts warn that the CBAM regulations in both the UK and EU may be in effect by the time the WTO rules on the matter, given the dysfunction of the organisation's Dispute Settlement Body (DSB).
They also said there is limited likelihood of an adverse ruling on CBAM at the WTO, as the EU remains one of the strongest supporters of the institution. A more probable outcome would be adjustments to the regulation rather than its complete withdrawal.
Ravi Dutta Mishra is a Principal Correspondent with The Indian Express, covering policy issues related to trade, commerce, and banking. He has over five years of experience and has previously worked with Mint, CNBC-TV18, and other news outlets. ... Read More
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Hindustan Times
17 minutes ago
- Hindustan Times
Elected govts at local body levels key to India's goal of being developed nation: Report
Lack of duly elected governments at the city or urban local body levels is an obstacle to India's ambitious goal of being a developed nation, a report released on Wednesday. The report by Bengaluru-based non-profit Janaagraha Centre for Citizenship and Democracy argued that developed cities are a key to India's economic growth, and globally, there are no examples of cities being developed well without strong urban local governments. (Representative file photo) To make their case, the authors said Indian cities already contribute 60% of GDP. But, compared to the global average of 3.9% increase in per capita GDP for every 1% increase in urbanisation, India delivers only a 1.7% increase. The study noted that a 932% increase in central government budgets for the urban sector from 2009–10 to 2024–25, along with a similar rise in investments by respective state governments, has failed to deliver optimum results. '59% of urban residents face water scarcity, 80% are exposed to unhealthy air quality, 36.4 crore urban residents faced very strong heat stress, and recurring urban floods across major cities, with the 2015 Chennai floods alone costing ₹15,000 crores. This signals deeper governance issues,' the authors of the report said. Titled 'Delays in Urban Local Government Elections in India: Analysis and Reform Pathways', the report flagged an average 22-month delay in conducting municipal elections, an 11-month average delay in electing mayors and forming councils, despite the Constitutional mandate of holding elections before council term expiry or within six months after dissolution. The study also shed light on many Constitutional silences, particularly in terms of laying down defined timelines and the lack of independence of state election commissions, with only eight of the 34 SECs having powers over both ward delimitation and reservation. Also Read: A road map to mitigate Delhi's pollution crisis As remedies, the report recommended reforms at the centre, state governments, and state election commission levels. Srikanth Viswanathan, chief executive officer at Janagraha, said, 'The centre should consider stopping central sector funding to states that do not facilitate duly elected city councils altogether, as done for 15th Finance Commission grants for cities without duly elected bodies.' He also said states should be incentivised for empowering state election commissions. The study collated findings from 13 court orders of various high courts and the apex court, CAG reports, interviews with state election commissioners, municipal legislations at the state level, and a roundtable organised with MPs, mayors, and sectoral experts held earlier in July. Janaagraha said that they will share the report with the chairperson of the Parliamentary Standing Committee of Housing and Urban Affairs who had chaired their roundtable, state governments, the Parliamentary Accounts Committee, and state election commissions.
Mint
19 minutes ago
- Mint
Trump's tariffs on India: Experts unveil this strategy for Indian stock market investors
Trump's tariffs on India: U.S. President Donald Trump, on Wednesday, an additional 25 per cent tariff on Indian imports as a punitive measure in response to New Delhi's ongoing purchases of Russian crude oil. With this move, the total U.S. tariff on Indian exports now stands at 50 per cent — 20 percentage points higher than the tariff on Chinese goods — posing a serious blow to India's export competitiveness. The revised tariff regime, revealed late Wednesday, is set to take effect after a 21-day grace period beginning August 27, 2025. Although this period offers a brief opportunity for diplomatic negotiations, both nations currently face limited avenues for resolution. Indian benchmark indices, Sensex and Nifty50, opened lower for the third consecutive session on Thursday, as investor sentiment was hit by the United States' decision to impose an additional 25% tariff on exports, sparking fears of economic repercussions and escalating global trade tensions. By 9:21 am, the BSE Sensex had dropped 266 points, or 0.33%, to 80,359, while the Nifty50 was trading 71 points lower, or 0.3%, at 24,502. " This punitive step threatens to derail the Indo-US strategic and economic relationship, which has evolved steadily since 1998. The implications of these levies extend beyond trade and into critical areas such as technology partnerships, H-1B visa access for Indian tech talent, cross-border capital flows, and the future of US firms' offshore manufacturing in India. The Indian government has strongly denounced the new measures as "unfair, unjustified, and unilateral", and is expected to explore both diplomatic and trade avenues to defend national interests. However, the near-term sentiment in financial markets is likely to remain cautious, as investors brace for potential retaliatory moves and await clarity from upcoming negotiations," said Sugandha Sachdeva- Founder-SS WealthStreet. According to Sachdeva, Nifty is hovering near a key support zone at 24,450, and a breach below this level could trigger a swift decline toward 24,180 in the short term. Key resistance in the near-term rests at the 24,750 and 24,950 levels. " Broader market sentiment may remain under pressure amid geopolitical uncertainty, with volatility expected to intensify, particularly in sectors sensitive to global trade flows, energy imports, and foreign capital exposure. Until there is visible progress on the diplomatic front or signs of a softened stance from the US administration, risk sentiment is expected to stay fragile, and a defensive approach may prevail among market participants. Eyes would also be on the Q1 earnings from several key companies which shall also influence the direction of the market," she said. Santosh Meena, Head of Research at Swastika Investmart, said that India remains a domestic consumption-driven economy, with limited direct exposure to the U.S., except in key sectors like IT, pharmaceuticals, and electronics, which are exempt from the current tariff announcement. However, sectors such as textiles, gems & jewellery, and leather may face sentimental pressure in the near term. Long-Term Investors: Stay the course. This development is a part of ongoing global trade tensions and shouldn't distract from India's long-term growth potential. Near-term volatility is an opportunity—not a threat—for long-term investors. Short-Term Traders: Exercise caution. The short-term outlook remains uncertain due to a combination of muted Q1 earnings, stretched valuations, and global trade tensions. Market texture appears weak in the near term, so a defensive and selective approach is advisable. However, any significant correction should be seen as a buying opportunity, as earnings momentum is expected to improve from the next quarter onward. Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
Economic Times
19 minutes ago
- Economic Times
Vietnam trade beats estimates as buyers race Trump tariffs
Synopsis Vietnam's exports surged by 16% in July, exceeding expectations, as companies rushed shipments to the US ahead of impending tariffs. While exports to the US rose significantly, imports from China also increased. The tariffs pose a threat to Vietnam's economic growth, prompting trade negotiators to seek alternative markets and boost domestic consumption. iStock The Southeast Asian nation, an export powerhouse that sells everything from coffee and clothing to engine parts, has been shipping more goods this year to buyers aiming to avoid US President Donald Trump's tariffs. Vietnam's exports jumped more than expected in July, with buyers racing to avoid a 20% tariff on the country's exports to the US set to take effect on Aug. rose 16% in July from a year earlier to $42.3 billion, the statistics office said in a statement, beating expectations of 14% growth. Imports rose 17.8% in the period to $40 billion, more than the 15.2% forecast. The trade surplus was $2.27 billion, versus $2.83 billion released in Southeast Asian nation, an export powerhouse that sells everything from coffee and clothing to engine parts, has been shipping more goods this year to buyers aiming to avoid US President Donald Trump's tariffs. The country was initially threatened with a 46% import levy, though that has been lowered to 20%, just one percentage point more than for neighbors Indonesia, Malaysia, the Philippines and Thailand. 'Vietnam posted impressive export figures in July, mostly because companies were rushing to ship goods to the US ahead of the Trump tariffs,' said Tran Tuan Minh, chief executive officer of TVI, a Hanoi-based equity research and investment firm. 'We expect exports to slow significantly later this year, mainly due to the 20% tariffs and especially the 40% rate on transshipments, which still remains quite unclear at this point.' The government said in a statement Wednesday that trade negotiators are working to 'actively continue' talks with Washington. It also reiterated plans to diversify its markets, aiming for trade agreements with the Middle East and India, while increasing domestic consumption of Vietnamese goods. Exports to the US rose 26% in July from a year earlier to $14.2 billion, according to separate customs data released Wednesday. Imports from China increased 30.5% to about $16.7 billion in exports to the US account for roughly a fifth of Vietnam's gross domestic product, and the tariffs pose a threat to factories which have boomed as companies have diversified their supply chains from China. The data was generally positive, with consumer prices rising 3.19% on year, slower than the 3.40% economist estimate and the 3.57% pace of June. Industrial production rose 8.5% on year, and 0.5% compared with June. Commodity exports also gained, with coffee exports rising to 103,000 tons, a 34.6% rise on a year economy has been powering along in 2025, with gross domestic product rising 7.96% in the April-June period from a year earlier, according to data released last month. The government is aiming for 8% growth in 2025, though it's unclear whether the new US tariffs will derail that push.
