India's iron, alumina exports to UK face carbon tariff barrier despite FTA signed recently

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5 days ago

As UK and India recently signed a Free Trade Agreement (FTA), some Indian exports to the UK still face the risk of extra taxes under the UK's Carbon Border Adjustment Mechanism (CBAM), which targets products that produce high carbon emissions. read more
Prime Minister Narendra Modi and his UK counterpart Keir Starmer. Modi, who annoiunced the Free Trade Agreement on social media, said he is looking forward to welcoming Starmer to India. Reuters
A Free Trade Agreement (FTA) was signed earlier this month between the UK and India, a much-anticipated deal between the two nations following Brexit.
India's goods exports worth at least $775 million to the UK still face the risk of higher tariffs under the UK's Carbon Border Adjustment Mechanism (CBAM), a UK official said on Tuesday.
Originally proposed by the EU and later adopted by the UK, CBAM aims to impose tariffs of up to 35 per cent on carbon-intensive goods such as iron, steel, and aluminium.
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During the talks, India requested an exemption for MSMEs from CBAM after exporters informed the Commerce Ministry that they could not meet the policy's detailed data requirements. Exporters also raised concerns that complying with the carbon tax could expose sensitive trade data.
Confirming that CBAM was not part of the India–UK FTA, the UK official said that such mechanisms usually do not form part of trade deals.
India has argued that CBAM violates WTO rules and proposed a 'rebalancing mechanism' under which the UK would compensate Indian industries for any losses caused by the policy.
Trade experts said that under the new deal, the UK has agreed to allow 99 per cent of Indian exports to enter duty-free. However, this benefit could be undermined as some Indian products may still face extra charges of 20–35 per cent, similar to the CBAM tariff.
Earlier this month, an Indian official said that India reserves the right to respond to any losses caused by CBAM. The official added that if India imposes taxes on these products domestically, it could help industries avoid paying the UK tax and use the revenue to fund India's own sustainability initiatives.
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India-UK FTA: A significant milestone
The India–UK Free Trade Agreement (FTA), concluded on 6 May 2025 after over three years of negotiations, marks a significant milestone in bilateral trade relations. This comprehensive deal aims to enhance economic cooperation between the two countries by reducing tariffs, improving market access, and facilitating the movement of professionals.