India-UK FTA Includes Provisions to Counter Carbon Tax Impact

India has secured a strategic safeguard in its free trade agreement with the UK, allowing it to claim compensation for losses incurred due to Britain’s upcoming Carbon Border Adjustment Mechanism. The mechanism, set to take effect from January 1, 2027, will impose a carbon tax on imported goods such as iron, steel, aluminum, cement, hydrogen, and fertilizers.

 

Under the agreement, India reserves the right to retaliate or rebalance concessions if the tax negatively affects its industries. This provision is designed to shield Indian exporters from potential financial setbacks and prevent disputes at the World Trade Organization. The rebalancing mechanism ensures that India can seek compensation for any adverse impact caused by the carbon tax.

 

The UK’s carbon tax is expected to apply only to goods originating outside the country, following its non-preferential rules of origin. While the full details of the tax structure are yet to be finalized, Indian officials have emphasized that the country will take necessary steps to protect its trade interests.

 

India’s stance on the carbon tax aligns with its broader trade negotiations, including ongoing discussions with the European Union, which plans to implement a similar tax from January 1, 2026. Industry experts estimate that the EU’s carbon tax could translate into a 20 to 35 percent tariff on select imports.

 

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Sources: Economic Times, Financial Express, Business Standard, Moneycontrol, CNBC-TV18.