India’s failure to secure an exemption from the UK’s Carbon Border Adjustment Mechanism (CBAM) in the Free Trade Agreement (FTA) signed on July 24, 2025, poses a significant threat to its carbon-intensive exports, according to the Global Trade Research Initiative (GTRI). The UK’s CBAM, set to take effect from January 1, 2027, will impose a 14-24% tax on imports like iron, steel, aluminium, fertilisers, hydrogen, ceramics, glass, and cement, potentially affecting Indian exports worth $775 million annually.

GTRI founder Ajay Srivastava highlighted the “serious asymmetry” in the FTA, noting that while 99% of Indian exports gain duty-free access to the UK, the looming carbon tax could negate these benefits. “From 2027, the UK can impose carbon taxes on Indian steel and aluminium, even as we grant UK goods duty-free access,” Srivastava said, warning of similar challenges in India’s ongoing EU FTA talks.

India has labeled the CBAM a trade barrier, arguing it violates the “common but differentiated responsibilities” principle of global climate agreements. An Indian official stated New Delhi retains the right to retaliate or rebalance concessions if the tax impacts exports. India could challenge the CBAM at the WTO, citing violations of special and differential treatment provisions, though experts doubt a favorable ruling due to the WTO’s delayed dispute settlement process.

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