India has preserved its right to counter the UK’s proposed Carbon Border Adjustment Mechanism (CBAM), set for 2027, if it impacts exports, despite its exclusion from the India-UK Free Trade Agreement (FTA) signed on July 24, 2025, sources revealed on July 25. The FTA aims to double bilateral trade from $56 billion to $120 billion by 2030, but the absence of a CBAM exemption threatens India’s carbon-intensive exports.

The UK’s CBAM will impose a 14-24% tax on imports like iron, steel, aluminium, fertilisers, cement, hydrogen, ceramics, and glass. The Global Trade Research Initiative (GTRI) estimates $775 million of India’s exports could be affected, undermining FTA benefits like duty-free access for 99% of Indian goods. “India missed a critical chance to protect its exports,” said GTRI’s Ajay Srivastava.

During FTA negotiations, India flagged the CBAM as a trade barrier, securing a note verbale—a diplomatic agreement—allowing countermeasures if the tax negates trade benefits. “India can withdraw concessions or rebalance the agreement,” sources said, noting potential actions like domestic carbon taxes or WTO challenges. India’s current carbon tax is $1.6 per tonne of CO2, far below global standards, increasing compliance costs for exporters.

Also Read: India Faces UK Carbon Tax Setback in Trade Deal, GTRI Warns

India argues the CBAM violates the Paris Agreement’s “common but differentiated responsibilities” principle. While a WTO challenge is possible, experts see limited success due to delays in the dispute settlement process. The note verbale ensures India’s flexibility to protect its $24 billion merchandise trade surplus with the UK.

Also Read: India-UK FTA to Skyrocket Trade to $120 Billion in 5 Years