India Should Include Protective Provisions In EU FTA To Counter Carbon Tax: GTRI

New Delhi, Feb 28 (KNN) India should incorporate protective provisions in its proposed free trade agreement (FTA) with the European Union to safeguard its interests against the EU's carbon tax, according to recommendations from think tank Global Trade Research Initiative (GTRI) on Thursday.

The EU has established the Carbon Border Adjustment Mechanism (CBAM), commonly referred to as a carbon tax, which will take effect from January 1, 2026.

This mechanism will primarily impact seven carbon-intensive sectors, including steel, cement, fertiliser, aluminium, and hydrocarbon products.

GTRI warned that without protective language in the agreement, post-FTA, EU goods would enter India duty-free, while Indian steel and aluminium exports to the EU could face significant carbon charges under CBAM.

"Since CBAM imposes tariffs based on production methods, it violates WTO rules. India must push for protective language in the FTA to address this issue," stated GTRI Founder Ajay Srivastava.

These recommendations coincide with European Commission President Ursula von der Leyen's high-profile two-day visit to India, which began Thursday.

The European delegation includes the EU College of Commissioners and senior political leaders of the bloc. The carbon tax issue is expected to be discussed during meetings between the two sides.

Nine rounds of negotiations have been completed between India and the EU on the proposed agreement, with the tenth round scheduled for March 10 to 14. The talks resumed in June 2022 after an eight-year hiatus, having stalled in 2013 due to differences over several issues.

In December last year, India's commerce and industry ministry noted that the trade agreement negotiations require political direction to reach a commercially meaningful deal while considering each other's sensitivities.

The EU is particularly interested in duty reductions on products such as automobiles, wines, and whiskey.

For India, successful conclusion of the pact would make exports such as ready-made garments, pharmaceuticals, steel, petroleum products, and electrical machinery more competitive in the EU market.

India's bilateral trade in goods with the EU reached USD 137.41 billion in 2023-24, making the EU India's largest trading partner for goods.

Additionally, bilateral trade in services between India and the EU was estimated at USD 51.45 billion in 2023.

The comprehensive agreement aims to further enhance bilateral trade and investments between the two regions. Negotiators are working on a free trade agreement, an investment protection agreement, and an agreement on geographical indications (GIs).

During the ninth round, both sides discussed core trade issues covering goods, services, investment, and government procurement, along with necessary rules such as rules of origin, sanitary and phytosanitary measures, and technical barriers to trade.

According to GTRI data, in FY24, the EU exported USD 416 million worth of wine to India. Its automobile and auto parts exports exceeded USD 2 billion, including USD 416 million in fully built-up vehicles.

Most EU car exports to India arrive in completely knocked-down form, attracting a 15 percent tariff for local assembly and sale. Such EU exports to India, including auto components, totalled over USD 1.4 billion. Overall, the EU exported goods worth USD 61.5 billion to India in FY24.

(KNN Bureau)