India-EU FTA includes dedicated framework to address CBAM concerns, says commerce official

The India-European Union free trade agreement (FTA) includes a dedicated framework to address concerns surrounding the European Union's Carbon Border Adjustment Mechanism (CBAM), with safeguards aimed at easing compliance for Indian exporters, particularly small and medium enterprises (SMEs), a senior commerce ministry official said on Thursday.

Speaking at the Indo-German Chamber of Commerce (IGCC) Industry Dialogue 2026, Additional Secretary in the Department of Commerce Darpan Jain said the agreement contains a separate annexure on CBAM that lays out a comprehensive work plan to help India navigate the EU's carbon tax regime.

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"CBAM (carbon border adjustment mechanism) took a lot of negotiating capital. In the text, there is a separate Annexure on dealing with CBAM, and there are certain pillars. "The first pillar is that, in case of flexibility in future, that will be available to India. So there is an obligation in that", he said.

Jain said another key focus of the annexure is to help Indian SMEs meet the compliance requirements under the mechanism.

"Second, CBAM compliances are a concern among SMEs in terms of verification, in terms of finding out what is the value of embedded carbon, in terms of ensuring that the verifiers are recognised by the EU authorities.

"So, there are separate provisions, and we also have a provision in which we can engage with EU authorities on taking into account the carbon price, which is paid in India. As you would know, India also is developing its own carbon pricing mechanism. So, how to offset what is paid in India from what is paid in Europe, so even that is part of it," Jain noted.

He was responding to concerns that the carbon tax could affect exports by India's micro, small and medium enterprises (MSMEs) to EU member countries.

"So, there is a comprehensive, I would say, work plan under annexure on CBAM and we're working on it, and I am very hopeful that SMEs will not face any problem," he said.

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The European Union's Carbon Border Adjustment Mechanism came into effect on January 1. Under the framework, the EU levies a carbon tax on imports of products whose manufacturing process exceeds specified carbon emission thresholds. The mechanism currently applies to steel and aluminium products, while sectors such as cement and fertilisers are also covered under the broader framework.

Jain also said the commerce ministry is preparing an extensive nationwide outreach campaign to familiarise businesses with the provisions of the India-EU FTA and help them utilise the opportunities it creates.

"We want to go to all the districts and conduct outreach programmes there and tell industry about what is there in the FTA, how they can use it, how they can explore opportunities under that. We are also exploring other tools like electronic tools, so that we can engage with them, especially small businesses," he said.

India and the European Union announced the conclusion of negotiations for the trade pact in January. The agreement is expected to be signed later this year and could come into force next year.

Jain said the agreement would create significant business opportunities for both economies, noting that India and the EU together account for about one-third of global trade, valued at nearly USD 33 trillion.

He added that Germany, one of Europe's largest automotive exporters with annual auto exports of around USD 286 billion, stands to benefit from greater access to the Indian market under the proposed agreement.

With inputs from agencies