Arrow still in India's quiver: FTA allows claiming damages from UK over carbon tax losses

Our Bureau

New Delhi: India will have the right to retaliate or seek compensation from the UK for its industry for losses incurred due to Carbon Border Adjustment Mechanism (CBAM) under their free trade pact.

The India-UK free trade agreement (FTA) has provisions to counter CBAM, which has the potential to negate the concessions offered by the UK to India, officials said.


The UK CBAM is expected to come into force from January 1, 2027 for imported products and would cover industries such as iron and steel, hydrogen, cement, aluminium and fertilisers.

"Due to current uncertainty and lack of a legislation, there is an understanding that India reserves its right to retaliate or rebalance the concessions in future," said an official.

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The "rebalancing" would enable India to claim compensation for the losses incurred by its industry because of the mechanism.

It is also seen as a shield to ensure that the UK does not raise a dispute against India at the World Trade Organization (WTO).

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As per the draft CBAM regulation released last week, the tax will apply only to goods which originate from outside of the UK, according to the UK's non-preferential rules of origin.

India's right to retaliation and rebalance assumes significance as the EU also has a CBAM regulation and India is negotiating a trade pact with the bloc. The EU CBAM will be implemented from January 1, 2026, which industry expects would translate into a 20-35% tax on select imports into the EU.