India-EU FTA talks turn to carbon tax, QCO issues

New Delhi: India and the EU are discussing ways to manage non-tariff barriers such as the bloc's Carbon Border Adjustment Mechanism (CBAM) and Deforestation Regulation (EUDR) and New Delhi's Quality Control Orders (QCO) in the ongoing round of their bilateral free trade pact talks.

While there is an understanding to conclude the proposed India-EU FTA in two phases, the bloc has asked New Delhi if the pact can be concluded in one go since a similar deal with the UK was done in a single phase. The eleventh round of negotiations are taking place in New Delhi from May 12-16.

"While the two sides are negotiating tariffs but the issue is now how to manage non-tariff barriers. Both sides have raised concerns," said a person in the know of the development.


India has already said that it will impose retaliatory duties if the EU imposes carbon tax on Indian goods. The EU's CBAM is expected to translate into a 20-35% tax on select imports into the bloc from January 1, 2026 and will impact the cement, iron and steel, aluminium, fertiliser, electricity and hydrogen sectors.

This assumes significance as India will have the right to retaliate or seek compensation from the UK for its industry for losses incurred due to CBAM under their recently concluded free trade pact.

The EUDR seeks to prevent the import of specified goods contributing to deforestation and forest degradation in the bloc. It covers coffee, leather, oil cake, wood furniture, paper, and paperboard.

The EU CBAM and EUDR are expected to affect $9.5 billion of India's exports to the EU, which amounts to 9% of India's exports to the world or 12.9% of India's exports to the bloc, the Economic Survey for 2024-25 said, citing studies.

"India is set to become the fourth largest economy but is not the fourth largest recipient of foreign direct investment. There are concerns on this front also," the person said.

Brussels has also ruled out visa issues from the purview of the trade pact pact.

The India-EU FTA is to be concluded by this year end. Separate negotiations for an Investment Protection Agreement and an Agreement on Geographical Indications in June 2022 are also underway.