Context:
The European Union (EU) has highlighted that relaxations are unlikely for India concerning the CBAM and Deforestation Regulation.
What is the CBAM and Deforestation Regulation?
The Carbon-Border Adjustment Mechanism (CBAM) is a carbon tax the EU will levy from January 1, 2026 on imported goods to encourage cleaner industrial production practises.
- Concerns of India
- India views CBAM as a non market entry barrier, requesting a transition period for compliance.
- Next Higher Level Delegation Talk
- Prime Minister Narendra Modi is expected to raise these concerns with European Commission President Ursula von der Leyen during her February 27 28 visit to India.
EU’s Position on CBAM
- Carbon Tax on Imports
- CBAM is a carbon tax for imports to the EU and is currently operating under a transitional phase with full implementation from January 1, 2026.
- There are No Exemptions for Countries
- The EU argues that CBAM is a “fair measure” to safeguard the internal market from carbon leakage and fully complies with WTO laws.
- Impact on Trade
- Carbon taxes would be significant for Indian steel and aluminum exports to the EU.
- However, EU goods entering India under the upcoming Free Trade Agreement would be exempt from such duties, which puts it at an unfair advantage.
EU’s Deforestation Regulation & Difficulty for India
- Deforestation Free Certification
- From December 30, 2025, all exports to the EU will need to show they were not grown on deforested land after December 31, 2020.
- Implementation Timeline for
- Large & medium companies: To comply by December 30, 2025.
- Micro & small enterprises: To comply by June 30, 2026.
- Concerns of India
- This regulation could restrict exports of agricultural commodities, mainly palm oil, soy, coffee, and timber products.
India’s Trade Strategy and WTO Concerns
- Position of India
- India holds that the CBAM imposes tariffs that depend on the process of production, thereby violating WTO principles.
- Call for Safe DCs in FTAs
- India is calling for protective clauses in the India EU Free Trade Agreement to cushion the effects of the CBAM.
- Resisting Globally
- CBAM is “disguised trade barriers” in the words of countries like China, India.
The EU stands firm in its enforcement of the CBAM and deforestation regulations, with no exemptions.
In the next round of negotiations, India is expected to demand a longer transition period and trade safeguards. The negotiations for the India-EU FTA will become crucial in determining how these two economies will manage t
