India reserves right to retaliate if UK’s proposed carbon tax hits exports: Official

The India-UK free trade agreement has no provision to counter Britain’s proposed carbon tax. File
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The India-UK free trade agreement has no provision to counter Britain’s proposed carbon tax, but amid uncertainty and absence of UK legislation, New Delhi has preserved its right to retaliate or rebalance concessions if future measures impact domestic exports, an official said.

The UK government in December 2023 decided to implement its Carbon Border Adjustment Mechanism (CBAM) starting 2027.

According to economic think tank GTRI, India’s exports worth USD 775 million to the UK may be impacted due to Britain’s decision to introduce carbon tax on products such as iron and steel, aluminium, fertiliser and cement, from 2027.

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The official said that the free trade agreement (FTA) with the UK has no provisions to counter CBAM, which has the potential to nullify the concessions offered by Britain to India.

“Because of current uncertainty and no legislation in place, there is an understanding that India will/ has preserved its right to retaliate or rebalance the concessions (in future),” the official said.

The UK, after the European Union (EU), will be the second economy to implement CBAM. It calls it the import carbon pricing mechanism and it will initially focus on sectors like iron, steel, aluminum, fertiliser, hydrogen, ceramics, glass, and cement.

This tax could range from 14-24% of the import value on full phase-out of free allowances under the ETS (Emission Trading System).

During the recent visit to London, Commerce and Industry Minister Piyush Goyal has flagged concerns over this tax and has conveyed that India may consider retaliation if the UK would go ahead with the plan.