India-UK FTA: India reserves the right to retaliate if UK introduces CBAM, say govt sources

.

While India and the United Kingdom may have successfully concluded a free trade agreement (FTA), India has made it clear during negotiations that it will retaliate if the UK introduces a carbon border adjustment mechanism (CBAM), senior officials from the Ministry of Commerce said on May 8.

“Both of the countries have agreed that if the UK introduces CBAM, India reserves the right to retaliate. So, that part is agreed upon and the two countries will exchange letters to that effect,” said a senior official said.

Also Read: India-UK FTA: Text to be finalised by 3 months paving way for deal signing.

A second official said the Indian industry is more worried about increased paperwork if CBAM is implemented, instead their trade being impacted. “CBAM won’t restrict market access to Indian industries. Besides, some mechanism of being taxed in India before the goods are exported to the UK could also be considered to avoid CBAM,” the official said.

On May 6, the Commerce Minister Piyush Goyal announced that India would retaliate to the European Union’s CBAM and that a similar response would be to the UK as well in case it introduces such trade barriers. “It will be silly to put tax on friendly countries like India. Hope wiser sense will prevail on friendly countries,” Goyal said at the Columbia India Energy Dialogue, 2025.

The UK Carbon Border Adjustment Mechanism (CBAM) is a policy designed to ensure that imported carbon-intensive goods are subject to a carbon price equivalent to that faced by domestic producers. The UK CBAM is scheduled to be introduced on January 1, 2027. This mechanism aims to prevent carbon leakage and support the UK's net-zero goals by ensuring that carbon emissions aren't simply shifted overseas when the UK implements its own decarbonization efforts.

For India, the biggest sticking point in trade talks with EU and the UK has been the CBAM. In the EU, the mechanism was approved in 2023 and expected to be implemented from January 2026. This proposal seeks to impose tariffs on imports of high-carbon goods including steel, cement and aluminium, aiming to reach net-zero greenhouse emissions by 2050.