India Seeks MSME Exemption From EU Carbon Tax In Trade Talks

(MENAFN- KNN India) New Delhi, Jun 18
As negotiations for a free trade agreement (FTA) between India and the European Union resume next week, a key point of contention will be the EU's proposed Carbon Border Adjustment Mechanism (CBAM), according to informed sources.

Indian officials state that while they respect the EU's environmental goals, the carbon tax threatens to massively increase production costs for Indian exporters of affected products, reported Mint.

As a result, India is expected to firmly oppose the CBAM during the 8th round of FTA talks in Brussels from June 24-28.

The CBAM is a green tariff on carbon-intensive imports that the EU plans to implement starting in 2026 as part of its European Green Deal aimed at achieving carbon-neutral production by 2050.

It will initially apply to imports of goods like cement, iron, steel, aluminium, fertilisers, electricity, and hydrogen.

Specifically, India will likely seek a three-year exemption from the CBAM for its micro, small and medium enterprises (MSMEs).

This stance aligns with India's commitment to carbon neutrality by 2070 rather than the EU's more accelerated 2050 target.

"India will make a strong point that the EU's unilateral CBAM decision is not in India's interest," said one official on condition of anonymity. "While the EU aims to protect its industry, we too must safeguard ours."

Other key issues on the FTA agenda include the EU's pesticide residue standards for agricultural imports, rules of origin requirements, services regulations, and the EU's proposed Deforestation-Free regulation.

Trade experts warn the CBAM and deforestation rules could impact 8-10 per cent of Indian exports like agriculture, steel and aluminium headed to the EU, potentially incurring tariffs of 20-35 per cent.

However, the path to an FTA requires balancing economic interests on both sides.

The EU claims its industry cannot compete without imposing the carbon tax on imports.

Whether this stance can be reconciled with India's developmental needs remains to be seen as high-stakes talks commence next week.

(KNN Bureau)


KNN India

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