Trade deal stalled over UK carbon tax, India proposes plan for ‘rebalancing’

Western labour and environmental standards continue to pose challenges for Indian trade negotiators, with the UK’s carbon tax — it is expected to disrupt India's exports of iron, steel, aluminium, ceramics and cement - emerging as a key sticking point in talks aimed to finalise a trade deal during the latest round of negotiations in London, As the UK remains unwilling to grant any concession under its Carbon Border Adjustment Mechanism (CBAM), which seeks to impose duties on carbon-intensive imports, India has proposed a “rebalancing mechanism” which would require the UK to compensate Indian industry for losses incurred due to the regulation.

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“The ‘rebalancing mechanism’ article has been inserted into the ‘general exceptions’ chapter of the negotiating text between the two countries. This would enable India to claim compensation for its losses and ensure the UK does not raise a dispute against India at the World Trade Organisation (WTO),” a government official, speaking on the condition of anonymity, told The Indian Express. The general exceptions chapter in international trade agreements such as the General Agreement on Tariffs and Trade (GATT) allows countries to implement measures that might “otherwise violate trade rules”, provided they are justified on grounds such as public health or environmental protection, according to the WTO. Among India’s earlier demands were concessions for Indian MSMEs and country-specific exemptions. The two sides also discussed harmonising carbon emission standards to allow Indian carbon taxes to remain within the country, but differences in measurement techniques remain unresolved. The draft UK CBAM legislation states that the levy will apply to imported goods from January 1, 2027 and defines CBAM goods as aluminium, cement, fertilisers, hydrogen, iron and steel — sectors associated with high ca