India, EU navigate non-tariff barriers in push to finalise FTA

India and the EU are working to resolve key non-tariff issues such as the EU’s CBAM and EUDR, and India’s QCOs, during the latest round of FTA talks in New Delhi. With both sides aiming to finalise the deal by year-end, concerns remain over the impact of EU regulations on Indian exports, particularly in steel, aluminium, and agricultural sectors.

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India and the European Union are intensifying efforts to resolve key differences over non-tariff barriers as part of ongoing negotiations for a comprehensive Free Trade Agreement (FTA). The latest round of talks, taking place in New Delhi from May 12 to 16, is expected to focus on regulatory hurdles such as the EU’s Carbon Border Adjustment Mechanism (CBAM), Deforestation Regulation (EUDR), and India’s Quality Control Orders (QCO).

While both sides continue discussions on tariff-related aspects, attention has shifted to managing non-tariff measures that could significantly affect bilateral trade. “While the two sides are negotiating tariffs, the issue is now how to manage non-tariff barriers. Both sides have raised concerns,” said a person familiar with the matter.

The EU has suggested concluding the FTA in a single phase, similar to its deal with the UK, even though both sides had earlier agreed on a two-phase approach. India, however, remains cautious, especially given the far-reaching implications of the EU’s regulatory framework on its exports.

A major sticking point in the negotiations is the EU’s Carbon Border Adjustment Mechanism (CBAM), introduced in 2021. This mechanism imposes a tax on imported goods based on the carbon emissions released during their production. It aims to level the playing field for European industries that adhere to stricter environmental norms by taxing imports from countries with more lenient climate regulations.

Goals of CBAM

CBAM serves multiple goals—maintaining the EU’s high climate standards, preventing carbon leakage (the shifting of production to less regulated countries), and supporting the global push to reduce emissions. However, for countries like India, it poses serious challenges. The mechanism will apply a 20–35% tax on high-emission imports such as cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen starting January 1, 2026. Indian exporters argue that this could severely affect their competitiveness in the European market.

India has warned that it will consider retaliatory duties if CBAM is implemented on its goods. Notably, under its FTA with the UK, India retains the right to seek compensation or apply countermeasures in the event of trade losses arising from CBAM.

The EUDR is another point of contention. Aimed at tackling global deforestation, it restricts the import of goods linked to forest degradation, including coffee, leather, wood furniture, oil cake, and paper products. India fears that these regulations could act as disguised trade barriers, impacting its access to the EU market.

According to the Economic Survey 2024–25, the combined effect of CBAM and EUDR could impact US$ 9.5 billion worth of Indian exports to the EU—around 9% of India’s global exports and 12.9% of its exports to the bloc.

Further complicating the talks, the EU has ruled out including visa liberalisation in the trade deal, a long-standing ask from India. “India is set to become the fourth-largest economy but is not the fourth-largest recipient of foreign direct investment. There are concerns on this front also,” the person added.

Despite the challenges, both sides are aiming to conclude the FTA by the end of this year. Parallel negotiations are ongoing for a separate Investment Protection Agreement and an Agreement on Geographical Indications, initiated in June 2022.