Navigating Trade Tensions: How the EU’s Carbon Border Adjustment Mechanism Challenges India-Europe Relations

Summary – The EU’s new Carbon Border Adjustment Mechanism poses significant risks to Indian exports, prompting Delhi to safeguard trade agreements with Brussels amid evolving climate policies.,

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The European Union’s introduction of the Carbon Border Adjustment Mechanism (CBAM) marks a pivotal moment in international trade, particularly affecting India-Europe relations. This mechanism aims to address carbon leakage by imposing costs on imported goods based on their carbon emissions, aligning with the EU’s ambitious climate goals.

Impact on Indian Exports

India, as a major exporter to the EU, faces several challenges due to the CBAM:

• Increased Costs: Indian manufacturers will incur additional expenses to comply with CBAM requirements, potentially reducing their competitiveness.
• Compliance Complexity: Adapting to stricter carbon accounting and certification processes may strain resources for Indian exporters.
• Trade Diversion Risks: The mechanism could redirect trade flows, impacting India’s market share in the EU.

Delhi’s Response and Strategic Measures

To safeguard its economic interests and maintain robust trade relations with Brussels, India is pursuing several strategies:

1. Engaging Diplomatically: Dialogue with EU officials to understand and influence CBAM implementation.
2. Trade Agreement Safeguards: Negotiating terms that accommodate India’s unique developmental context within trade agreements.
3. Promoting Green Transition: Investing in cleaner technologies to reduce carbon footprints of exports.

Broader Implications

The CBAM underscores a shift in global trade where environmental considerations are integral. For India, this represents both a challenge and an opportunity to align its industrial practices with sustainability imperatives while fostering stronger bilateral ties with Europe.

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