Tensions between India and the European Union have intensified in recent weeks as New Delhi raises concerns about the growing number of EU environmental regulations affecting trade, including the Carbon Border Adjustment Mechanism (CBAM) and the EU Deforestation Regulation (EUDR).
India’s commerce minister warned at the end of October that complying with the expanding list of EU rules — more than 70 identified by New Delhi — had become “nearly impossible” for exporters. India argues that measures such as CBAM and EUDR act as obstacles to trade and could undermine the two sides’ goal of concluding a free-trade agreement by the end of 2025.
Disagreement Over Carbon Border Tax
Disputes over CBAM, the EU’s climate levy on carbon-intensive imports, have become a central challenge in the talks. Citing reporting by the Financial Times, EU officials have indicated that Brussels will reject India’s request for an exemption from the carbon border tax. The move is likely to complicate the already sensitive negotiations.
India has proposed an alternative system in which exporters would pay a domestic fee based on the value of their shipments of steel, aluminium, fertilisers, and other affected goods — rather than on the carbon intensity of production. EU officials argue the proposal would not incentivise emissions reductions and could prompt similar demands from other major trading partners.
CBAM is designed to align the carbon costs faced by foreign producers with those imposed on EU industries, which must purchase emissions permits priced at around €80 per tonne. Brussels has indicated it may consider reducing CBAM charges if India introduces its own carbon pricing scheme, an option New Delhi is still evaluating. However, EU officials have stressed that “an exemption” is not on the table.
Bad move. Ideology again more important than pragmatism.
The clock is ticking for completing negotiations by the end of the year.#EU #India https://t.co/Yp2BVlpDnG— Andrea Čepová (@AndreaCepova) November 17, 2025
Trade Stakes and Regulatory Frictions
The EU is India’s largest trading partner in goods, with bilateral trade reaching $139 billion in 2023–24. Both sides have expressed interest in accelerating progress on a trade deal, a goal reaffirmed by Prime Minister Narendra Modi and European Commission President Ursula von der Leyen earlier this year.
However, long-standing trade frictions remain. India’s high tariffs — in some cases exceeding 100 percent, particularly for cars, spirits, and dairy products — continue to pose challenges for EU exporters seeking access to India’s fast-growing consumer market. At the same time, New Delhi has criticised EU environmental measures, calling CBAM a “trade barrier” and objecting to stricter rules on imports linked to deforestation under EUDR.
Ongoing Negotiations
Engagement between the two sides has continued. India’s commerce minister Piyush Goyal met EU trade commissioner Maroš Šefčovič in Brussels in late October to discuss possible compromises. Earlier this month, an EU negotiating team travelled to New Delhi for discussions on goods, services, rules of origin, and regulatory alignment. Both sides reiterated their commitment to pursuing a “balanced” agreement.
Trade negotiations between India and the EU, first launched in 2007 and suspended in 2013, resumed in 2022 amid shifting global economic and strategic pressures. While India has recently concluded agreements with Australia, the UK, and the European Free Trade Association, CBAM remains one of the most sensitive points in its discussions with the EU.
A European Commission spokesperson told the Financial Times that Brussels remains committed to reaching a mutually beneficial deal by the end of the year.
EU set to reject Indian demand for carbon border tax exemption https://t.co/zJXiBfl0vB
— FT Economics (@fteconomics) November 17, 2025