EU FTA Needs To Resolve CBAM, Non-Tariff Measures And Services Mobility

While the trade deal offers market access, tariff relief for labour-intensive exports, and new opportunities in services, unresolved issues, like CBAM, services mobility, and non-tariff barriers, carry risks of imbalance, finds GTRI.

The CBAM issue risks undermining the core benefits of tariff liberalisation as it will allow EU goods duty-free access to India while Indian exports will remain constrained by Europe’s climate-linked border measures. The EU’s Carbon Border Adjustment Mechanism, already in force for products such as steel and aluminium, effectively acts as a new border charge on Indian exports, even if import duties are eliminated under the FTA. This is particularly damaging for MSMEs, which face high compliance costs, complex reporting requirements and the risk of being penalised using inflated default emissions values.

India has been asking for exemptions, carve-outs or at least safeguard language. The EU has already signalled flexibility by offering CBAM carve-outs to US goods, and India can ask for similar treatment.

Indian exporters also face several non-tariff barriers in the European Union that often blunt the impact of tariff cuts. These include regulatory delays in pharmaceutical approvals, stringent sanitary and phytosanitary (SPS) rules affecting food and agricultural exports such as buffalo meat, and complex testing, certification and conformity-assessment requirements. Agricultural exports such as basmati rice, spices and tea are frequently rejected or subjected to heightened inspections due to sharply lowered EU pesticide residue limits, while marine exports face higher sampling rates over antibiotic concerns.

In manufacturing, compliance with regimes such as REACH for chemicals and evolving climate-related rules adds significant cost, particularly for MSMEs.

Services negotiations also expose a deep divide. The EU limits remote delivery of services by requiring Indian firms to set up local offices and by imposing high minimum salary thresholds for Indian professionals. India argues that these conditions defeat the purpose of digital trade and weaken its IT exports, which rely heavily on cross-border delivery.