The India-European Union Free Trade Agreement (FTA) incorporates a dedicated framework to address issues arising from the European Union’s Carbon Border Adjustment Mechanism (CBAM), with measures designed to simplify compliance for Indian exporters, particularly small and medium enterprises (SMEs), according to the Ministry of Commerce.

Addressing the Indo-German Chamber of Commerce (IGCC) Industry Dialogue 2026, Darpan Jain, Additional Secretary in the Department of Commerce, said the FTA features a separate annexure focused on CBAM, outlining a detailed roadmap to help India adapt to the EU’s carbon taxation framework.

Jain noted that CBAM was one of the most extensively negotiated aspects of the agreement. He explained that the annexure is built around several key pillars, including a commitment that any future flexibility introduced under the CBAM framework would also be extended to India.

He further said that assisting Indian SMEs in meeting CBAM compliance requirements is another major objective of the annexure. 

According to Jain, smaller exporters face challenges related to emissions verification, calculating embedded carbon in products, and ensuring that verification agencies are recognised by European Union authorities.

The agreement also provides mechanisms for India to engage with the EU on recognising carbon pricing already paid domestically. Jain pointed out that as India develops its own carbon pricing system, both sides will work towards determining how carbon costs incurred in India can be adjusted against payments required under the EU regime.

Responding to concerns over the impact of the carbon tax on exports by India’s micro, small and medium enterprises (MSMEs), he said the annexure offers a comprehensive implementation framework and expressed confidence that SMEs would not encounter significant difficulties.

India and the European Union concluded negotiations for the trade agreement in January. The pact is expected to be signed later this year and is likely to come into force next year.

Highlighting the broader economic significance of the agreement, Jain said the combined economies of India and the EU account for nearly one-third of global GDP, valued at around US $ 33 trillion, while India’s apparel exports to the EU reached a record US $ 4.66 billion in FY 2025–26.