As the India-EU Broad-based Trade and Investment Agreement (BTIA) moves towards a closure, both sides look forward to the certainty and stability to bilateral trade that it is expected to bring. The deal is expected to be announced on Tuesday, but processes like legal scrubbing, signing and most importantly ratification by EU member states may take a couple of years. In the meantime, the EU surprises by bringing in new restricting measures.
EU Industrial Accelerator Act
The EU is notorious for bringing in newer internal regulation that affects third country exporters. Immediately after the deal declaration on 27th January, the EU is set to unveil its Industrial Accelerator Act (IAA). A leaked draft of the Act reveals that the EU is all set to increase the local content requirement not only in its government procurement, but also in public supported investments. Expectedly, it is packaged in climate neutrality, low-carbon, de-carbonisation, sustainability, resilience and such terminologies.
India has taken a leap-of-faith into the Government Procurement arena in the UK CETA. It has opened up government procurement across fifty-one central government Ministries, their departments and subordinate entities that procure independently. The threshold for goods and services tenders is as low as SDR 450,000, roughly equivalent to Rs 6 crore. Only 20% local content is required for UK businesses to be considered as Indian Class II local suppliers. If the same is stretched to the EU deal, India opens up its huge procurement market, only to be confronted with new restrictive EU conditions even before the BTIA enters into force.
One can only hope that such huge market access nearing Rs11 lakh crore is being provided mainly because Indian companies also hold ambition to the UK/EU’s procurement.
Punitive CBAM default values for India
On the CBAM front, apart from the procedural mess, the benchmarks and country-specific default values recently published by the EU are worthy of caution.
The benchmarks for EU steel production are lower than expected. That will drive up EU’s Emission Trading System (ETS) prices which currently hover around Rs 9,000 per ton. CBAM fees at the EU borders will be a combination of the benchmarks and country-specific default values declared by the EU. An additional annual punitive mark-up of 10% is also included in the default value calculation taking default values for 2028 at 30% higher than the 2025 value. These could be used by the EU as a bargaining chip in the BTIA negotiations.
India has already notified a draft for steel sector emissions intensity under the CCTS in June 2025. After extensive consultations and audits by BEE, the draft notification indicates industrial installation-wise emissions intensity for 258 industrial units for 2023-24. India must ensure that these emissions calculations are accepted by the EU, rather than the EU’s absurd default values. Rough edges between the two measurement systems can be resolved through a joint mechanism.
It must be remembered that CBAM is set to expand to steel and aluminium-intensive downstream products. Around 180 new products which contain steel and aluminium are set to enter the CBAM basket soon. Traceability reporting requirements of such scrap will become an additional nightmare for Indian manufacturers.
Permanent new Regulation peace clause
FTAs typically last for a very long time. It is also quite difficult to renegotiate any terms. India must therefore, carefully vet the text, and examine upcoming EU Regulation in the light of its market access ambition. Finally, some kind of a permanent peace clause with the EU, regarding new Regulation may actually bring certainty for industry on both sides.
- Sangeeta Godbole is former IRS and Trade negotiator. She studies and teaches Trade and Environment.