As the UK pushes for greener economic practices, the FTA with India will need to balance trade facilitation with stringent environmental standards
With the Labour Party now leading the UK, international trade dynamics, particularly the Free Trade Agreement (FTA) with India, are set for transformation. The Labour Party's emphasis on climate change and its advocacy for mechanisms like the Carbon Border Adjustment Mechanism (CBAM) will likely influence the future of this trade deal.
Labour Party’s Environmental Agenda
A key aspect of Labour's policy is its strong commitment to environmental sustainability. Under the leadership of Keir Starmer, the party has set ambitious goals to tackle the climate crisis, aiming to decarbonize the UK economy by 2030, significantly earlier than current targets. Labour plans to invest heavily in renewable energy and enforce stricter regulations on carbon emissions. The UK's Climate Change Act 2008 mandates that the UK achieve net-zero carbon emissions by 2050, and Labour's policies intend to accelerate this shift.
The Labour Party's Green New Deal is a central component of this push, aligning with the global urgency to meet and exceed Paris Agreement targets. As a result, the party’s approach to trade, including the India-UK FTA, will likely reflect its commitment to green policies. Labour’s aggressive stance on climate action will shape its trade policies, embedding sustainability into international agreements.
Impact on the India-UK Free Trade Agreement
Labour’s focus on environmental sustainability is expected to influence the ongoing FTA negotiations with India. Traditionally, FTAs emphasize reducing tariffs and trade barriers to facilitate commerce. However, under Labour, the India-UK FTA will likely include climate-related provisions.
India, too, has made progress in renewable energy and carbon reduction efforts. However, its economy still heavily depends on fossil fuels. This poses a challenge in aligning with Labour’s stringent environmental requirements. The transition to greener energy will require significant investments, and India’s economic growth might be affected by these demands. Balancing trade promotion and environmental sustainability will be a central issue in the FTA discussions.
The Role of Carbon Border Adjustment Mechanism (CBAM)
Labour's Carbon Border Adjustment Mechanism (CBAM) is a policy designed to impose a carbon tax on imported goods based on their carbon content, leveling the playing field for domestic industries. This ensures that foreign producers face the same carbon pricing as local ones, preventing carbon leakage and promoting emission reductions globally.
For India, CBAM poses a significant challenge, especially for industries like steel, aluminium, and cement, which have high carbon footprints. As the world’s second-largest steel producer, India’s exports to the UK would face higher production costs under CBAM, potentially impacting competitiveness.
To manage this, Indian industries would need to adopt cleaner technologies and low-carbon production methods. The Indian government might need to offer subsidies or incentives to ease this transition.
Green Trade Opportunities
Despite challenges, the CBAM also presents opportunities for India and the UK to expand green trade. Labour’s focus on renewable energy and green technologies could open doors for collaboration in sectors like solar energy, wind power, and electric mobility.
India’s growing renewable energy market positions it as an ideal partner for the UK in achieving mutual sustainability goals. By aligning trade policies with environmental objectives, both nations can ensure that economic progress is achieved responsibly. Labour’s leadership brings a new era for the UK-India FTA, with climate change and the CBAM taking center stage.
(The writer is founder and managing director, Earthood)
