India-UK Free Trade Agreement (FTA) and Aluminium Exports
The recent India-United Kingdom (UK) Free Trade Agreement (FTA) is expected to significantly boost Indian aluminium exports to the UK. However, the UK's upcoming Carbon Border Adjustment Mechanism (CBAM), effective from January 2027, poses a potential threat to these gains.
Impact of the FTA on Aluminium Exports
- The FTA eliminates UK import duties on aluminium, which previously ranged from 2% to 10%.
- Indian aluminium exports to the UK are projected to increase from the current 21 kilotonnes per annum (KTPA), worth $93 million, to approximately 65 KTPA, valued at around $220 million by 2030.
Challenges Posed by the Carbon Border Adjustment Mechanism (CBAM)
- The CBAM could impose a carbon-related duty exceeding 50%, potentially offsetting the benefits of the FTA's tariff concessions.
- Tariffs could range from 14-35%, translating to about $150 per ton of carbon dioxide.
- The FTA did not secure a carbon-tax exemption, posing a challenge that needs addressing.
Sector Opportunities and Trade Data
- Duty-free access under the FTA enhances the appeal of Indian aluminium in sectors like construction, automotive, packaging, and renewable energy.
- India primarily imports scrap aluminium from the UK and exports value-added products.
R&D and Byproduct Utilization
- The FTA encourages research and development collaboration, particularly in utilizing aluminium byproducts like red mud and aluminium dross.
- Red mud contains critical minerals such as gallium, titanium, and vanadium, with India producing about 9 million tonnes annually.
Policy Recommendations and Future Directions
- Policy interventions are crucial to maximize the FTA's benefits, such as granting aluminium core-sector status and aligning domestic carbon pricing with CBAM compliance.
- Financial incentives and technology upgrades for micro, medium, and small enterprises in downstream aluminium are recommended.
- A framework for certifying green aluminium should be developed to promote low-carbon production, complemented by export-incentive schemes.
