India Plays the Long Game: How the MFN Clause in the EU Deal Offsets the Accreditation Setback

The recent India-EU Free Trade Agreement includes a critical compromise on the Carbon Border Adjustment Mechanism (CBAM): while India secured a strategic “Most Favoured Nation” clause ensuring it receives any future concessions the EU grants to countries like the US, the deal stops short of immediately recognizing India’s independent accreditation bodies (such as the NABCB) for verifying carbon emissions, leaving Indian exporters to rely on a limited pool of foreign-accredited verifiers. This creates potential bottlenecks and higher compliance costs for Indian steel and aluminium exporters, though the agreement establishes a framework for ongoing technical dialogue and includes EU commitments to support India’s green transition, meaning the accreditation issue remains a “living” negotiation rather than a permanently closed door.

India Plays the Long Game: How the MFN Clause in the EU Deal Offsets the Accreditation Setback

The recent India-European Union Free Trade Agreement (FTA) has been hailed as a historic milestone, unlocking new avenues for trade and investment between two of the world’s largest economic blocs. However, beneath the fanfare of the deal signed in January 2026, a complex and high-stakes subplot is unfolding. It involves the EU’s Carbon Border Adjustment Mechanism (CBAM)—a policy India has long opposed as discriminatory. While Indian negotiators successfully secured a ‘Most Favoured Nation’ (MFN)-like guarantee to future-proof against better deals given to others, the final text of the agreement reveals a significant compromise on a critical operational detail: the recognition of Indian accreditation bodies for CBAM verification . 

This development leaves Indian exporters, particularly in carbon-intensive sectors like steel and aluminium, navigating a potentially costly and bureaucratic bottleneck. By turning this news into an in-depth analysis, we will explore what this “accreditation gap” means on the ground, why it matters for the future of India’s manufacturing base, and how the strategic “carve-outs” in the deal might shape the next phase of this trade relationship. 

The CBAM Conundrum: A Quick Refresher 

Before dissecting the trade deal text, it is essential to understand what Indian exporters are up against. The CBAM, which entered its financial liability phase on January 1, 2026, is essentially a carbon tax on imports. The EU requires importers of goods like iron, steel, cement, aluminium, fertilisers, and hydrogen to purchase certificates corresponding to the carbon emissions embedded in their products . 

The rationale is to prevent “carbon leakage”—ensuring that European companies don’t move production to countries with laxer climate rules, and that imports don’t undercut EU products made under stricter emissions standards. For developing countries like India, however, this is viewed as a unilateral trade barrier that violates the principle of “Common But Differentiated Responsibilities” (CBDR) enshrined in international climate agreements . India’s steel sector, for instance, has an average emission intensity of 2.55 tonnes of CO2 per tonne of crude steel—higher than the global average of 1.9 tonnes—largely due to the widespread use of coal-based blast furnaces . 

The Devil in the Details: The Accreditation Bottleneck 

The core of the current concern lies in the fine print of the FTA’s chapter on good regulatory practices. Initially, there was optimism that the deal would grant immediate recognition to India’s independent accreditation bodies—specifically the National Accreditation Board for Certification Bodies (NABCB). Such recognition would have allowed Indian agencies to certify and verify emissions data for domestic exporters, making the process seamless and localized. 

However, the final text fell short of this expectation. Instead, it established a framework for a “technical dialogue” to explore the “possibility of and, if relevant, conditions for mutual recognition of accreditation bodies” . For now, there are no NABCB-accredited Indian agencies recognized under EU regulations. While some Indian entities operate as verification bodies, they do so based on accreditation granted by other foreign accreditation bodies, not through a direct recognition of the Indian system itself . 

This creates a multi-layered challenge for Indian exporters, transforming what was supposed to be a technical compliance issue into a tangible business risk. 

1. The Bottleneck Risk for Exporters

With the CBAM now in full effect, every shipment of covered goods to the EU requires a verified declaration of embedded emissions. Industry reports suggest that the availability of EU-accredited verifiers in India is limited. Legal advisers and trade experts warn that a rush for verification slots could create a bottleneck . If an exporter cannot secure a verifier in time, or if the cost becomes prohibitive, their shipments risk being assessed using EU default values. These default values are often higher than actual emissions, resulting in a heftier carbon levy that erodes the exporter’s profit margin and competitiveness . 

2. A Two-Tiered Market: Large vs. Small Players

This verification gap risks creating a two-tiered export market. Large conglomerates like Tata Steel, JSW Steel, and AM/NS India have the resources to navigate this complexity. They are already investing heavily in decarbonisation—such as Tata Steel’s 966 MW round-the-clock hybrid renewable project or AM/NS India’s planned 550 MW renewable capacity—and can absorb the higher costs of securing verification from a limited pool of recognized bodies . 

Small and medium-sized enterprises (SMEs), which often operate on thinner margins and lack dedicated sustainability teams, are far more vulnerable. For them, the inability to find an affordable verifier could mean being priced out of the European market entirely. The MFN clause might protect them from future discrimination compared to, say, US competitors, but it does nothing to solve the immediate, practical hurdle of getting their emissions certified today . 

3. The “Endeavour” Clause: A Soft Commitment

The trade deal text includes a clause stating that the EU shall “endeavour to support” India’s emission reduction efforts through financial resources and tools . While the accompanying €500 million EU support package for climate action is a welcome move, the use of the word “endeavour” is legally non-binding . It represents a commitment to try, not a guarantee of delivery. This softens the EU’s obligation to actively bridge the capacity gap in India, leaving the onus largely on Indian industry and government to upskill and accredit domestic verifiers to meet EU standards. 

Strategic Wins: The MFN Clause and “Living Agreement” 

Despite the accreditation setback, it would be reductive to view the outcome as a complete loss for New Delhi. Indian negotiators played a long game by securing structural advantages that could yield dividends in the future. 

The most significant of these is the ‘forward’ Most Favoured Nation (MFN) clause specifically for CBAM. Under this provision, the EU is obligated to apply “no less favourable conditions” to Indian goods than those applied to “like goods from other third countries” regarding any flexibilities in CBAM implementation . 

This is a strategic masterstroke. By linking India’s treatment to that of the United States—with whom the EU had previously agreed to provide “additional flexibilities” for SMEs—India has essentially hitched its wagon to the most powerful trading partner in the world . If the EU simplifies CBAM paperwork or raises exemption thresholds for American small businesses, India can legally demand the same treatment. This “MFN-like status” ensures that India remains in the top tier of the EU’s trading partners, benefiting from any future relaxations of the carbon tax regime . 

Furthermore, officials have described the agreement on CBAM not as a rigid framework but as a “living dialogue.” The establishment of a Technical Working Group means that issues like the recognition of Indian verifiers, the acceptance of India’s upcoming Carbon Credit Trading Scheme (CCTS), and the calculation methodologies are not closed topics . They are open for continuous negotiation. India has managed to keep its foot in the door, ensuring that the “accreditation gap” is a topic for the next meeting, not a permanent barrier. 

The Ground Reality for Indian Industry 

For the Indian steelmaker or aluminium extruder, geopolitics translates into balance sheets. The EU is a critical market. In 2024, India exported 3.71 million tonnes of steel to the EU, accounting for nearly 45% of its total steel exports . Losing this market is not an option. 

The immediate response from industry has been a mix of adaptation and advocacy. On one hand, major players are pivoting production for the EU market. There is a noticeable shift towards prioritizing Electric Arc Furnace (EAF) routes—which rely more on steel scrap and emit less carbon—for goods destined for Europe, while continuing blast furnace operations for other markets . This dual-production strategy allows them to meet CBAM requirements without a complete overhaul of their existing assets. 

However, this shift highlights another dependency: access to quality steel scrap. The EU is the world’s largest producer of steel scrap, but its own recycling policies can restrict exports . Indian negotiators have sought easier access to this scrap as a workaround to lower the carbon intensity of Indian steel. The logic is simple: more scrap usage equals lower emissions, which equals a lower CBAM liability . 

For the government, the focus is now on operationalizing the CCTS. The assurance from the EU that domestically paid carbon prices will be considered for CBAM is crucial . If India can establish a robust domestic carbon market, the price paid by Indian companies at home could be deducted from their CBAM liability in Europe, preventing double taxation and making the financial hit much softer. 

Looking Ahead: A Catalyst for Green Transition? 

While the failure to secure immediate recognition for Indian accreditors is a tactical setback, it may serve as a strategic catalyst. The pressure is now on Indian institutions to upgrade the NABCB and other bodies to meet EU standards. It forces a faster harmonization of India’s verification protocols with international norms. 

Moreover, the CBAM challenge underscores a fundamental shift in global trade. Access to wealthy markets is no longer just about tariffs; it is about regulatory alignment and sustainability. The Indian Express report, combined with other analyses, suggests that India is moving from a stance of pure opposition to the CBAM towards a posture of “critical engagement.” 

By securing the MFN clause and a platform for continuous dialogue, India has bought itself time and leverage. The next two years will be critical. If India can rapidly scale up its accredited verifier base, if its steel industry can secure the scrap and green power it needs to lower emissions, and if its carbon market gains EU recognition, then the “setback” of 2026 will be remembered as the push that India needed to modernize its heavy industry. 

Until then, Indian exporters must navigate a bureaucratic maze that their competitors in wealthier nations might find easier to bypass—a reminder that in the era of climate trade wars, the paperwork is often as heavy as the product itself.