India's New Trade Corridor, EU's CBAM Challenge | Trade Analysis 11/7/25

By Sanskriti Global Exports by Himanshu Gupta

Navigating the Crosscurrents: A Landmark Trade Corridor, EU Headwinds, and Domestic Policy Shifts

Date: July 11, 2025
By: Your Senior Trade Analyst

Good morning, colleagues. Today's global trade environment presents a classic case of navigating powerful crosscurrents. On one hand, we are witnessing the birth of a strategic new trade corridor that promises unprecedented access to African markets. On the other, regulatory headwinds from Europe are intensifying, threatening the competitiveness of key Indian export sectors. Compounding this is a significant review of domestic industrial policy that will create both winners and losers. For the astute Indian import-export professional, today is a day that demands sharp analysis and strategic agility. Let's dissect the key developments and what they mean for your business.

The Day's Developments: A Factual Summary

This morning's intelligence points to three major developments that are set to reshape India's trade calculus in the second half of 2025 and beyond.

1. The 'Indo-Abrahamic-African' (IAA) Trade Corridor is Formalised

In a significant geopolitical and economic move, India, the UAE, and Kenya have signed a trilateral trade and logistics pact, effectively formalising a new sea-land corridor. This initiative aims to create a seamless trade route connecting India's west coast (specifically Mundra and JNPT) to East Africa via the strategic hub of Jebel Ali in the UAE. Key provisions of the pact include:

• Preferential Tariffs: A phased reduction of tariffs on over 300 products, including pharmaceuticals, automotive components, textiles, and processed agricultural goods.
• Streamlined Customs: Implementation of a unified digital customs clearance system, promising to reduce cargo dwell times at Mombasa and Jebel Ali by up to 40%.
• Infrastructure Investment: A joint investment fund, seeded by the UAE and India, will focus on upgrading warehousing and cold-chain infrastructure around the Port of Mombasa, positioning it as the premier gateway to the African continent.

2. EU Announces Stricter Phase 2 Implementation of CBAM

The European Commission has detailed the next, more stringent phase of its Carbon Border Adjustment Mechanism (CBAM), set to take effect from January 1, 2026. The new regulations expand the scope and intensify the compliance burden significantly. The key changes are:

• Expanded Scope: Beyond steel, aluminium, cement, and fertilisers, CBAM will now cover finished products in the chemicals, polymers, and certain textile categories.
• Reduced Free Allowances: The transitional period of free allowances is being curtailed faster than anticipated, meaning Indian exporters will have to purchase a higher percentage of CBAM certificates to cover their embedded emissions sooner.
• Mandatory Digital Product Passports: Exporters will be required to provide a verifiable, blockchain-enabled 'Digital Product Passport' for each consignment, detailing the entire carbon footprint from raw material to factory gate. This represents a major data management and compliance challenge.

3. Indian Government Initiates Review of PLI Schemes

The Ministry of Commerce and Industry has announced a comprehensive performance review of its flagship Production Linked Incentive (PLI) schemes. The goal is to assess the impact on manufacturing output, exports, and job creation. While the review is positioned as a mid-course correction, sources indicate it could lead to the sunsetting of underperforming schemes and the reallocation of funds to sunrise sectors like green hydrogen, battery storage, and semiconductor fabrication. This creates a climate of uncertainty for industries currently benefiting from PLI support, particularly in electronics assembly and white goods.

Implications for Indian Import-Export Professionals

Translating these headlines into actionable strategy is crucial. Here are the immediate implications for your business:

• Opportunity in Africa (IAA Corridor):
  • Market Diversification: The IAA corridor is a direct call to action. If you are not already exploring markets in Kenya, Tanzania, Ethiopia, and Uganda, now is the time. The preferential tariffs provide a tangible cost advantage over competitors.
  • Logistics Advantage: Leverage the UAE as a value-added distribution hub. Consider setting up a small warehousing or packaging facility in a Jebel Ali free zone to service both Middle Eastern and African clients more efficiently.
  • Sector Focus: Exporters of pharmaceuticals, two-wheeler components, agricultural machinery, and plastics should conduct immediate market-fit analyses for the East African region.
• The European Compliance Challenge (CBAM Phase 2):
  • Urgent Carbon Accounting: If you export to the EU, investing in robust carbon accounting systems is no longer optional; it is a prerequisite for market access. The Digital Product Passport requirement means you must have full transparency across your supply chain.
  • Threat to Competitiveness: The cost of CBAM certificates will directly impact your landing price in the EU. Businesses that fail to decarbonise their operations will be priced out of the market. Begin exploring green energy sources and process efficiencies immediately.
  • Documentation is Key: Start building the capacity to produce verifiable, auditable data on your products' carbon footprint. This may require new software, new hires, or partnerships with specialised consulting firms.
• Navigating Domestic Policy (PLI Review):
  • For Beneficiaries: If your sector is under the PLI scheme, you must meticulously document and report your performance metrics. Proactively engage with industry bodies to present a strong case for the continuation of support.
  • For Importers: A successful, export-oriented PLI scheme can lead to increased domestic production and potentially higher non-tariff barriers for competing imported goods. Monitor policy shifts to anticipate changes in domestic supply and competition.
  • For Future Planners: The government's focus on green hydrogen and semiconductors is a clear signal. Businesses in these ecosystems, including importers of capital goods and technology, should align their long-term plans with these national priorities.

Conclusion: The Agile Exporter Wins

The landscape of July 11, 2025, is a microcosm of the new era of global trade. The era of simply manufacturing a good product and finding a buyer is over. Today, success is defined by strategic foresight and operational agility. The establishment of the IAA corridor is a golden opportunity to de-risk from over-reliance on traditional markets and tap into the world's next great growth story. Simultaneously, the EU's green protectionism, embodied by CBAM, serves as a stark reminder that sustainability is now a core pillar of trade policy. The successful Indian trader of tomorrow will be one who can seize new geographic opportunities while mastering the complex demands of regulatory compliance and aligning with shifting domestic incentives. Stay informed, stay agile, and position your business to thrive amidst these powerful currents of change.

Source: Original