By Sanskriti Global Exports by Himanshu Gupta

Trade Winds Shift: EU's CBAM Expansion, UK FTA Breakthrough & The New Logistics Reality

Date: January 28, 2026

Good morning. As a senior analyst dedicated to the Indian import-export community, it's my role to cut through the noise and deliver clarity on the global developments that directly impact your bottom line. The final week of January 2026 has brought a confluence of events that are not just daily headlines, but foundational shifts in the landscape of international trade. From Brussels to London, and across the volatile waters of key shipping lanes, the rules of the game are being rewritten. For the prepared Indian enterprise, these shifts represent immense opportunity; for the unprepared, they pose significant risk. This briefing will dissect the key developments and, more importantly, translate them into actionable intelligence for your business.

A Summary of Global Trade Developments

This week's roundup is dominated by three pivotal stories: a significant policy signal from the European Union, a long-awaited breakthrough in bilateral trade negotiations, and a sobering assessment of the new reality in global logistics.

1. Brussels Signals Potential CBAM Expansion to Textiles and Pharmaceuticals

Sources within the European Commission have indicated that a formal review is underway to consider expanding the scope of the Carbon Border Adjustment Mechanism (CBAM). Currently targeting carbon-intensive sectors like steel, aluminium, cement, and fertilisers, the proposed expansion would include textiles, apparel, and certain pharmaceutical APIs (Active Pharmaceutical Ingredients). While still in the exploratory phase, the move is being framed as a necessary step to protect the integrity of the EU's Green Deal and prevent 'carbon leakage'. The preliminary timeline suggests a potential inclusion in the next phase, post-2028, but the reporting and data collection requirements could be mandated much sooner, creating immediate compliance pressure.

2. India-UK FTA: 'Substantive Breakthrough' on Rules of Origin

After months of stalled negotiations, official channels from both New Delhi and London are reporting a "substantive breakthrough" on one of the most contentious chapters of the proposed Free Trade Agreement (FTA): Rules of Origin. The new framework reportedly allows for a more flexible approach to cumulation, which would enable Indian manufacturers to source inputs from a wider range of partner countries and still qualify for preferential tariff treatment in the UK. This development is seen as the key that could unlock the final stages of the agreement, with negotiators now expressing cautious optimism that a deal could be signed by the third quarter of this year. Sticking points remain, particularly around agricultural market access and intellectual property rights, but the mood has shifted decisively towards finalisation.

3. Red Sea Corridor: A 'New Normal' of Elevated Costs and Risk

A comprehensive report released by the Global Shippers Forum (GSF) has concluded that the ongoing security challenges in the Red Sea and Gulf of Aden have established a 'new normal' for global logistics. Despite increased naval patrols and a marginal decrease in successful attacks over the past quarter, the report highlights that war risk insurance premiums are holding firm at historically high levels. Consequently, most major carriers have institutionalised the longer Cape of Good Hope route for their Asia-Europe services. The GSF report calculates that this adds an average of 10-14 days in transit time and has embedded a structural cost increase of 15-20% on these lanes compared to pre-crisis levels. The era of low-cost, hyper-predictable ocean freight on this critical artery appears to be over for the foreseeable future.

Implications for Indian Import-Export Professionals

These global currents have direct and immediate consequences for Indian businesses. Here is a breakdown of the key strategic takeaways:

• The Green Compliance Imperative (CBAM): The potential inclusion of textiles and pharma in CBAM is a game-changer. Exporters in these sectors must move from awareness to action. Immediate Task: Begin the process of mapping your product's embedded carbon footprint, from raw material to factory gate. This is no longer an optional ESG activity; it is a future requirement for market access. Proactively investing in greener manufacturing processes, renewable energy, and obtaining internationally recognised certifications can become a significant competitive advantage.
• Unlocking the UK Market (FTA): The breakthrough on Rules of Origin is a massive opportunity, especially for engineered goods, electronics, and processed foods. Immediate Task: Re-evaluate your supply chain. Can you leverage the new cumulation rules to make your products more competitive for the UK market? Begin identifying potential distributors or partners in the UK. Businesses that have their documentation and supply chain mapping ready will be the first to benefit when the tariff reductions kick in.
• Rethinking Logistics and Contracts (Red Sea): The GSF report confirms that higher freight costs and longer transit times are not a temporary disruption but a medium-term reality. Immediate Task: Review your Incoterms and sales contracts. Can you share the burden of volatile freight costs with your buyers? It's time to build risk buffers into your pricing and delivery timelines. Explore diversification of logistics routes, including air freight for high-value goods and multi-modal options. Supply chain resilience now means having a Plan A, B, and C.
• Strategic Advantage in Pharmaceuticals: The dual news of the UK FTA and potential EU CBAM for APIs creates a complex dynamic. The FTA could open doors for finished formulations in the UK, while the CBAM threat on APIs for the EU market necessitates investment in green chemistry and sustainable production. Indian pharma companies must develop a bifurcated strategy to capitalise on one and mitigate the other.

Conclusion

The trade environment of 2026 is one of increasing complexity, defined by the intersection of geopolitics, regulation, and logistics. This week's developments are a microcosm of this new reality. The proactive Indian exporter or importer will not see these as disparate events, but as interconnected data points informing a more robust and agile strategy. The expansion of green regulations is a compliance challenge that doubles as a branding opportunity. The finalisation of an FTA is a moment to seize first-mover advantage. The permanence of supply chain disruption is a call to build resilience and intelligence into your operations. Navigating this landscape requires not just reaction, but strategic foresight. Those who act now will be best positioned to thrive in the years to come.

Source: Original