India and UK Race to Resolve Sticking Points in Free Trade Pact

India and the United Kingdom are intensifying diplomatic and commercial efforts to resolve critical hurdles delaying the operationalisation of their landmark Free Trade Agreement (FTA). While the pact was signed in July 2025, new regulatory measures from the UK side have emerged as significant barriers to its seamless implementation.

The Core Conflict: Steel Safeguards and Quotas

The primary friction point stems from the UK's decision to tighten its steel safeguard measures. Starting July 1, 2026, the UK plans to significantly restrict tariff-free steel imports by slashing overall quota volumes by 60% compared to the current regime.

Under this proposed framework, any steel imports exceeding these reduced quotas will be hit with a heavy 50% tariff. These restrictions specifically target steel products that are also capable of being manufactured within the UK. This move poses a direct challenge to Indian exporters who rely on the trade corridor established by the Comprehensive Economic and Trade Agreement (CETA).

The Carbon Tax Threat: UK’s CBAM Mechanism

Beyond direct tariffs, the UK’s planned Carbon Border Adjustment Mechanism (CBAM) represents a massive fiscal hurdle for Indian industry. Set for implementation in 2027, this "import carbon pricing mechanism" aims to level the playing field by taxing carbon-intensive imports.

The economic implications for India are substantial. According to the Global Trade Research Initiative (GTRI), India’s exports worth $775 million could be adversely affected by this carbon tax, which is slated to cover sectors such as iron, steel, aluminium, fertiliser, and cement. Once the free allowances under the UK's Emission Trading System (ETS) are phased out, the tax could escalate to between 14% and 24% of the total import value. Given that India’s exports of iron and steel products to the UK stood at $893.4 million in 2025-26, the financial stakes are incredibly high.

Diplomatic Efforts to Operationalise the Deal

To navigate these complexities, an Indian delegation is currently in London to engage in high-level discussions. Commerce Secretary Rajesh Agrawal confirmed that the teams are working closely to resolve these "post-signing" issues. These negotiations follow recent discussions between UK Secretary of State for Business and Trade Peter Kyle and India's Commerce and Industry Minister Piyush Goyal.

While the path to implementation has become more complicated, Agrawal expressed optimism, stating that both nations are "very close" to a resolution. Simultaneously, India is managing separate complexities regarding the European Union’s proposed sanctions package against Russia, which may affect certain Indian entities, by maintaining a stance of recognizing UN-led sanctions.

Key Takeaways