India and UK Negotiate to Resolve Hurdles in Free Trade Agreement

India and the United Kingdom are intensifying diplomatic and commercial efforts to resolve critical sticking points delaying the implementation of their Comprehensive Economic and Trade Agreement (CETA). While the pact was signed in July 2025, new regulatory challenges have emerged that require urgent high-level intervention to operationalise the deal.

The Core Sticking Points: Steel Safeguards and Carbon Taxes

The primary obstacles preventing the smooth rollout of the trade pact revolve around the UK's protectionist measures and new environmental regulations. Commerce Secretary Rajesh Agrawal confirmed that an Indian delegation is currently in London to address these concerns following high-level discussions between UK Business Secretary Peter Kyle and India's Commerce and Industry Minister Piyush Goyal.

A significant hurdle is the UK’s upcoming steel safeguard regime. Starting July 1, 2026, the UK plans to drastically restrict tariff-free steel imports by slashing existing quota volumes by 60%. Any steel imports exceeding these new, tighter quotas will be hit with a heavy 50% tariff. This measure specifically targets steel products that can be manufactured domestically within the UK, posing a direct threat to Indian exporters.

The Impact of the UK’s Carbon Border Adjustment Mechanism (CBAM)

Beyond steel quotas, the UK’s decision to implement an import carbon pricing mechanism—similar to the European Union's CBAM—is a major point of contention. Scheduled for implementation in 2027, this mechanism will impose a carbon tax on several key sectors, including iron, steel, aluminium, fertiliser, hydrogen, ceramics, glass, and cement.

The financial implications for Indian industry are substantial. Once the free allowances under the UK’s Emission Trading System (ETS) are fully phased out, the carbon tax could range between 14% and 24% of the total import value. According to the Global Trade Research Initiative (GTRI), India’s exports worth approximately $775 million could be adversely affected by this green tax. Specifically, India’s exports of iron, steel, and related products to the UK reached $893.4 million in the 2025-26 period, making this sector highly vulnerable.

In addition to the bilateral UK-India tensions, India is simultaneously managing complexities regarding European Union sanctions. The EU has proposed a 21st sanctions package against Russia, which may include export-control restrictions on certain Indian entities.

Addressing this, Commerce Secretary Agrawal noted that India is actively engaged in discussions with the EU. He reiterated India's stance of generally recognising United Nations-led sanctions while working to protect the interests of Indian companies that may find themselves caught in the crossfire of shifting geopolitical mandates.

Key Takeaways