India and UK Negotiate to Resolve Roadblocks in Free Trade Pact

India and the United Kingdom are actively engaging in high-level discussions to resolve critical technical hurdles delaying the operationalization of their landmark Free Trade Agreement (FTA). While the pact was signed in July 2025, new regulatory shifts in the UK are now creating significant friction for Indian exporters.

The Core Friction: Steel Safeguards and Tariffs

A primary sticking point in the implementation of the Comprehensive Economic and Trade Agreement (CETA) involves the UK’s tightening of steel import regulations. 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 safeguard regime.

Under this new framework, any steel imports that exceed the newly reduced quotas will be hit with a steep 50% tariff. These restrictions are specifically designed to protect domestic manufacturing by targeting steel products that are also capable of being manufactured within the UK. This move poses a direct challenge to Indian steel interests, which have historically relied on these trade corridors.

The Carbon Tax Threat: UK’s CBAM Implementation

Beyond steel quotas, the UK's proposed Carbon Border Adjustment Mechanism (CBAM) has emerged as a major economic hurdle. Set for implementation in 2027, this "import carbon pricing mechanism" aims to tax carbon-intensive goods to align with the UK's climate goals.

The financial implications for India are substantial. Economic think tank GTRI estimates that India's exports worth $775 million could be impacted by this carbon tax. The mechanism is expected to cover vital sectors, including:

Once the free allowances under the UK’s Emission Trading System (ETS) are phased out, the tax on these imports could range between 14% and 24% of the total import value, potentially making Indian goods significantly less competitive in the British market.

High-Level Diplomacy in Motion

To navigate these complexities, an Indian delegation is currently stationed in London to expedite negotiations. Commerce Secretary Rajesh Agrawal confirmed that discussions are ongoing to resolve these "post-signing" issues, noting that recent dialogues between UK Secretary of State for Business and Trade Peter Kyle and India’s Commerce and Industry Minister Piyush Goyal have brought both nations "very close" to a resolution.

Separately, India is also managing diplomatic tensions regarding the European Union's sanctions regime against Russia. While certain Indian entities are reportedly facing potential export-control restrictions under the EU's 21st sanctions package, the Indian government maintains its stance of recognizing UN-led sanctions while engaging in constructive dialogue with the EU to protect its commercial interests.

Key Takeaways