India-UK FTA: 85% of Indian Steel Exports Shielded from British Tariffs

India has achieved a significant diplomatic and commercial breakthrough in its Free Trade Agreement (FTA) negotiations with the United Kingdom. By securing protection for 85% of its steel exports, India has successfully navigated one of the most contentious hurdles in the bilateral trade pact.

Resolving the Steel Safeguard Impasse

The upcoming implementation of the Comprehensive Economic and Trade Agreement (CETA) on July 15, 2025, faced a major roadblock regarding the UK's new steel safeguard regime. This regime, scheduled to take effect on July 1, 2026, aims to protect domestic British manufacturers by tightening import limits. Under the new framework, tariff-free steel imports will be capped, with overall quota volumes slashed by 60% compared to previous mechanisms. Any imports exceeding these quotas will face a heavy 50% tariff.

Despite these stringent measures, India has secured a landmark consensus to protect its exporters. Through a strategic combination of Country-Specific Quotas (CSQ), residual quotas, and access under the Authorised Use Scheme (AUS), 85% of India's outbound steel shipments will remain shielded from these restrictive curbs. This resolution follows high-level discussions between India's Commerce and Industry Minister Piyush Goyal and UK Secretary of State for Business and Trade Peter Kyle.

The Looming Challenge of Carbon Taxes

While the steel quota issue has reached a consensus, a new trade barrier looms on the horizon: the UK's Import Carbon Pricing Mechanism. Following the lead of the European Union, the UK is set to become the second major economy to implement a Carbon Border Adjustment Mechanism (CBAM) in 2027.

This mechanism will impose a carbon tax on energy-intensive imports such as iron, steel, aluminium, fertiliser, cement, hydrogen, and ceramics. According to the Global Trade Research Initiative (GTRI), Indian exports worth approximately USD 775 million could be impacted by this tax. Once free allowances under the UK's Emissions Trading Scheme (ETS) are phased out, the tax is expected to range between 14% and 24% of the total import value.

Economic Implications for Indian Exporters

The stakes for Indian industry are exceptionally high. In the 2025-26 fiscal year, India’s exports of iron, steel, and related products to the UK reached a substantial USD 893.4 million. The successful negotiation regarding the safeguard measures ensures that the majority of this volume can continue to enter the British market without facing the punitive 50% tariff.

However, the long-term competitiveness of Indian heavy industries will depend on how quickly they can decarbonize to mitigate the financial impact of the UK's upcoming carbon pricing framework. The current success in the FTA negotiations provides a stable foundation, but the transition toward greener manufacturing remains a critical strategic priority for Indian exporters.

Key Takeaways