India-UK FTA: Major Breakthrough as 85% of Steel Exports Escape UK Curbs

India and the United Kingdom have successfully navigated a critical deadlock regarding steel trade as they prepare to operationalize their Comprehensive Economic and Trade Agreement (CETA) on July 15. This landmark consensus ensures that the vast majority of Indian steel shipments remain shielded from restrictive British safeguard measures, providing much-needed certainty to exporters.

Resolving the Steel Safeguard Deadlock

The proposed UK steel safeguard regime had emerged as a significant obstacle in the implementation of the trade pact signed on July 24, 2025. Under the new British regime, which is set to take effect from July 1, 2026, tariff-free steel imports will be capped, with overall quota volumes reduced by 60% compared to existing mechanisms. Any imports exceeding these quotas would attract a steep 50% tariff.

However, following high-level discussions between Commerce and Industry Minister Piyush Goyal and UK Secretary of State for Business and Trade Peter Kyle, a strategic compromise was reached. India has successfully secured protection for 85% of its outbound steel shipments. This protection is achieved through a sophisticated combination of Country-Specific Quotas (CSQ), residual quotas, and access under the Authorised Use Scheme (AUS), ensuring that Indian commercial interests are preserved despite the tightening UK limits.

The Looming Challenge of Carbon Taxes

While the steel quota issue has seen a breakthrough, Indian exporters face a secondary hurdle: the UK’s upcoming Import Carbon Pricing Mechanism. Scheduled to come into force in 2027, this framework mirrors the European Union's Carbon Border Adjustment Mechanism (CBAM).

According to the Global Trade Research Initiative (GTRI), Indian exports worth approximately USD 775 million are at risk from this planned carbon tax. The mechanism will initially target energy-intensive sectors, including iron, steel, aluminium, fertilisers, hydrogen, ceramics, glass, and cement. As free allowances under the UK's Emissions Trading Scheme (ETS) are phased out, the tax could impact import values by as much as 14% to 24%.

Economic Implications for Indian Exporters

The resolution of the steel quota issue is vital for India's trade balance with the UK. In the 2025-26 fiscal year, India's exports of iron, steel, and related products to the UK reached USD 893.4 million. By securing exemptions for 85% of these exports, the CETA provides a stabilized environment for Indian manufacturers to navigate the UK market.

As the UK becomes the second major economy after the EU to implement carbon-related trade barriers, Indian industries will need to accelerate their green transitions to remain competitive and mitigate the financial impact of future carbon pricing.

Key Takeaways