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

India and the United Kingdom have reached a landmark consensus regarding steel trade, resolving one of the most significant hurdles in their Comprehensive Economic and Trade Agreement (CETA). This breakthrough ensures that the vast majority of Indian steel shipments will remain protected from restrictive British trade measures.

Resolving the Steel Safeguard Deadlock

The implementation of the India-UK CETA, scheduled to become operational on July 15, faced a major bottleneck due to the UK's proposed steel safeguard regime. This regime was designed to protect domestic British manufacturers by limiting foreign imports, a move that threatened to disrupt Indian trade flows.

Following high-level discussions between India’s 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 negotiated a framework where 85% of its steel exports remain outside the scope of the restrictive British measures. This protection is achieved through a sophisticated mix of country-specific quotas (CSQ), residual quotas, and access under the Authorised Use Scheme (AUS).

Understanding the New UK Trade Regime

The new British framework, set to take effect on July 1, 2026, represents a significant tightening of trade limits. Under these rules, tariff-free steel imports will be capped, with overall quota volumes being slashed by 60% compared to previous safeguard mechanisms. Any imports exceeding these strict quotas will be hit with a heavy 50% tariff.

Crucially, these measures only apply to steel products that can be manufactured within the UK. By securing a "shielded" status for 85% of its outbound shipments, India has mitigated the risk of massive market disruptions and ensured a more balanced trading environment for its exporters.

The Looming Challenge of Carbon Taxes

While the steel quota issue has seen a breakthrough, a new challenge looms on the horizon: the UK's Import Carbon Pricing Mechanism. Similar to the European Union's Carbon Border Adjustment Mechanism (CBAM), this framework is scheduled to come into force in 2027.

The impact on Indian industry could be substantial. According to the Global Trade Research Initiative (GTRI), Indian exports worth approximately USD 775 million could be affected by this carbon tax. The mechanism will initially target heavy-emitting sectors, including iron, steel, aluminium, fertiliser, hydrogen, ceramics, glass, and cement. Once free allowances under the Emissions Trading Scheme (ETS) are phased out, the tax could range between 14% and 24% of the total import value.

Given that India's exports of iron, steel, and related products to the UK reached USD 893.4 million in 2025-26, addressing these carbon-related trade barriers will be the next critical frontier for Indian commerce negotiators.

Key Takeaways