India-UK FTA: Steel Export Hurdle Cleared as 85% of Shipments Shielded

India has achieved a significant diplomatic and commercial breakthrough in the ongoing India-UK Free Trade Agreement (CETA) negotiations. By successfully navigating the UK's upcoming steel safeguard measures, India has ensured that the vast majority of its steel exports will remain protected from restrictive trade barriers.

A Major Breakthrough in Bilateral Steel Trade

The primary obstacle to the operationalization of the Comprehensive Economic and Trade Agreement (CETA) was the UK's proposed steel safeguard regime. 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 landmark consensus has been reached.

Under this agreement, 85% of India's steel exports to the UK will remain outside the scope of Britain's new restrictive measures. To ensure Indian interests are safeguarded, the deal utilizes a strategic mix of Country-Specific Quotas (CSQ), residual quotas, and access under the Authorised Use Scheme (AUS). This arrangement is designed to minimize market disruptions and maintain a balanced trading environment for Indian exporters.

The resolution comes at a critical time as the UK prepares to implement a tighter safeguard regime effective from July 1, 2026. The new British framework is significantly more stringent than previous iterations, aiming to protect domestic manufacturing.

Key details of the UK's upcoming regime include:

Despite these tightening limits, the CETA framework provides the necessary breathing room for India's substantial steel trade, which stood at USD 893.4 million in the 2025-26 fiscal year.

The Looming Challenge of Carbon Taxation

While the steel quota issue has been resolved, a new economic challenge is on the horizon: the UK's Import Carbon Pricing Mechanism, similar to the European Union's Carbon Border Adjustment Mechanism (CBAM). Scheduled to come into force in 2027, this carbon tax poses a significant risk to Indian industrial exports.

The economic think tank GTRI estimates that Indian exports worth approximately USD 775 million could be impacted by this mechanism. The tax is expected to cover carbon-intensive 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, potentially adding a significant cost burden to Indian manufacturers.

Key Takeaways