India-UK Trade Pact: Key Hurdles Delaying the Implementation

India and the United Kingdom are intensifying diplomatic efforts to resolve critical sticking points that are delaying the operationalization of their Comprehensive Economic and Trade Agreement (CETA). While the landmark deal was signed in July 2025, new regulatory hurdles regarding steel and carbon taxation have forced both nations back to the negotiating table.

The Steel Safeguard Conflict

A significant roadblock in the implementation process involves the UK’s decision to tighten its steel safeguard measures. Starting July 1, 2026, the UK plans to restrict tariff-free steel imports by slashing overall quota volumes by 60% compared to the existing regime.

Under this new framework, any steel imports exceeding the established quota will be hit with a heavy 50% tariff. Critically, these restrictions will specifically target steel products that are also capable of being manufactured within the UK. Given that India's exports of iron, steel, and related products to the UK reached $893.4 million in the 2025-26 fiscal year, these protectionist measures pose a direct threat to Indian exporters.

Carbon Border Adjustment Mechanism (CBAM) Risks

Beyond steel quotas, the UK’s proposed "import carbon pricing mechanism"—similar to the European Union’s CBAM—has emerged as a major point of contention. Scheduled for implementation in 2027, this mechanism aims to tax carbon-intensive imports to ensure fair competition with domestic industries.

The financial implications for Indian industry are substantial. According to the Global Trade Research Initiative (GTRI), India's exports worth $775 million to the UK could be impacted by this carbon tax. The tax is expected to cover vital sectors including aluminium, fertiliser, cement, hydrogen, and ceramics. Once free allowances under the Emission Trading System (ETS) are phased out, the tax could range between 14% and 24% of the total import value, significantly inflating the cost of Indian goods in the British market.

Diplomatic Engagements and EU Sanctions

To navigate these complexities, Commerce Secretary Rajesh Agrawal confirmed that an Indian delegation is currently in London to finalize terms. These discussions follow recent high-level meetings between UK Secretary of State for Business and Trade Peter Kyle and India's Commerce and Industry Minister Piyush Goyal.

Parallel to the UK negotiations, India is also managing diplomatic friction with the European Union. The EU has proposed a 21st sanctions package against Russia that could include export-control restrictions on approximately 50 Indian companies. While Agrawal noted that India typically recognizes UN-led sanctions, the government remains engaged with the EU to mitigate the impact on Indian firms facing these potential restrictions.

Key Takeaways