India and UK Negotiate to Resolve Hurdles in Trade Pact Implementation

India and the United Kingdom are intensifying diplomatic and commercial efforts to finalize the operational details of their Free Trade Agreement (FTA). While the pact was signed in July 2025, new regulatory challenges regarding trade protections and carbon taxes are currently delaying its full-scale rollout.

Key Sticking Points: Steel Safeguards and CBAM

The primary obstacles preventing the immediate operationalization of the Comprehensive Economic and Trade Agreement (CETA) revolve around UK-specific trade protections. Commerce Secretary Rajesh Agrawal confirmed that an Indian delegation is currently in London to resolve these outstanding matters.

A significant concern is the UK's upcoming 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 current regime. Any imports exceeding these new, tighter quotas will face a steep 50% tariff, targeting products that are also manufactured within the UK.

Furthermore, the UK’s planned Carbon Border Adjustment Mechanism (CBAM), set for implementation in 2027, poses a major threat to Indian exporters. Following the EU's lead, the UK will impose an import carbon pricing mechanism on heavy-emitting sectors such as iron, steel, aluminium, fertiliser, cement, and hydrogen.

Economic Impact on Indian Exports

The financial implications for Indian industry are substantial. According to the Global Trade Research Initiative (GTRI), India's exports worth approximately $775 million could be directly impacted by the UK's carbon tax.

The numbers paint a stark picture for the metals sector: India's exports of iron, steel, and related products to the UK reached $893.4 million in the 2025-26 period. Under the new CBAM-style framework, the tax could range between 14% and 24% of the total import value once free allowances under the UK's Emission Trading System (ETS) are phased out. These additional costs could significantly erode the competitiveness of Indian goods in the British market.

Beyond the bilateral trade pact, India is also navigating complex geopolitical waters regarding European Union sanctions. Commerce Secretary Agrawal noted that India is in active discussions with the EU regarding proposed sanctions against certain Indian entities.

These discussions stem from the EU's 21st sanctions package against Russia, which could potentially include up to 50 Indian companies under new export-control restrictions. While Agrawal reiterated that India generally aligns with UN-mandated sanctions, the government is working to mitigate the impact on Indian firms caught in these regulatory crossfires.

Key Takeaways