India and UK Intensify Talks to Resolve Key Trade Pact Hurdles

India and the United Kingdom are engaged in high-level discussions to resolve critical technical and regulatory bottlenecks delaying the operationalisation of their Free Trade Agreement (FTA). Following the pact's signing in July 2025, both nations are now working to iron out specific disputes that threaten to impact bilateral trade flows.

Addressing Steel Safeguard Measures

One of the primary sticking points in the implementation of the Comprehensive Economic and Trade Agreement (CETA) involves the UK's new approach to steel imports. Starting July 1, 2026, the UK plans to tighten its steel safeguard measures by drastically reducing tariff-free import quota volumes by 60% compared to the previous regime.

Under this proposed framework, any steel imports exceeding these reduced quotas will attract a significant 50% tariff. These restrictions specifically target steel products that are also capable of being manufactured within the UK. This shift represents a move toward stricter protectionism that Indian exporters find difficult to navigate under the current trade terms.

The Impact of the Carbon Border Adjustment Mechanism (CBAM)

Beyond steel quotas, the UK’s upcoming Carbon Border Adjustment Mechanism (CBAM) poses a significant financial challenge for Indian industries. Scheduled for implementation in 2027, this import carbon pricing mechanism is designed to level the playing field for domestic industries by taxing carbon-intensive imports.

The economic implications for India are substantial. According to the Global Trade Research Initiative (GTRI), India's exports worth $775 million could be directly affected by this carbon tax. The mechanism will initially cover critical sectors including iron, steel, aluminium, fertiliser, hydrogen, ceramics, glass, and cement. Once free allowances under the UK's Emission Trading System (ETS) are phased out, the tax could range between 14% and 24% of the total import value, potentially making Indian goods significantly more expensive in the British market.

High-Level Diplomacy and Ongoing Negotiations

To tackle these complexities, Commerce Secretary Rajesh Agrawal confirmed that an Indian delegation is currently in London to push for a resolution. 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.

While the obstacles are significant—particularly given that India's exports of iron and steel products to the UK reached $893.4 million in 2025-26—officials remain optimistic. The Indian government is treating these issues as technicalities that can be resolved through diplomatic engagement to ensure the FTA delivers its promised economic benefits.

In a separate but related development, India is also in dialogue with the European Union regarding proposed sanctions packages against Russia. Certain Indian entities are reportedly among 50 companies that could face fresh EU export-control restrictions under the bloc's 21st sanctions package. Commerce Secretary Agrawal noted that while India typically recognises UN-led sanctions, the government is actively engaging with the EU to protect the interests of Indian firms facing such restrictions.

Key Takeaways