UK’s steel curbs emerge as an early hurdle for FTA with India ahead of roll-out. Is there a way out?

India’s free trade agreement (FTA) with the UK has hit an early hurdle just ahead of its implementation after the latter tightened steel safeguard measures. The Indian exporters and trade experts have raised concerns, saying that the curbs could dilute gains under the India-UK Comprehensive Economic and Trade Agreement (CETA), particularly for steel and engineering exports.

Last May, India and the UK finalised their trade negotiations and signed the agreement in July 2025. The pact’s implementation was initially expected by May 2026. However, the tightened safeguards, according to Commerce Secretary Rajesh Agrawal, “have emerged as a concern”. “India, along with Brazil, Turkey, Japan, Korea, Switzerland, and Australia, has raised concerns at the WTO over the UK’s new restrictions on tariff-free steel imports,” Agarwal told reporter recently on the sidelines of an event.

Notably, the UK has extended safeguard measures on select steel imports. Starting from July 1, 2026, it will reduce tariff-free quotas by 60% and impose a 50% duty on shipments beyond the limit. The move comes amid rising global trade tensions, steel overcapacity, and the emergence of climate-linked trade barriers, such as the EU’s Carbon Border Adjustment Mechanism (CBAM).

Mixed signals to exporters

Experts said the measures could significantly curb access and dilute the pact’s expected gains. Pankaj Chadha, Chairman of the Engineering Export Promotion Council (EEPC) India, described the UK’s action as “not a fair deal”. “We have conveyed to the government that the UK cannot abruptly impose such tariffs after the FTA has already been signed,” Chadha said, adding that exporter sentiment has been negatively impacted by the uncertainty surrounding both the safeguard measures and the UK’s proposed carbon-related regulations.

Rajib Maitra, Partner at Deloitte India, said the UK’s tighter steel curbs show market access will remain conditional, with safeguard measures and quotas reflecting domestic industrial priorities. The UK has cited rising global steel overcapacity, projected at 721 million tonnes (MT) by 2027, and a more than 50% fall in domestic crude steel production over the past decade as reasons for stricter import controls.

“For Indian exporters, especially micro, small, and medium enterprises (MSMEs), there are dedicated country quotas in three steel categories: non-alloy and other alloy hot-rolled sheets and strips at 12,405 tonnes per year, metallic coated sheets at 125,796 tonnes per year and gas pipes at 8,777 tonnes per year, split across quarterly allocations. While this provides assured access, it also limits flexibility, as exporters may not be able to utilise the annual quota freely, making shipment timing critical. FTA provisions for immediate tariff elimination, where duties on iron and steel products were previously as high as 10%, still create a significant opportunity for India’s ferrous sector, particularly its large MSME base,” Maitra said.

“With the UK steel market valued at around $ 32.13 billion in 2024 and projected to reach $42.74 billion by 2033, the long-term prospects remain positive. However, the effectiveness of these gains will depend on how exporters navigate quota restrictions and other non-tariff barriers in practice,” added Maitra.

Steel becomes the first test for the FTA
Shashi Mathews, Partner at CMS INDUSLAW, said the UK’s protectionist steps ahead of the FTA rollout risk diluting the deal’s expected market access gains. He added that alongside steel safeguards, the UK’s proposed CBAM for carbon-intensive goods could disrupt trade flows, hurt exporter confidence, and create uncertainty around the pact’s broader objectives.

However, Mathews said it would be overstating the case to suggest the measures directly undermine the credibility of the trade pact. “Broadly speaking, trade agreements such as CETA generally preserve the right of contracting countries to adopt protective measures in sensitive sectors, including trade remedy tools such as safeguards, anti-dumping measures, and countervailing duties. However, their application may sit uneasily with the long-stated objectives of such agreements, namely promoting market access and trade liberalisation,” he said.

Legal and trade experts said the UK’s move may not technically breach the FTA, but it raises concerns over the pact’s practical benefits. Safeguard measures are allowed under WTO rules and FTAs if justified by injury to domestic industry, but imposing them just before the agreement’s rollout could hurt business confidence, said Mathews, adding that once Indian exporters exhaust country-specific quotas, the 50% tariff would effectively wipe out any FTA tariff advantage for steel exports.

In FY26, India exported iron, steel and related products worth $897.68 million to the UK, accounting for a notable share of the country’s overall merchandise exports of $13.44 billion to the UK. By volume, India exported nearly 0.14 million tonnes (MT) of steel to the UK in FY26, about 2.1% of its total steel exports.

“A 60% cut in tariff-free quotas will lead to a large share of current and projected export volumes to either face a 50% tariff or need to be deferred to the next quota cycle. For categories like metallic coated sheets (India’s largest UK steel quota), even the reduced quota will impact the Indian steelmakers as they scale up capacity,” said Maitra.

Two steel exporters said the UK’s move may not undermine the overall credibility of the India-UK CETA, but it could weaken near-term gains for the steel sector, turning steel into a test case for balancing FTA market access with safeguard measures. They added that an India-specific quota within the UK’s new regime could help protect a fixed volume of Indian steel exports.

CBAM and the green trade shift

Ajay Srivastava, Co-founder of GTRI, said the broader concern extends beyond steel tariffs. If Indian exports, such as steel, aluminum, and cement, face additional carbon-linked levies in the UK while British products continue enjoying preferential access to the Indian market, Indian industry could face a structural competitive disadvantage, he emphasised.

Srivastava said the India-UK FTA does not grant Indian exports any direct exemption from the UK’s proposed CBAM but reportedly includes provisions for consultations and possible corrective measures if future carbon taxes disproportionately impact Indian exports.

Indian steelmakers face a major challenge because the sector remains significantly more carbon-intensive than the global average. Maitra noted that India’s steel sector contributes roughly 10-12% to the country’s total emissions, with emissions intensity estimated at around 2.5 tonnes of carbon dioxide per tonne of crude steel against a global average of nearly 1.85 tonnes.

“This means Indian exporters are likely to face higher carbon-compliance pressure in markets like the EU and the UK, unless they accelerate emissions reduction and reporting systems,” said Maitra.

Chadha also pointed to the uncertainty surrounding the UK’s CBAM-related framework. “There is no clarity in the FTA regarding CBAM either; and now, this new safeguard issue has come up,” he said.

Analysts said tighter European carbon norms could help India counter cheap Chinese steel by raising compliance costs for polluting producers. But they cautioned that China’s steel overcapacity and weak domestic demand continue to drive excess exports and intensify global competition.

Diplomacy before litigation

Despite growing concerns, most experts said India should avoid immediate legal escalation and instead prioritise negotiations.

Mathews said formal litigation under WTO rules or dispute mechanisms within the FTA should remain a “last resort,” particularly because both countries remain economically and politically invested in preserving the broader agreement.

“We are in this critical stage where the implementation details of the change are still evolving, actual trade injury is not yet measurable, and both sides are economically and politically quite invested in preserving the trade agreement, even though the FTA did not carve out steel from such safeguard measures. In this context, any formal challenge to such safeguard measures, either through dispute mechanisms that the trade agreement has to offer or before the WTO, should ideally be the last resort,” said Mathews.

According to stakeholders, India should prioritise good-faith consultations over immediate litigation. Even experts believe the India-UK steel issue may be an early test of whether next-generation trade deals can withstand rising protectionism, carbon regulation, and geopolitical realignment.

"India must develop it's own legislative or regulatory tools to deal with such reversion of FTA commitments. This will arise more and more as countries become more protectionist in the upcoming global upheaval. As fossil fuel shortages start impinging on availability of down stream resources like fertiliser, chemicals, plastics; countries would be forced to use trade as a tool, maybe export controls or other trade barriers. China's overhauled Foreign Trade Law is worth a look," said Sangeeta Godbole, a former trade negotiator of India.

Meanwhile, Chadha said countries must ensure that additional duties or restrictive measures are not imposed after an agreement is concluded. However, he stressed that the current issue is likely to be resolved through dialogue rather than legal action. “FTA negotiations are always about give and take. If you are taking something from me, I will also have to take something from you,” he said.

“India may eventually need to reconsider whether its current Bilateral Investment Treaty (BIS) model is flexible enough to secure agreements with major investment partners. Several countries have expressed concerns over India’s existing BIT framework, particularly provisions requiring investors to exhaust domestic legal remedies for extended periods before initiating international arbitration, as well as the broad exclusion of taxation-related measures from treaty protection. As India negotiates more comprehensive FTAs and seeks greater foreign investment, it may have to strike a balance between preserving regulatory sovereignty and offering investors a more predictable and internationally acceptable dispute-resolution framework,” noted Srivastava.