India, UK To Discuss Steel Safeguard And Carbon Tax Issues That Are Holding Up Free Trade Pact

India and the UK are set to discuss two contentious trade issues on 2 June that have slowed the implementation of their Comprehensive Economic and Trade Agreement, signed on 24 July 2025, according to government sources.

UK Secretary of State for Business and Trade Peter Kyle and Commerce and Industry Minister Piyush Goyal will meet in London to take up Britain's steel safeguard measure and its planned carbon border adjustment mechanism.

Government sources told India may rebalance some of the duty concessions it offered on Scotch whisky under the pact if these concerns remain unresolved.

What The Steel Issue Is About

From 1 July 2026, the UK will cap tariff-free steel imports, cutting overall quota volumes by 60% compared to its existing steel safeguard measures. Steel coming in above those limits will attract a 50% tariff. The measure applies specifically to steel products that can also be manufactured domestically in the UK.

India's exports of iron, steel and related products to the UK stood at $893.4 million in FY26, a significant portion of the total $13.4 billion in merchandise exports to Britain. The sharp reduction in quota volumes directly threatens this trade flow.

The Carbon Tax Problem

The UK announced in December 2023 that it would roll out its own Carbon Border Adjustment Mechanism starting 2027, making it the second economy after the European Union to do so. Britain calls it the import carbon pricing mechanism. It will initially cover sectors including iron, steel, aluminium, fertiliser, hydrogen, ceramics, glass and cement.

According to trade think tank GTRI, Indian exports worth $775 million to the UK could be affected by this carbon tax. The levy could range from 14% to 24% of import value once free allowances under the UK's Emission Trading System are fully phased out.

During a visit to London in 2025, Minister Goyal had already raised concerns about this mechanism and indicated that India might consider retaliatory steps if the UK proceeded with the plan.

Also Read - Market Midday 2 June: Nifty And Sensex Slip, Top Stocks At Lunch

Scotch Whisky As A Bargaining Chip

Under the free trade agreement, India agreed to cut import duties on UK whisky and gin from 150% to 75% immediately, with a further reduction to 40% by the tenth year of the deal. Government sources said India could now consider revisiting these concessions as a countermeasure to the UK's steel quota reduction.

Scotch whisky has a strong market in India, with brands such as Johnnie Walker, Chivas Regal and The Glenlivet among the most popular. Johnnie Walker is one of the best-selling Scotch labels in the country, making the whisky concession a meaningful lever in the broader negotiation.

Sources:

The Hindu

Times Of India