India-EU FTA and its Steel Challenges
| AUTHOR | Anisree Suresh |
| DATE | October 12, 2026 |
| CATEGORIES | Economic Policy Geoeconomics Economic Reasoning |
On July 1st, 2026, the EU implemented its new steel trade defense regime and on September 11, 2026, the EU released the India-EU text, detailing the legal text of country-specific tariff quotas regarding India’s steel exports to the EU. Limiting imports into a country through various tools such as tariffs or quotas is not a new phenomenon in the current geoeconomic world order. The UK has recently erected its own steel tariff walls despite India having a free trade agreement, and India simultaneously faces a hostile tariff environment for steel with the US 25 per cent Section 232 tariff alongside threats of a 100 per cent tariff. While India’s free trade agreements with the UK and the EU provide a baseline advantage over its non-FTA competitors, the overall protectionist trends across major world economies, particularly the EU and UK along with the US, severely limits market access for India’s exports.
The objective of the EU’s new steel regime and structured rules, which came into effect on July 1st, 2026, is to replace the 2018 safeguard measures, drastically restructuring steel trade defenses to protect domestic industries from global overcapacity. Under these new rules, a revised tariff-rate quota (TRQ) system puts a hard limit on the global cap of duty-free steel imports into the EU at 18.35 million metric tons annually, a 50 per cent reduction on previous global tariff-free import caps.
There are also country allocation pools reserved exclusively for EU’s FTA partners and countries supplying more than 5 per cent of historical EU steel imports. Other countries compete on a first-come, first-served basis for a residual pool. There is a 50 per cent penalty for all out-of-quota shipments. While shipments within an allocated quota remain duty-free, any additional steel is hit with a 50 per cent out-of-quota tariff, which is double the 25 per cent penalty of the 2018 regime. Additionally, the Carbon Border Adjustment Mechanism (CBAM) is now in place; this TRQ provides no exception for CBAM. Even if steel enters the EU duty-free under the quota, importers must pay a carbon levy based on greenhouse gas emissions, estimated at approximately 35 per cent of the total shipment value. Along with that strict rules of origin have been implemented to prevent transshipment and circumvention via third countries, defining legal origin as the country where the steel was first produced from liquid state into its first solid shape.
As per the India-EU FTA legal text, especially the Annex 2B, released on September 11, 2026, India received a total country-specific annual tariff-rate quota of 1.64 million metric tonnes. This structure consists of two parts: the Most Favored Nation (MFN) baseline quota, which allows the 0 per cent duty standard WTO-based quota of 946,616 metric tonnes, and an FTA preferential quota of 694,854 metric tonnes, which is an additional guaranteed quota carved out under the proposed India-EU FTA. Together, under this new steel regime India receives a total quota of approximately 1.64 million metric tons.
However, India currently exports around 2.4 million metric tonnes of steel products to the EU annually. Before the FTA, the baseline protection relied solely on the WTO MFN quota of 946,616 metric tons, which protected only 39.4 per cent of India’s 2.4 million metric ton exports at zero per cent tariffs, leaving 60.6 per cent exposed to out-of-quota penalties. As the FTA comes into effect, the combined 1.64 million metric tonne quota protects approximately 68.4 per cent of India’s 2.4 million metric ton export volume from the 50 per cent penalty tariff. The remaining 31.6 per cent of exports exceeding this limit face the 50 per cent penalty. However, 100 per cent of all exports remain subject to the 35 per cent carbon levy unless the EU acknowledges and accepts India’s own carbon trading mechanism as an equivalent to its own.
However, since the legal text is out, there has been a discrepancy in the quota numbers that have been reported. The quota allocations published in the September 11 FTA Annex were approximately 300,000 tonnes lower than the operational allocations published unilaterally by the EU in late June 2026. By formalising this September FTA Annex text, India effectively locks in a permanent baseline that is 300,000 tonnes lower than the operational quota handed out in June. For specific products like hot-rolled coil, there is a deficit of 87769 tonnes, and for cold-rolled coil, a deficit of 51316 tonnes compared to the June 2026 EU allocation.
While the FTA allowed India to secure a higher quota than it would have received without it, the global trend toward protectionism remains concerning. The UK has also implemented its own safeguard measures, cutting global tariff-free import caps by 51 per cent and doubling out-of-quota penalties to 50 per cent . While the UK removed 11 specific commodity codes from safeguard restrictions, permitting unrestricted duty-free entry for 85 per cent of Indian semi-finished slabs and specialty alloy wires, the new UK regime restricts other Indian steel exports.
Compounding these global challenges, India faces a synchronised closure of major markets. With a 33 per cent quota reduction for category 1 HRC in the EU, Indian steel must seek alternative markets, yet the UK cannot absorb this excess, and the EU FTA caps are too tight to accommodate it. When combined with the US’s 25 per cent Section 232 tariff and the looming threat of a 100 per cent tariff, it is clear that India is facing a synchronised closure of major global markets for its steel exports. This is the wider trend that India must now confront.
Many of the world’s major consumer blocs are turning inward to protect their domestic industrial bases. Some go to extremes, like the US, while the UK and EU attempt to protect their industries through limited scopes, such as steel or new carbon border adjustment mechanisms. FTAs alone cannot cushion the global export crisis. However, they certainly guarantee some degree of market access over non-FTA partners. This means India must aggressively leverage its economic position to secure exceptions and reliable market access in the emerging geo-economic order, while simultaneously building domestic capacities in carbon trading schemes, such as the one now accepted by the UK.