India softens EU steel import curbs hit, secures 80% exports

Why in the News

India has safeguarded more than 80% of its steel supplies to the European Union (EU) by negotiating that the steel concessions contained in the free trade agreement between India and the EU be front loaded, so they apply before the agreement comes into force. The step answers a curb the EU has already imposed. Since July 2026 the EU has run an amended quota based system for certain steel imports that sharply cut country wise quotas in order to reduce overall steel imports. The tension is that the quota relief does not remove the cost barrier. Indian steelmakers will still have to pay the EU’s separate Carbon Border Adjustment Mechanism (CBAM) charge even where their exports fall within the quota.

What is the EU’s steel quota system?

1. The mechanism: It caps the volume of specified steel products that may enter the EU from each country at a preferential duty, with shipments beyond the cap facing a higher duty.
2. Country wise quotas: Each supplying country receives a named tonnage for the product categories inside the quota mechanism.
3. Residual quotas: Beyond the country specific allocation, a residual pool is available, and India’s access to that pool comes from the free trade agreement.

How much did India’s quota actually move?

1. The negotiated text: The trade deal text set India’s quota at 16.5 lakh tonnes for the items within the quota mechanism.
2. The implemented figure: When the system was finally implemented in July, India’s quota was expanded to 19 lakh tonnes.
3. With residual access: Counting the residual quotas India receives under the free trade agreement, the total potential quota for Indian steel exports now stands at 28 lakh tonnes.
4. Measured against past trade: India exported an average of 30 lakh tonnes of steel products falling under the quota regime over 2022 to 2024, so full use of the residual quotas secures more than 80% of quota based steel exports.

Why does front loading matter before the agreement is in force?

1. The timing problem: The EU’s amended quota system took effect in July 2026, while the free trade agreement had not yet come into effect, which would have left India inside the tightened country quota with no concession to draw on.
2. The concession obtained: The EU agreed to make the steel concessions applicable from July 2026, ahead of the agreement’s own entry into force.
3. Where the agreement stands: The text is currently with the European Commission to sign, which the government expects to take place in December.

Why does CBAM still bite despite the quota gain?

1. A separate instrument: CBAM is a carbon charge on imports and operates independently of the quota, so quota compliant steel is not exempt from it.
2. Verification as the practical cost: Exporters must have their embedded carbon figures verified, and Indian exporters currently have to look abroad for that service.
3. The response under way: India is working with the EU to build domestic capacity for CBAM verification, including recognition of Indian verification agencies, with the government trying to get at least 10 agencies verified.

Challenges to India’s steel exports to the EU

1. Carbon intensity of the production route: Indian steel is made largely through the coal based blast furnace route, so its declared embedded carbon sits above that of EU producers and the levy scales with that gap. Eg. Coal based production accounts for the bulk of India’s crude steel output.
   The Fix: Route export grade capacity through electric arc furnaces and direct reduced iron so the verified carbon content falls at source.
2. Residual quota exhaustion: Residual pools are allotted on a first come first served basis within each period, so an exporter shipping late in the period can find the pool used up. Eg. Steel entering the EU outside the safeguard quota faces a duty of 25%.
   The Fix: Publish a shipment calendar allocating the residual pool across Indian exporters within each quarter, rather than leaving it to who files first.
3. Concentration on a single destination: Securing 80% of quota based exports to one bloc leaves that volume exposed to a single regulator’s next revision. Eg. The EU cut country wise quotas in July 2026 without a corresponding change in Indian production plans.
   The Fix: Build parallel quota and tariff access in other markets so a single revision does not move the whole export book.
4. Compliance capacity in smaller mills: Carbon accounting at installation level requires measurement systems that secondary and smaller producers do not maintain. Eg. Much of India’s steel capacity sits with secondary producers operating induction furnaces.
   The Fix: Fund a shared carbon measurement and reporting facility for secondary producers at the cluster level.

Conclusion

The quota outcome is real but partial. India has converted a tightening safeguard into slightly more room than the trade deal text promised, and has done it before the deal is signed. The cost barrier has simply moved from the quota to the carbon charge, which no volume concession addresses. The next marker is the European Commission’s signature, expected in December, and the number of Indian verification agencies the EU actually recognises.

Back2Basics: Carbon Border Adjustment Mechanism (CBAM)

1. What it is: An EU measure that charges imports of specified goods for the greenhouse gas emissions embedded in their production, so imported goods bear a carbon cost comparable to EU produced goods.
2. Sectors covered: Iron and steel, aluminium, cement, fertilisers, electricity and hydrogen.
3. How it operates: Importers must report the embedded emissions of each consignment and surrender certificates priced against the EU’s own carbon market.
4. Timeline: A transitional reporting only phase began in October 2023, with the financial obligation on importers beginning from 2026.

Matching Previous Year Question

“[2017] ‘Broad-based Trade and Investment Agreement (BTIA)’ is sometimes seen in the news in the context of negotiations held between India and (a) European Union (b) Gulf Cooperation Council (c) Organization for Economic Cooperation and Development (d) Shanghai Cooperation Organization Answer: (a)”