India gets 1.64 mt EU steel quota, imports of EU cars may rise 6-fold

Why in the News

The draft text of the India European Union (EU) Free Trade Agreement (FTA) gives India a country specific steel export quota of 1.64 million tonnes (mt) across 16 categories, including specialised items such as metallic coated sheets and stainless hot rolled quarto plates. The quota answers the tightening of EU steel entry through the Steel Overcapacity Regulation, which came into force on 1 July this year, and through the Carbon Border Adjustment Mechanism (CBAM), a levy that prices the carbon embedded in an imported good so that it carries the same carbon cost as an EU produced one. In exchange the EU has won a first year quota of 1,00,000 completely built up cars, close to six times what it currently ships to India. Only a part of India’s steel quota is actually reserved for India, while the automotive concession is the first of its kind India has given to a major economy after the United Kingdom.

What is a Tariff Rate Quota?

1. The instrument: A Tariff Rate Quota (TRQ) limits the quantity of a particular item that is eligible for a lower duty, so volume inside the quota enters cheap and volume beyond it pays the full tariff.
2. Two components in India’s steel quota: The FTA component of 0.69 mt is reserved for India. The most favoured nation component of 0.95 mt is open to all partner countries.
3. The assured component against the open component: Only the FTA component is assured, and India’s products must compete with other exporting countries for the remaining categories.

How much steel market access has India actually secured?

1. Breadth of the quota: The 1.64 mt covers 16 categories of steel, including specialised products such as metallic coated sheets and stainless hot rolled quarto plates.
2. Value added lines are inside it: India has received quotas on several value added categories, which are the lines that carry a higher realisation per tonne.
3. The assured share is small: The reserved FTA component is under half the headline quota, so the larger part of India’s access depends on outcompeting other suppliers for the same tonnage.
4. The framing regulation: The TRQs follow the EU’s Steel Overcapacity Regulation, whose stated aim is to protect the EU steel industry against the effects of global overcapacity.

What does the EU gain in India’s car market?

1. A first year quota six times current trade: The EU has won a first year TRQ of 1,00,000 completely built up internal combustion and non plug in hybrid cars, against the 17,191 cars India imported from the EU in 2025.
2. The ten year volume ramp: The quota rises to 1,60,000 cars by the 10th year of the agreement.
3. A price floor protects the mass market: The concession applies only to cars priced above €15,000, and India has given no concession at all to cars below that price to protect Indian car manufacturers.
4. The duty schedule for the mid segment: For cars priced between €15,000 and €35,000, the in quota duty falls from 110% to 35% in the first year and to 10% by the fifth year of the deal coming into effect.
5. The duty schedule for the luxury segment: For cars priced above €35,000, tariffs decline from 66% to 30% in the first year and to 10% over the same period.
6. A reserved luxury band: The quota is divided across three price bands, with 43,000 units reserved for cars priced above €50,000 from Year 5 onward.

What does the separate electric vehicle schedule protect?

1. Concessions begin later: Concessions on battery electric vehicles, plug in hybrids and cars using other technologies begin only in the fifth year of the agreement.
2. A higher price floor applies: They apply only to vehicles priced at €20,000 or more, and electric and other eligible cars below that price get no concession.
3. The volume ramp is slow: The completely built unit quota starts at 20,000 cars in the fifth year, rises to 50,000 in the tenth year and reaches 90,000 from the fourteenth year onwards.

What must India do to use the steel quota?

1. Move up the product ladder: Shifting toward higher value added steel products reduces the applicable CBAM tax burden and improves India’s competitive position in the EU market, per an Indian Council for Research on International Economic Relations (ICRIER) note.
2. Pair the shift with industrial policy: The ICRIER note holds that this structural transition must be supported by industrial policies that integrate Production Linked Incentives with dedicated research and development funding.
3. Carry the smallest firms through compliance: Targeted financial and technical assistance, including concessional financing, access to clean technology and investment guarantees, is treated as essential to ease the disproportionate compliance burden on Micro, Small and Medium Enterprises (MSMEs).

What is the Carbon Border Adjustment Mechanism?

1. The charge on embedded carbon: An importer of a covered good declares the greenhouse gas emissions released in producing it and surrenders certificates priced against the European Union’s own carbon market. The imported tonne therefore carries the same carbon cost as a tonne produced inside the EU.
2. Covered goods: CBAM applies to emissions intensive goods traded in bulk, including iron and steel, aluminium, cement, fertilisers, electricity and hydrogen, which are the sectors where production is most easily relocated to a jurisdiction with no carbon price.
3. Default values where data is absent: An exporter that cannot supply verified plant level emissions data is charged on a default value rather than on its actual emissions. Eg. A low emission Indian plant that does not document its emissions is charged as though it used the high emission route.
4. Phasing: A transitional stage requires importers only to report embedded emissions, and the financial obligation attaches at the definitive stage, so the reporting burden arrives before the cost does.

Challenges to the India EU Free Trade Agreement steel and auto package

1. The quota covers well under half of existing trade: Most of what India already ships to the EU falls outside the country specific quota and meets the full tariff. Eg. India’s steel exports to the EU currently stand at 4 mt.
   The Fix: Concentrate the residual volume in categories where the per tonne realisation absorbs the out of quota duty, rather than treating the quota as the whole of the market.
2. The out of quota wall is punitive: The Steel Overcapacity Regulation sets free of duty quotas at 18.3 mt overall with a 50% duty on out of quota imports, so exceeding the quota is close to a trade stop. Eg. The same regulation introduced a melt and pour regime that traces where steel was first cast, which narrows the scope for rerouting through third countries.
   The Fix: Seek an annual review clause that indexes the country specific quota to India’s realised shipments rather than fixing it at the level negotiated once.
3. The carbon charge sits outside the quota: A tonne of steel that enters inside the quota still carries its CBAM liability, so tariff relief and carbon cost are two separate gates. Eg. CBAM prices embedded emissions per tonne, which penalises India’s coal based blast furnace and induction furnace routes regardless of quota access.
   The Fix: Build verified plant level emissions accounting into Indian steel exports so that lower carbon Indian output is recognised at the EU border instead of being charged on a default value.
4. The automotive concession sets a precedent for other partners: The EU becomes the second major trade partner after the United Kingdom to secure automotive tariff concessions from India under an FTA. Eg. The Global Trade Research Initiative (GTRI) holds that these precedents could prompt other key trade partners such as Japan and South Korea to seek similar preferential market access and TRQs.
   The Fix: Fix a common automotive concession template across agreements, so each new negotiation starts from a stated ceiling rather than from the last deal signed.

Conclusion

The draft text is published rather than ratified, so the numbers in it are a negotiating position and not yet a schedule in force. What the package does settle is the shape of the bargain: India trades a widening opening of its passenger vehicle market for steel access that is only partly reserved and wholly separate from its carbon liability. The marker to watch is whether the reserved FTA component of the steel quota is enlarged in the final text, and whether India’s shipments move into the value added categories the quota already covers.

Matching Previous Year Question

“[2025, GS3, 10 marks] What are the challenges before the Indian economy when the world is moving away from free trade and multilateralism to protectionism and bilateralism? How can these challenges be met?”