India-EU FTA puts Indian steel in a sweet spot as EU's carbon tax looms: EU Trade Commissioner

As Prime Minister Narendra Modi and European Commission chief Ursula von der Leyen inked the India–EU free trade agreement (FTA) on Tuesday, January 27, Brussels signalled a strategic shift in its steel trade posture.

With the EU industry under strain and safeguard barriers set to kick in from 2026, India is being positioned as a preferred FTA partner—giving Indian steelmakers a potential edge under the Carbon Border Adjustment Mechanism (CBAM) at a moment of market disruption.

“India is in an excellent position as the EU will treat India as an FTA partner with whom we will have privileged negotiations on market access for steel products,” EU Trade Commissioner Maroš Šefčovič told CNBC-TV18 exclusively.

Šefčovič added that the EU would provide the best possible assistance to Indian operators on CBAM compliance, while assuring that no other country would be treated better than India.

For Europe’s steelmakers, 2026 marks the year CBAM becomes enforceable and carbon intensity begins to influence prices and competitiveness. The mechanism seeks to prevent carbon leakage by imposing a levy on imported steel equivalent to the carbon costs borne by EU producers.

This comes at a delicate moment for Europe’s steel sector. The industry is financially stretched and in the midst of an expensive transition to low-carbon technology. Several green steel projects have been delayed due to high capital costs, while demand from the auto and construction sectors remains weak.

At the same time, existing quotas and tariffs expire in June 2026, with tighter rules expected to push up import prices amid persistent oversupply from China.

As a result of CBAM, India’s steel exports to Europe were expected to fall once the EU’s carbon tax takes effect this month. India, the world’s second-largest crude steel producer after China, currently ships roughly two-thirds of its steel exports to Europe.

However, the India–EU FTA offers New Delhi an unusual opening. Brussels is offering preferential treatment on steel access, support on CBAM compliance, and has committed that no other country will receive better treatment.

This matters because Indian exporters may need to absorb a 15–22% cost hit under CBAM in the absence of a domestic carbon price. India is also pushing to reduce CBAM’s impact on steel, aluminium, cement and fertilisers.

For the EU, the priority is securing compliant partners as its steel industry transitions. For India, the FTA turns a policy challenge into a potential export advantage. India exported 3.71 million tonnes of steel to the EU in 2024, out of total exports of 8.24 million tonnes.

The negotiations come at a time when high US tariffs have disrupted global trade flows, prompting both India and the EU to diversify markets and supply chains. The EU currently accounts for 17% of India’s exports, while India absorbs around 9% of EU exports.

Trade between India and the EU stood at $136.5 billion in the fiscal year through March 2025.