India-UK FTA – Faces Its First Major Test

After more than three years of negotiations, India and the United Kingdom signed a landmark Free Trade Agreement on July 24, 2025. Both Prime Ministers, Narendra Modi and Keir Starmer, were present at Chequers, the UK Prime Minister's official country residence, to mark the occasion.

Both governments described the agreement as one of the most significant trade deals in their recent history. On paper, it targets an additional £25.5 billion ($34 billion) in bilateral trade by 2040. On the day of signing, the mood was celebratory on both sides.

Less than a year later, two serious disputes have emerged before the deal has even formally entered into force.

The first is Britain's new steel safeguard measures, which kick in on July 1, 2026 and could restrict how much Indian steel enters the UK duty-free. The second is the UK's planned Carbon Border Adjustment Mechanism, which will place additional costs on carbon-intensive imports from 2027. India argues that both measures could significantly dilute the market-access benefits the FTA was designed to deliver.

In response, Indian officials have publicly indicated that New Delhi could reconsider certain concessions, including the agreed reduction in Scotch whisky import tariffs, if these concerns are not adequately addressed.

What we have, then, is an unusual situation: a trade agreement designed to increase commerce between two of the world's largest democracies is now facing its first major test even before it takes effect.

The Comprehensive Economic and Trade Agreement (CETA) is India's most comprehensive free trade deal in over a decade and the UK's most economically significant bilateral trade agreement since Brexit. It was finalised in May 2025 after negotiations that began in January 2022, spanning 26 chapters covering goods, services, investment, digital trade, and sustainability.

For Indian exporters, the FTA removes tariff barriers that ranged from 4% to 16% across most of India's strongest export categories. That sounds modest until you calculate it across a $13.4 billion annual merchandise export relationship.

For the UK, the commercially important wins centre on a few categories that had been difficult sticking points for years. Here is a factual summary.

The dispute that has most visibly strained the FTA's first year is about steel. Beginning July 1, 2026, the UK is introducing a new steel safeguard that cuts tariff-free import quotas by approximately 60%. Steel imports above those quotas will face tariffs of up to 50%.

The UK has a domestic rationale for this. UK Steel, the industry lobby, had been pressing for protections after the current safeguard was due to expire in July 2026, arguing that global steel oversupply, partly redirected from EU markets as Europe implemented its own carbon border tax from January 2026, risked flooding British markets. The UK government, following a formal consultation, introduced the new safeguard measure as a response.

India's iron and steel exports to the UK stood at $893.4 million in FY26. The concern from New Delhi is not merely economic. The principle matters: if a safeguard can be introduced less than a year after the FTA was signed that restricts one of India's key export categories, it raises questions about the durability of other commitments.

India joined a WTO challenge alongside Brazil, Turkey, Japan, South Korea, Switzerland, and Australia, all of whom have raised formal concerns about Britain's new restrictions on tariff-free steel imports.

While the steel dispute has drawn the most headlines, trade experts note that the UK's planned Carbon Border Adjustment Mechanism (CBAM), scheduled to go live on January 1, 2027, may prove more consequential in the long run.

The CBAM works by placing a carbon-related charge on imported products that were manufactured in countries with lower carbon costs than the UK. The idea is to level the playing field between domestic UK producers who pay for their carbon emissions under the UK Emissions Trading System and foreign manufacturers who may not face equivalent costs at home.

For Indian exporters, the practical effect is an additional cost layer on top of any remaining tariffs. It does not matter that the FTA lowered tariffs. If the CBAM adds costs in parallel, the net benefit to Indian exporters is reduced.

On June 1, 2026, ahead of fresh bilateral talks in New Delhi, an Indian official told Reuters something that got immediate attention: New Delhi could revisit tariff concessions offered to Britain on products such as Scotch whisky if London fails to adequately address its concerns over steel safeguards.

Business Today, citing official sources the following day, confirmed the position: "India has indicated that India may re-balance some duty concessions on certain products like Scotch Whisky under the agreement with the UK if these issues do not get addressed."

To understand why Scotch whisky specifically was mentioned, you need to understand the structure of trade negotiations. Every major concession given by one side is implicitly linked to what the other side gave in return.

India's agreement to reduce whisky tariffs from 150% to 75% and eventually 40%, was one of the UK's most coveted wins in the CETA. It had been sought by the UK's Scotch Whisky Association for over twenty years.

When India signals it may reconsider that concession, it is not picking whisky at random. It is pointing to the crown jewel of the UK's gains in the deal and saying, The concessions we made are not unconditional.

This is the question that generated the most headlines. And the factual answer is worth stating clearly.

No tariff rollback has been announced. What exists, as of June 11, 2026, is a stated negotiating position, not an enacted policy decision. Indian officials have indicated that if the UK does not address steel safeguard and CBAM concerns, India may consider rebalancing concessions. The Scotch whisky tariff reduction has not been reversed, partly because it has not yet taken effect — the CETA itself has not formally entered into force.

The scale of bilateral trade helps explain why both sides are motivated to find a resolution despite the friction.

India's merchandise trade surplus with the UK stands at approximately $6.6 billion (exports $19.8 billion including services; imports $13.2 billion). The CETA was designed to expand both sides of this relationship. The dispute over steel safeguards and CBAM is a question of whether the expansion happens on the terms both sides agreed to in July 2025.

Both governments are continuing to negotiate. Recent official statements from both sides suggest that discussions are ongoing, with proposals and counter-proposals being exchanged. No public deadline has been set for resolution.

What is clear is that the CETA has not entered into force. The British High Commissioner indicated in December 2025 that entry into force was expected in the first half of 2026. That timeline has not been officially updated, and the outstanding disputes over steel quotas and CBAM are likely contributors to the delay.

The UK CBAM goes live on January 1, 2027, which means the second major dispute has a firm external deadline regardless of how the bilateral negotiations proceed. Indian exporters of steel, aluminium, fertilisers, and cement will need to prepare for carbon-related compliance costs irrespective of the diplomatic outcome.

The steel safeguard measure takes effect on July 1, 2026, which gives both sides approximately three weeks from the date of this blog to find a resolution, or for Indian exporters to begin operating under the new quota regime.

The India-UK FTA remains one of the most consequential bilateral trade agreements of this decade. The disputes over steel and carbon border taxes represent its first major test. The outcome of the coming weeks and months will set the precedent for how both countries handle friction when domestic industrial pressures bump against trade agreement commitments.

India believes the UK's new steel safeguard, which cuts tariff-free import quotas by 60% and applies 50% tariffs on imports above the quota from July 1, 2026, restricts market access that Indian exporters expected under the CETA. India joined a formal WTO challenge alongside Brazil, Turkey, Japan, South Korea, Switzerland, and Australia.

No. India has not reversed any whisky tariff concessions. As of June 11, 2026, no rollback has been announced. Indian officials have only indicated that concessions could be reconsidered if trade concerns over steel and CBAM remain unresolved. The whisky tariff reduction itself has not yet taken effect because the CETA has not formally entered into force. [Reuters, June 1, 2026;

The UK CBAM is a carbon-pricing system scheduled to go live on January 1, 2027. It will require UK importers of carbon-intensive goods — including steel, aluminium, cement, fertilisers, and hydrogen — to purchase certificates corresponding to the carbon cost difference between UK domestic production and the imported product's country of origin. It is modelled on the EU CBAM, which became fully operational on January 1, 2026. Trade experts estimate approximately $775 million in Indian exports could be affected.

Under the agreed CETA terms, India's import tariff on Scotch whisky falls from 150% to 75% on the day the agreement enters into force. It then declines gradually to 40% over a ten-year period. Neither reduction has taken effect yet because the CETA has not formally entered into force as of June 2026.

Yes. The FTA has not been cancelled or withdrawn. Both governments continue to negotiate implementation-related issues, including the steel safeguard and CBAM disputes. UK Business Secretary Peter Kyle visited New Delhi in early June 2026 for talks with Commerce Minister Piyush Goyal, described by officials as having advanced. The most likely near-term scenario is continued negotiation rather than escalation.