EU-India Free Trade Agreement: A Potential Game Changer for Global Trade and Steel Industry Concerns
On February 28, 2025, during a press engagement in New Delhi, European Commission President Ursula von der Leyen and Indian Prime Minister Narendra Modi announced their commitment to finalizing a Free Trade Agreement by the end of 2025. This agreement is anticipated to be the largest of its kind globally, spanning diverse sectors from trade to technology, defense, and security. Von der Leyen stated that this deal would act as a "cornerstone" of Europe's future policy, emphasizing that it was essential for strengthening EU-India ties in a rapidly changing global landscape.
However, while the FTA holds significant potential for fostering economic ties, European steelmakers are voicing concerns about the implications for their industry, particularly regarding India’s aggressive pricing strategies, the EU's Carbon Border Adjustment Mechanism, and the potential removal of protective trade measures.
Background: EU and India’s Free Trade Negotiations
The EU and India resumed talks for an FTA in 2021, after negotiations initially collapsed in 2013. The agreement is expected to address a variety of trade barriers, with India seeking greater access to the EU market for its drugs and chemicals, while the EU is demanding lower tariffs on Indian products like cars, whiskey, and wine.
India’s steel industry is central to these negotiations. Steel is a key export for India, and the country has long been a significant player in the global steel market. However, steel imports from India have often raised concerns in the EU, with accusations of dumping—selling steel at artificially low prices to gain market share. These practices have led to ongoing investigations and anti-dumping measures against Indian steel by the EU.
The finalization of the FTA could potentially weaken EU safeguard measures, which are designed to protect European producers from unfair competition, particularly from countries like India, which are able to offer steel at lower costs due to cheaper raw materials and lower labor costs.
India’s Pricing Advantage: A Threat to European Steelmakers
One of the central concerns raised by European steel producers is India's competitive advantage in the global market. India’s access to cheap raw materials from Indonesia and other South-East Asian countries allows Indian steelmakers to produce steel at lower costs compared to European producers. This could enable India to export steel at prices that undercut local production, causing a disruption in the European market.
An anonymous Italian steel industry representative expressed concern that if the EU removes safeguard measures or fails to introduce appropriate tariffs on Indian steel imports, the consequences could be dire. “The Indian market is so aggressive,” the source said, warning that if Indian products were allowed to flood the EU market unchecked, it could result in massive damage to Italian steelworks and potentially other European producers.
Currently, Indian steel exports to the EU face tariffs and reviews under EU regulations. The European Commission announced an anti-dumping investigation on August 8, 2024, into certain hot-rolled flat products from India, Egypt, Japan, and Vietnam. The European Steel Federation (Eurofer) lodged a complaint, claiming that these steel products were being sold at unfairly low prices, thus causing economic damage to the European steel sector.
The EU’s Carbon Border Adjustment Mechanism (CBAM): Another Area of Tension
The EU’s Carbon Border Adjustment Mechanism (CBAM) has also become a point of contention in the negotiations. The CBAM is designed to address the issue of carbon leakage, which occurs when companies in countries with weaker environmental standards export goods to the EU without accounting for the carbon emissions involved in their production.
The CBAM imposes a carbon tax on certain imported goods that fail to meet the EU’s emissions standards. This includes products like steel, cement, and aluminum, which are among the most carbon-intensive sectors globally. For Indian steel, which has historically relied on high-carbon manufacturing processes, the CBAM could increase the cost of exports to Europe, potentially making them less competitive.
India has expressed strong opposition to the CBAM, arguing that it unfairly punishes developing countries that have not yet made significant investments in low-carbon technology. This stance could become a major obstacle in the negotiation of the FTA, as India seeks to protect its steel industry from the additional financial burden that the CBAM would impose. The European Commission, however, insists that the CBAM is necessary to protect European industries from unfair competition and to drive global emissions reductions.
The CBAM is set to be fully implemented by 2034, but the transition phase, which began in October 2023, could significantly impact Indian exports in the coming years, especially for the steel industry. According to some estimates, the steel sector will be one of the most severely affected by the CBAM, as Indian steel manufacturers may struggle to meet the EU’s stringent emissions criteria.
Safeguards and Reviews: Ongoing Challenges for Indian Steel
In addition to concerns about the CBAM, the EU is currently reviewing its safeguard measures for steel imports, which could lead to changes in the way tariffs and quotas are allocated. These measures are crucial for protecting European steel manufacturers from unfairly priced imports, and any changes could open the floodgates for more affordable Indian steel to enter the European market.
India has already shown significant interest in exporting stainless steel bars to the EU, which is one of the sectors under investigation in the current review of safeguard measures. If India gains greater access to the EU market under the FTA, it could lead to increased imports of cheap steel, further straining the competitiveness of European producers.
The EU’s Broader Trade Strategy: Navigating Global Tensions
The FTA with India is part of a broader EU strategy to sign trade agreements with third countries in the wake of shifting global alliances. This comes as the United States, under President Donald Trump, has ramped up its trade tensions with the EU. On February 26, 2025, Trump announced plans to impose a 25% tariff on all EU-produced goods, accusing the bloc of being unfair to the United States.
In response, the EU has intensified its efforts to forge new trade partnerships with countries like India, Mercosur, Mexico, and Malaysia. Von der Leyen has emphasized the need for pragmatism and ambition in the current geopolitical climate, urging the EU to focus on trade agreements that will bolster its economic resilience and advance its green transition.
Key Takeaways:
• EU and India aim to finalize a historic Free Trade Agreement (FTA) by the end of 2025, expected to be the largest trade deal globally.
• Concerns within the European steel industry include the potential removal of safeguard measures, allowing Indian steel exports to undercut European prices, harming local producers.
• India’s pricing advantage, stemming from cheaper raw materials, could disrupt the European steel market, particularly in countries like Italy.
• The EU’s Carbon Border Adjustment Mechanism (CBAM) may place higher costs on Indian steel exports to Europe due to the carbon intensity of India’s steel production.
• India has voiced opposition to the CBAM, arguing that it unfairly penalizes developing countries and may increase costs for Indian exporters.
• Ongoing investigations into anti-dumping practices from India are a major concern for the European steel sector, especially with respect to hot-rolled flat products.
• The EU’s trade strategy is evolving in response to global trade tensions, including potential tariffs from the United States, driving the need for new trade partnerships like the EU-India FTA.
• Steelmakers in the EU are wary of the impact of increased imports of Indian steel, especially if tariff measures are reduced or removed under the new FTA.
