EU Quota Cut And Tariff Hike Along With CBAM Challenges Exporters

Chennai : India’s steel and engineering exports to the European Union (EU) face a sharp setback as the bloc prepares to cut tariff-free import quotas by 47% and double duties on out-of-quota shipments to 50%, a move that could significantly squeeze shipments from India. The revised safeguard regime, expected to replace the existing tariff-rate quota (TRQ) system after June 2026, will cover about 20 steel and related items, including pipes, with higher tariffs kicking in once quotas are breached.

According to Pankaj Chadha, Chairman of the Engineering Export Promotion Council, the quota reduction is part of the EU’s broader effort to curb imports and protect domestic industry, amid fears of trade diversion following higher US tariffs under Section 232. While the measure is not country-specific, India is likely to be “collateral damage,” as restrictions aimed largely at China apply uniformly to all exporters. Though India has negotiated its quota levels under the proposed trade deal, the extent of relief remains unclear, with item-wise allocations yet to be made public.

The tightening of quotas comes alongside the implementation of the Carbon Border Adjustment Mechanism (CBAM), adding another layer of complexity for Indian exporters. Although CBAM reporting began in January 2026, financial implications will be felt only from 2027, when importers will start paying carbon-linked duties based on verified emissions data. A key concern, however, is the absence of EU-accredited verifiers, which has left exporters in a regulatory limbo.

Indian exporters are currently getting emissions data verified by domestic agencies, even though these are not yet recognised by the EU. Accreditation is expected to begin around September 2026, but until then, exporters face uncertainty over compliance. Without verified data, they risk exclusion from European supply chains, as EU importers have made certification mandatory.

The potential cost impact is significant. If default carbon intensity values are applied—estimated at 7.1 tonnes of carbon per tonne of steel—CBAM costs could rise to around €500 per tonne (₹50,000–₹60,000), severely eroding competitiveness. Estimates suggest that up to 40% of revenues could be impacted in a worst-case scenario, though timely accreditation and accurate emissions reporting could mitigate losses.

Despite these headwinds, India’s engineering exports have shown resilience. The sector is expected to close the current financial year at $120–122 billion, surpassing last year’s $116 billion and achieving around 5% growth. This is notable given multiple disruptions, including US tariffs, EU regulatory changes, and geopolitical tensions in the Middle East. Engineering goods account for nearly 29% of India’s total exports, and their growth has been critical in sustaining overall export performance, which has otherwise remained subdued.

Exporters have also managed to maintain growth in key markets such as the US, where shipments have risen by about 2% despite tariff barriers. However, challenges persist, particularly in the Middle East, which accounts for 16% of engineering exports. Ongoing conflicts in the region are expected to drag down shipments in the short term.

To offset risks in traditional markets like the US and EU, exporters are increasingly focusing on diversification. Latin America has emerged as a promising destination, while efforts are underway to deepen trade ties with Canada and negotiate agreements with Mexico and the Mercosur bloc. Even so, industry leaders acknowledge that the US and EU will remain dominant markets in the foreseeable future, making it imperative for India to adapt to evolving trade and sustainability regulations while continuing to expand its global footprint.