EU's New Quota System And Doubled Tariffs To Hurt Steel Exports: Pankaj Chadha

Chennai : After CBAM, the European Union is lowering the tariff-free quota of steel imports by 47 per cent and doubling the tariffs on out-of-the quota imports to 50 per cent. This will tremendously impact Indian exports to the region. Nevertheless, this year, engineering goods exports from India managed to grow, setting a new record high, despite the US tariffs, and uncertain global trade, says Pankaj Chadha, Chairman, Engineering Export Promotion Council.

Q) Before we discuss the new tariffs and regulatory changes, can you tell me how big is the European Union for our exports in general as well as exports of engineering goods?

See, engineering goods is 17 to 18 % and is the EU the largest block. The North American block is larger at 20%, but otherwise, the US is less than 20. So the European Union at 18 % would be the single largest Pacific block.

Q) Can you briefly tell us about the sustainability related regulations that have come into effect from January 1st this year? How will the regulations affect our exports to the EU and how prepared were the exporters for these measures?

What you're talking of is CBAM, Carbon Border Adjustment Mechanism. Now the fact is, CBAM has come in from 1st of January, 2026, but the charging will be done in 2027. So the figures of 2026, let's say, January to March, would be used to charge, in February 2027. That would be the charging date.

Some basic issue is that the European Union has still not appointed accredited verifiers. until the European Union appoints accredited verifiers, how do Indian companies get their carbon emissions certified from an accredited verifier?

I'm given to understand that this accredited verification process, registration process will start in September 2026. let's say if they finish it in a month's time, that's when we will have an accredited verifier whom we will contact for getting our carbon emission checked. We did flag this to the ministry. There was a meeting held by the chief negotiator. The government will take it up with their suitable counterparts in the EU. Idea would be two things. One, the accredited verifier should be and will be a European company who has an office in India because after all the testing has to be done in India not and They we would not agree or we would be too expensive for somebody to fly from Europe to do testing. Two, we have also asked that Indian agencies should also be accredited. As of now the rule of the EU is that only an EU-based company can be accredited. I guess they will have to change that rule. Eventually Indian verifiers will be appointed and then the verification will be done and then the data will be available which can then be compared and which the CBAM duties can be judged.

Q) So as of now, are the exporters preparing for it? Is there any kind of groundwork that is being done?

Yeah, regular exporters to Europe are all getting their CBAM data verified by an Indian authority. Currently, that Indian authority is not accredited by the EU but it is being done. The data is available. The data is given to share to their overseas customers who are feeding it in their import system. Now the only main point is that the accreditation of Indian companies has to be done for it to be taken forward.

Q) Among large, medium and small exporters, how are the preparations going?

All of them are doing it. There is no option. There is no exemption. So if you don't do it, you are not in your supplier's list. That's all. European importers have clearly said, if you don't have your data verified, we will not have you as our supplier. Simple as that.

Q) ICRA had come out with a report saying that 15 to 40 % of the revenues probably will get affected by the CBAM. Is that true?

It depends upon the accredited verification process if it happens fast enough if India's default value is seven point one tons of carbon and per ton of steel so that would mean something roughly in the region of 500 euros per ton which is let's say fifty thousand rupees or say 60,000, 55,000 rupees a ton of steel. That would be your CBAM certificate cost to the importer. So if that were to happen, if you go into the default values for India for all the exporters, yes, I would say there would be a loss of 40%. But otherwise, I think if the credit values are there, Indian companies definitely want to deal with the EU. The EU is a good market. I think we should be able to get this sorted out.

Q) So in between there are also reports about the EU coming out with a new quota system and also increasing the tariffs. Can you tell us something about that as well?

The tariff-related quota has been going on for eight years. Eight years will get completed on 30th of June, 2026. As per WTO rules, you can't have a tariff quota beyond eight years. Right? So therefore, this quota, as it comes to an end, EU is preparing for a new quota regime, which, as per what they have put in public domain, is that they would want to reduce the import of steel by 47 % globally. India would then have discussed in our FTA, not have a decrease of quota of 47%, but in some cases it is much lesser. The exact numbers fixed per item wise is not in public domain because there is a confidentiality clause between the EU and India. And these numbers will be available around the end of June when the EU has negotiated the country wise quota for the other countries. But our quota is already fixed. It has been discussed. It was discussed somewhere around the 20th or 22nd of January. The deal was signed or in principle agreement was signed on 27th as we know when the president of the European Union was here. So just before that, the team was here and the steel quota was the last item on the agenda which got finalized.

Q) Will all our exports be covered by the quota if not how much increase in tariffs can we actually expect?

There are 20 items on which quota is levied. So it's steel plus with pipes and other things. So it's about 20 items. So all those items will be under quota and the quota quantities are there. Above the quota, there is a duty. It used to be 25%. Now the duty will increase to 50%.

Q) That's almost doubling the tariffs, what could be the rationale behind the safeguard duties and quotas that you mentioned that they want to bring their imports down by 47 %? Do they actually have the kind of capacity to produce all these, what exactly has been happening in the European Union?

See it's like this. India is always a collateral damage. The problem was that basically they wanted to reduce the imports of steel from China, but they couldn't sort of specify, make a rule for one country. So they have made a sort of a rule for all the countries. The genesis of this quota comes out of the US duty, the US section 232 duty. When the US Section 232 was levied, the US levied a duty of 25 % on Indian steel, on all steel, right? Not only Indian, but other countries also. So based on that, the EU felt that if there is a duty of 25 % levied by the USA, steel destined for the USA, be sort of routed to the EU. So to protect their domestic industries, they have levied a 25 % duty based on the Section 232 duty of 25%. Now Section 232 duty has increased from 25 % to 50%. So since that has increased to 50%, the EU again has also mirrored that and said that we will now levy 50%. They feel that material that was bound to the USA will now get diverted to the EU and therefore to protect their domestic EU steel mills, they have increased the duty by 50 % and also reduced the quota by 47%.

Q) What could be the impact of this policy on Indian exports?

Well, it is going to have an impact. Let it come. I can't give you a number, but the fact is that it would definitely have a big impact.

Q) Will the trade deal with the EU support Indian exporters from the sustainability tariff, CBAM and also the new safeguard measures?

No. The trade deal has nothing to do with the TRQ quota and the CBAM. The CBAM and TRQ are outside the trade deal. It's just that in the trade deal, we try to reduce, at least, or rather not increase our share of quota. I don't know how successful they were . They must have been because they said we have tried our best and this is the best we could do. But for CBAM, there is no leaving.

Q) Once a trade deal comes is there anything that probably will be helpful for the exporters?

Well, I think so because the fact is a lot of other items which are going to the EU will become zero duty. So it is helpful for India. Leaving aside the steel items, the other items are definitely important for India to export to the EU. I'm sure with the trade deal, we would have comparable good rates and maybe zero duties.

Q) For steel, will we have any other market to divert our products?

I don't think so. Mexico has levied a 35 % duty on Indian steel. The USA has a tariff of 50%. The EU has got a tariff rated quota which they are going to reduce by 47%. The tariff quota and the tariff going from 25 % to 50%. The Far East is China's backyard so it's a little difficult to sell there and they are also producing nations.

Q)Coming back to the trade deal, by the time the new quota rules and tariffs and all those things come in, will the trade deal be ratified by the European Union? Considering the deals that have happened in recent times, how long will it take for the deal to come into effect?

The deal is being legally scrutinized. I think in three months time, or maybe about four months time, we should have a deal which would be fit for signing. Once it is signed, then it will go to the European Parliament for ratification. And that could take another three to four months. So I would say we should have this European deal operational somewhere in the first quarter of 2027.

Q) It has been a tough year for engineering goods exports. First, the sectoral tariffs by the US on steel, aluminum, and their derivatives. Then the reciprocal and punitive tariffs on almost all products. then the EU CBAM uncertainty was there, and now the new quota regulations. How have these kind of policies in our key markets affected our exports this year?

Surprisingly, from April to February, we have done $111.50 billion. Our last-year's exports were $116 . I think we will surpass that figure and be around between $120 to $122. Our target given to the Commerce Ministry was $120 . I am hopeful that we will cross that target also, which means that we will grow past the $116 by roughly about 5%.

Q) How did we manage this?

Well, I say engineering industries, they've done a good job and the ministry has also complimented us recently and said, you've done in this geopolitical crisis, if you still have a 5 % growth in exports of engineering and engineering happens to be 29 % of India's exports. So if we grow 5%, the overall India's export growth, otherwise India's export growth would have been in the negative. Currently, from April to February, India's export growth of merchandise trade is only 2%. It's actually backed because 5.25 % growth is in the engineering sector, which is 29%.

Q) Was it because of the front loading that had happened before this tariff set in?

No, I don't think so. The front loading would have affected a particular month, but then the tariff is here. So we have also still increased the USA exports by 2 % from April to February. So it's not that we have dropped in the US exports. Our US exports are also up 2%. Our total engineering exports are up 5.25%. And I think we will close the year at anything between $120 to $122 billion.

Q) Are we tapping new markets more?

Yes, has to be. But the fact is that Latin America is one, the Wana region is supposed to be a very good one, but the West Asia war has sort of neutralized that. So I would say the biggest market now that we can, a new market where we can sort of try and increase our volume would be Latin America.

Q) What about the Middle East crisis? know, how is that going to affect?

Sixteen per cent of engineering export is to the Middle East. You can see the month of March is a washout. So this month at least we would drop engineering exports by about 20%, vis-a-vis March 25. I guess there's nothing we can do about this. Inevitable.

Q) Even then you think you would probably be growing this year?

Yeah, we will be growing this year despite that. But not as good as what we expected. It's like both of them are in the 50-over game, the last 10-overs are the slog-overs. I think we couldn't slog in the last 10-overs, unfortunately, but it's okay.

Q) So will there be any effect in the next year now that we are into March and April is coming so April, May and all.

I don't know, depending on how this Middle East crisis pans out. Your guess is as good as mine. I don't know. Maybe it stops tomorrow. Maybe it goes bigger. Then it's a bigger mess. So let's wait and watch.

Q) There is a lot of churn happening in the export markets ⁓ globally like in US, Europe and Middle East crisis is there and we are also tapping new markets. Do you think the whole landscape is going to change going forward?

I don't know whether the landscape will change because we must realize that the consuming markets and the markets that can pay the price and that have the volume are still US and EU. So that's in the near future, the foreseeable future will not change. But the idea is we need to de-risk and we have to de-risk from America because we have seen what has happened.

One of the important markets would be Canada. We're trying to sign a deal that could be one. We are trying for a PTA with Mexico. Still some distance away, but we are trying. The whole of Latin America looks good. Mercosur also, we're trying to negotiate a deal with them. So I guess we're trying to diversify as much as possible so that we don't put all our eggs in the US basket.