The European Union abandoned a proposal for an export duty on aluminium scrap over concerns it could complicate the final signature of a free trade deal with India, sources familiar with the discussions said.

Instead of the duty, which aimed to preserve Europe’s smelting industry and support sustainability goals, the EU will rely on its environmental rules to curb scrap exports.

The abrupt cancellation of the levy, which was set to be announced on September 23, represents a reversal by the European Commission, laying bare divisions within its ranks over the protection of industry as U.S. tariffs reshape global trade and China climbs the value chain.

Last week, the office of EU industry chief Stéphane Séjourné said he would ditch the measure after internal negotiations left the draft covering only half of aluminium scrap.

While he did not give a detailed explanation of his decision, a draft of the abandoned proposal seen by Reuters showed the Commission had prepared to set a 15% export duty on aluminium scrap for three years. The industry had asked for 30%.

An annex, meanwhile, listed 91 countries and territories to be exempted from the duty including top buyer India.

India accounts for about a third of EU scrap exports, and Indian government officials told Reuters in late June that New Delhi had asked Brussels for relief from the planned curbs.

Commission President Ursula von der Leyen is expected to sign the trade deal with Prime Minister Narendra Modi in December. And the sources said Indian pressure prompted the measure’s dilution.

“The Commission president’s cabinet and (Directorate-General for Trade) successfully excluded India from the proposal, making it worthless for the industry,” one of the sources said.

All of the sources, who include industry figures and European officials, asked not to be named due to the sensitivity of the matter.

India’s commerce ministry did not immediately respond to a comment request.

In a briefing on Friday, the Commission said the trade measure was on hold as it had concluded the same goal could be met under the EU’s Waste Shipment Regulation. In a separate response to Reuters questions, a spokesperson did not comment on pressure from India but said work was ongoing to finalise implementation of the waste regulation.

DISTORTED MARKET PUNISHES EUROPEAN SMELTERS

Soaring scrap prices have piled pressure on smelters that contend with structurally higher energy prices and regulatory burdens than their Asian rivals.

For the industry, the export duty had been viewed as a make-or-break measure to prevent further plant closures.

“Reversing course at this stage risks undermining confidence in Europe’s industrial policy framework,” said Emilio Braghi, chief operating officer of aluminium producer Novelis Inc.

While other countries limit aluminium scrap exports, shipments out of the EU have soared 51% since 2019, hitting a record 1.26 million metric tons in 2025. Third countries pay up to 26% above EU domestic prices, partly due to subsidies and trade distortions, the draft trade proposal said.

“It is very concerning that the export restriction … has been withdrawn,” said Jostein Roynesdal, head of EU public affairs at Norsk Hydro NHY.OL. “We have closed four recyclers in the EU in the last years and are hoping to avoid further closures.”

EU TURNS TO METAL WASTE RULES, INDUSTRY SCEPTICAL

While the Commission will try to use environmental rules as a surrogate trade measure to curb aluminium scrap exports, industry sources say it is unclear how effective that will be in preventing circumvention.

Under the Waste Shipment Regulation, which is expected to be finalised in November, the bloc will ban exports of non-hazardous waste to non-OECD countries in May 2027.

However, countries can be granted exemptions upon request, and a draft of this secondary legislation, seen by Reuters, showed that 32 non-OECD countries had applied for exemptions.

Major buyers India, Thailand and Malaysia, however, failed to meet environmental rules for an exemption on metal waste, the Commission said in the draft and, therefore, will be unable to buy metal scrap directly from the EU.

“We will work closely with the Commission to make the best of the situation, but I am convinced that we will need to return to the trade measure soon,” Paul Voss, director general at industry association European Aluminium, told Reuters.