Amid Trump’s tariff threats, India-EU FTA presents crucial economic opportunity

Last month, European Commission President Ursula von der Leyen, accompanied by members of the European College of Commissioners, visited India and held delegation-level talks with Prime Minister Narendra Modi. The two leaders directed their teams to finalise the FTA by this year’s end. Between March 10 and March 14, the two sides held the 10th round of talks in Brussels aimed at resolving the remaining issue to finalise the agreement.

The FTA could be a significant breakthrough ahead of the likely India-EU summit later this year. Most experts believe it could significantly enhance trade and investment between India and the EU. The Indian government states that in FY 2024, bilateral trade in goods and services totalled approximately $190 billion, with India exporting $106 billion and importing over $82 billion.

According to Indian data, since 2000, EU companies have invested approximately $118 billion in India, making up about 17% of total FDI inflows. This has exceeded the combined investments of the USA, Japan, China, and Russia. Around 6,000 EU firms operate in the country. However, tracking FDI accurately is challenging, as nearly half of the inflows to India come via Mauritius and Singapore, which serve as key investment channels for foreign firms. Indian firms have also invested about $40 billion in the EU over the past 25 years.

FTA part of broader India-EU strategic partnership

The FTA negotiations are part of the broader India-EU strategic partnership established in 2004. The core of this partnership has always been trade and investment ties. Unlike other areas of intergovernmental cooperation — such as foreign policy, internal security, and migration — where the EU primarily coordinates and facilitates collaboration among member states, trade falls under the EU’s exclusive competence.

Following the recommendations of the High-Level Trade Group set up under the 2005 Joint Action Plan, negotiations began in 2007 under the Bilateral Trade and Investment Agreement (BTIA). At the time, the United Kingdom was still a member of the EU. The comprehensive agenda covered trade in goods and services, investment, public procurement, technical regulations, intellectual property rights, geographical indications, competition policy, and dispute settlement.

In the beginning, there was strong enthusiasm as the Indian economy was performing well, and European leaders were confident following EU enlargement and the introduction of the single currency. Despite some disagreements in automobiles, wines and spirits, dairy products and movement of professionals, it seems goods and services negotiations were reasonably close. Unresolved issues also included data security and public procurement.

At the ninth India-EU summit in France in 2008, then-Indian Prime Minister Manmohan Singh and EU leaders announced plans to finalise the deal by 2009. However, momentum soon slowed as European policymakers shifted focus to addressing financial crises in certain Eurozone economies, while India faced policy paralysis from 2010 onward. Despite this, at the 2010 EU-India summit in Brussels, both sides set a new deadline for spring 2011. After multiple missed deadlines and 12 rounds of formal negotiations, talks were eventually frozen in 2013 due to a “mismatch in the level of ambitions”.

PM Modi brings EU back onto India’s foreign policy agenda

When Narendra Modi became Prime Minister, there were high expectations that an India-EU trade agreement could become a reality, given his focus on economic issues in foreign policy. He also visited several European capitals. Through the 2016 India-EU Summit and Agenda for Action 2020, he brought the EU back onto India’s foreign policy agenda. 

However, no progress was made on the bilateral trade agreement. With stagnant exports and manufacturing struggling to take off, India grew cautious about trade deals and refrained from signing any major new agreements. In the meanwhile, New Delhi also terminated Bilateral Investment Treaties with a large number of countries, including 22 EU member states.

The British exit from the EU (Brexit) and the COVID-19 pandemic created further complications. However, things began to shift when Prime Minister Modi virtually met with all 27 EU leaders, along with the presidents of the European Council and the European Commission, in May 2021. Besides establishing a “connectivity partnership”, a key outcome of the summit was the agreement to restart trade negotiations. 

Instead of the BTIA, India and the EU decided to pursue three parallel negotiations on stand-alone agreements covering trade, investment protection, and geographical indications (GI). GI is awarded to products that have a specific geographical origin.

The timing of the restarting negotiations was useful as, after nearly a decade of caution on trade deals, India has recently signed several agreements, including those with Australia, Mauritius, the UAE, and the European Free Trade Association (EFTA). Momentum is also building in India-UK trade negotiations. 

Key hurdles in India-EU FTA

Meanwhile, India and the EU also launched the Trade and Technology Council (TTC), comprising three working groups: (1) strategic technologies, digital governance, and digital connectivity; (2) green and clean energy technologies; and (3) trade, investment, and resilient value chains. The EU has a TTC only with one other country — the United States.

Since 2022, 10 new rounds of India-EU trade negotiations have been completed with the next round slated to start on May 5 in New Delhi. Similarly, six rounds of negotiations have been held on investment protection and GI agreements. With the EU’s trade agreements covering 76 countries, India faces challenges in some of its exports. 

The Trump administration’s new tariff threats against the EU and India are also keeping negotiators on both sides occupied with the United States at the moment. The key hurdles in the India-EU FTA have been well known for years and include tariffs on agricultural goods, wines, and automobiles as well as market access issues. India is also pushing for greater mobility for skilled professionals. 

The EU’s Carbon Border Adjustment Mechanism (CBAM) is adding further complexity to the negotiations. Addressing the extra tariffs on Indian exports of steel, aluminium, and cement under CBAM is now tied to the FTA discussions. The EU is also advocating for TRIPS-plus provisions, stricter enforcement, data exclusivity, and enhanced patent protection.

Moving beyond protectionist mindset

On sustainability and labour standards – a key EU demand – the EFTA agreement could serve as a template, where India accepted these provisions without binding commitments. The issue of government procurement has been addressed in recent Indian agreements, such as the one with the UAE. For wines and agricultural products, India’s agreements with Australia and the UAE could serve as reference points.

Amid global geopolitical fragmentation, strained transatlantic ties, and the European de-risking strategy towards China, the India-EU FTA presents an attractive opportunity for the EU. However, India is unlikely to significantly alter its stance on data exclusivity, carbon tax, agricultural products, and services. As a result, the EU may have to settle for a relatively shallow trade agreement rather than the comprehensive deal it has long pursued. 

However, the current geopolitical landscape presents a strong opportunity for a meaningful compromise. This aligns with the growing convergence of interests in the Indo-Pacific and the narratives surrounding the India-Middle East-Europe Economic Corridor (IMEC).

For India, the agreement could serve as a signal to the world that it is moving beyond a protectionist mindset. Furthermore, as India advances its modernisation ambitions, the EU will remain a crucial partner in trade, technology, investment, and energy transition.

Post Read Questions

How have India-EU trade negotiations progressed since 2007? What are the key hurdles in finalising India-EU free trade agreement? 

How did Prime Minister Narendra Modi bring the EU back onto India’s foreign policy agenda?

Amid global geopolitical fragmentation, strained transatlantic ties, and the European de-risking strategy towards China, the India-EU FTA presents an attractive opportunity for the EU. Comment. 

India-EU free trade agreement could serve as a signal to the world that it is moving beyond a protectionist mindset. Discuss.

(Prof Gulshan Sachdeva is Chief Coordinator, DAKSHIN – Global South Centre of Excellence, RIS at New Delhi and Professor of European Studies at Jawaharlal Nehru University.) 

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