India and the European Union are in the final stages of talks aimed at achieving an agreement to create a Free Trade Deal Agreement, which has been pending since before India gained independence. The conclusion of this Free Trade Agreement will be an important addition to the array of Free Trade Agreements that presently exist between various countries and regions of the world, including the Asia-Pacific region and North America.
Trade Secretary Rajesh Agrawal confirmed that negotiation between India and the EU is nearing completion and should be completed as soon as possible. The Free Trade Agreement to be finalised will have the most significant impact upon India’s global position in terms of trade.
In addition to indicating that the EU will become an even greater trading partner for India than it already is, Agrawal also indicated that this Free Trade Agreement will enhance India’s potential to diversify its export markets by providing additional opportunities to do so.
Since its inception in 2004, bilateral trade between the EU and India has been estimated at €120 billion in 2023, which makes the EU India’s largest trading partner and represents the longest continued growth of bilateral trade between any two trading borders in Europe.
High-Level Diplomacy Accelerates Negotiations
There has been significant political activity occurring at senior levels within the European Union and India that has contributed to the momentum that is building regarding a trade agreement between the two regions. The President of the European Council (EC), Antonio Costa, along with the President of the European Commission (EC), Ursula von der Leyen, will be travelling to India from January 25th to January 27th, 2023, during which time they will be co-chairs for an India-EU Summit with India’s Prime Minister (PM), Narendra Modi. There are ongoing discussions among government officials working for the European Commission regarding the possibility of announcing a successful conclusion to the trade agreement at this international event.
According to sources involved in the ongoing negotiations, the European Commission has also expressed cautious optimism for internal negotiations among the member states and anticipates a successful conclusion to the trade agreement. To expedite the negotiations between Europe and India, Prime Minister Modi and President von der Leyen agreed to accelerate the time frames for completion of the negotiations, with a target conclusion date of 2025. The urgency of reaching a successful trade agreement has further increased because of the imposition of tariff increases by U.S. President Donald Trump on a variety of products imported from several countries, including India.
Cars, Steel, and Carbon Levies Remain Key Obstacles
While strong steps have been made towards improving the relationship between the EU and India, several areas of concern remain unresolved. The automobile and steel industries are the two biggest areas that are causing negotiation problems between the parties involved. The European Union is urging India to significantly decrease the amount of tax needed to import European vehicles, as the tax for all forms of vehicles from Europe to India, in some cases, has exceeded 100%.
However, India is adamant that it is hesitant to lower the import vehicle tax in lieu of the domestic manufacturing and job sector. Conversely, India is also expressing concern about the EU’s carbon emissions border adjustment mechanism and how this initiative may affect the export of Indian steel to Europe through the imposition of additional costs based on carbon emissions. Indian negotiators also emphasise that the above-mentioned proposal would limit the amount of steel imported into the EU due to the combination of tariff rates and the aforementioned safeguard measures.
Agriculture Kept Out to Protect Farmers
For the country of India, agriculture has been established as a definite, unmovable boundary. Agriculture officials confirmed that sensitive agricultural and dairy products have been excluded from any future negotiations. The Indian Government has continually stated that agriculture and dairy are two sectors that remain completely protected and will not be opened for trade agreements. The Indian Government will protect the lives of millions of poor subsistence farmers who rely on traditional farming for their survival.
In contrast to the EU’s interest in tariff reductions for goods such as wine, spirits, and meats, as well as medical devices, India has targeted its negotiation objectives mainly on obtaining duty-free access for labour-intensive products, as well as expedited acceptance of regulatory approvals for India’s automotive and electronics sectors.
Beyond Goods: Services, Investment, and Green Growth
This proposed agreement builds upon merely trading goods; instead, both parties hope it creates opportunities for greater collaboration in a wide variety of service sectors (e.g., digital trade), investment, IP, and green technologies. Investing in Indian manufacturing, renewable energy, and infrastructure should provide a boost for European companies and help them to align with India’s future growth and sustainability objectives. The challenges remain regarding creating and enforcing similar regulatory structures and ensuring protections in sensitive sectors, such as labour, health, and the environment, in compliance with the Paris Climate Agreement. The EU has also continued to insist upon formalised commitments pertaining to labour standards, environmental protections, Paris Climate Agreement compliance, etc.; therefore, negotiations on these topics remain ongoing and continuing.
A Strategic Signal Amid Global Trade Uncertainty
The India–EU trade agreement would indicate that the global economy is moving further towards fragmentation, and this will provide a message about how important this agreement between India and the European Union (EU) is for Europe and how European nations will benefit from access to the vast Indian consumer marketplace of more than 1.4 billion people. The Agreement will also provide India access to the wealthiest economic bloc through enhanced opportunities for the importation of Indian goods and services.
In the meantime, the failure of the U.S.-India trade talks to progress since last year’s breakdown should, at least partially, be compensated for by providing India with a stronger trade priority than what was previously established. The EU’s formalisation of this agreement between India and the EU also strengthens India’s capacity to become a more prominent actor in terms of integrating suppliers and supply chains away from an over-reliance on China and Russia, which will provide further benefits for India and European Union states.Stay ahead of global trade, policy shifts, and business insights that shape the world economy. Visit https://thebusinesstycoonmagazine.com/ for in-depth analysis, exclusive stories, and leadership perspectives that matter.