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With momentum surging after high-level visits, Brussels and New Delhi must bridge divides on agriculture, services, and carbon rules if they hope to seal an FTA by the end of 2025
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Since EU President Ursula von der Leyen’s visit to India on 27–28 February, accompanied by 22 of the 27 European Commissioners, momentum toward concluding the India-EU Free Trade Agreement (FTA) has visibly accelerated. High-level discussions spanning trade, technology, security, and defence conveyed the criticality of the agreement for both sides in a rapidly evolving geopolitical landscape. However, the ambitious goal set by President von der Leyen and Prime Minister Narendra Modi to finalise negotiations by the end of 2025 is viewed with scepticism, as major obstacles like India's high tariffs on agricultural imports and the EU’s stringent regulations persist.
India was one of the first diplomatic partners of the European Economic Community, with the relationship being elevated to a “strategic partnership” in 2004. FTA negotiations began in 2007 due to growing economic ties, with India rising from the EU’s 15th largest trading partner in 2002 to its 10th largest by 2007. Negotiations covering goods, services, intellectual property, and sustainable development continued for 15 rounds before abruptly halting in 2013 due to a “gap in ambition”.
India was one of the first diplomatic partners of the European Economic Community, with the relationship being elevated to a “strategic partnership” in 2004.
Despite a decade of negotiations, no agreement was reached. However, India-EU relations have continued to strengthen and evolve over the years. Bilateral trade between India and the EU reached over US$137.41 billion in FY 2023-24, making the EU India's largest trading partner. Services trade also experienced consistent growth, reaching US$59 billion in 2023, alongside a strong investment footprint, as over 6,000 European companies now operate in India.
Several factors contributed to disruptions in India-EU talks and continue to play a critical role in shaping current discussions:
The EU advocated for increased access and a 150 percent reduction in tariffs on the wine, cheese, and spirits sectors, while also seeking agricultural concessions. These sectors are particularly sensitive for India, as a large percentage of the population derives its livelihood from agriculture. In India, over 60 percent of the population relies on agriculture, compared to under 2 percent in the EU’s most populous member state, Germany, making market liberalisation politically and socially challenging.
India’s young, skilled, and English-speaking workforce underpins its emphasis on liberalising services trade, particularly under Modes 1 and 4 of the WTO’s General Agreement on Trade in Services (GATS). India prioritised market access for its service providers over goods trade, a demand the EU was reluctant to meet.
The breakdown of negotiations arguably had a greater adverse impact on India. With the suspension of preferential tariff treatment under the Generalised Scheme of Preferences (GSP) in early 2023, India now trades with the EU solely under the WTO’s Most Favoured Nation (MFN) principle. Meanwhile, competitors like Vietnam, Bangladesh, and Sri Lanka enjoy preferential tariffs. Restoring GSP benefits could offer some relief, but a comprehensive FTA would provide India with far greater and long-term strategic advantages.
India prioritised market access for its service providers over goods trade, a demand the EU was reluctant to meet.
India and the EU have concluded 11 rounds of negotiations since talks resumed in 2022, aiming to finalise what could be the EU’s largest FTA. Sticking points for both sides include agriculture and dairy, government procurement, labour standards, sustainable development, and critical investment-related issues. Among these, several have emerged as central to determining the path forward:
India argues that high tariffs are necessary to protect its small-scale producers. It imposes a 39 percent tariff on agricultural imports, viewed as unfair by the EU against an average MFN tariff of 11.7 percent on Indian exports. This protectionist stance remains a key hurdle, with former German Vice Chancellor Robert Habeck even proposing the exclusion of agriculture from the FTA to advance talks on industrial trade. Additional friction stems from EU demands for greater access to India’s dairy market, particularly for European cheeses—a sector that employs several women and vulnerable groups in India.
In the services trade, key challenges remain unresolved and can only be addressed through reciprocity. India seeks Mutual Recognition Agreements (MRAs) for professional qualifications in fields such as medicine, engineering, and accountancy, as current EU visa rules impose high minimum salary thresholds. The EU also restricts remote service delivery (Mode 1) by requiring Indian firms to set up local offices, subverting the purpose of digital trade. Further, India has long urged the EU to grant ‘data secure’ status under the General Data Protection Regulation (GDPR). Without this designation, Indian companies are disadvantaged by higher compliance costs and legal hurdles when handling EU citizens’ data一hurdles not faced by counterparts in Japan or South Korea.
India seeks Mutual Recognition Agreements (MRAs) for professional qualifications in fields such as medicine, engineering, and accountancy, as current EU visa rules impose high minimum salary thresholds.
Indian stakeholders have raised concerns over the EU’s evolving sustainability regulations, which pose substantial compliance challenges for India’s small and medium enterprises. Chief among these is the CBAM, which imposes a 20–35 percent levy on carbon-intensive imports. CBAM poses the greatest challenge for India among the EU's environmental measures as it targets a broader and more valuable export base. Initially covering iron, steel, cement, aluminium, and fertilisers, the CBAM has expanded to include indirect emissions from hydrogen, making it difficult for countries with fewer resources to comply with the regulations. This is particularly concerning for India, whose iron and steel exports to the EU were valued at US$6.64 billion in FY 2023–24.
Though aimed at major emitters like China and Russia, CBAM has drawn criticism from Commerce Minister Piyush Goyal, who argues it disproportionately burdens developing nations like India, despite being the world’s lowest per capita emitter. Privacy concerns have further blemished CBAM’s acceptability in India, as it requires submission of over 1,000 data points during the transition period until January 2026.
One of the ways to offset CBAM’s impact, as suggested by a European delegation led by Gerassimos Thomas, is through domestic carbon pricing. This, however, poses challenges for developing countries where introducing a carbon tax may face public resistance due to the higher marginal cost. CBAM’s regressive nature, being tied to consumption levels, exacerbates this issue. Yet, well-designed carbon policies can provide relief. For instance, in 2018, Argentina imposed a US$10 per tonne carbon tax, which, despite being lower than EU rates, signals alignment to address emissions and reduce CBAM costs. To legitimise CBAM, the EU should reframe it as part of a broader climate cooperation strategy, expand exemptions under the MFN principle, and focus on the redistribution of the projected US$ 1.6–3.4 billion in revenues to address global green finance disparities.
Its FTAs with Singapore and Vietnam illustrate flexible approaches such as exempting sensitive sectors or allowing phased liberalisation.
Beyond non-tariff barriers, traditional tariff barriers impede India-EU trade negotiations. While proposals to temporarily exclude agriculture from the FTA may ease friction, significant obstacles persist in the industrial sector. Progress will require flexibility from both sides. For India, this could mean improving behind-the-border access and acknowledging that its tariffs remain among the highest globally. The EU-Mercosur FTA, which addressed several non-tariff issues, may offer useful insights. On the EU’s side, prioritising pragmatism over perfection is crucial. Its FTAs with Singapore and Vietnam illustrate flexible approaches such as exempting sensitive sectors or allowing phased liberalisation. With India, sector-specific talks through the Trade and Technology Council (TTC), while deferring more contentious areas like agriculture, may prove to be a more effective strategy.
As India wraps up its FTA negotiations with the UK after three and a half years, enthusiasm is growing to finally seal the impending India-EU deal, having been in the works for more than a decade. Several key issues addressed in the India-UK deal also feature prominently in the ongoing talks with the EU. For instance, while the CBAM remains uncertain in the India-UK agreement, India has committed to gradually reducing tariffs on 90 percent of traded goods within the decade. These developments could pave the way for smoother negotiations in finalising the India-EU FTA, buttressing von der Leyen’s remark that the planets may indeed be aligned this time.
Nayana Sharma is a Research Intern at the Observer Research Foundation.
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Nayana Sharma is a Research Intern at the Observer Research Foundation. ...
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