India and EU announce FTA amid Trump tariff tensions

The European Union and India have announced a landmark trade deal after nearly two decades of negotiations, as both sides aim to deepen ties amid tensions with the US.

“We have concluded the mother of all deals,” European Commission President Ursula von der Leyen posted on Twitter after meeting Indian Prime Minister Narendra Modi in Delhi. He described the deal as “historic.”.

It would allow free trade in goods between the Group of 27 European states and the world’s most populous country, which together account for about 25% of global GDP and a market of two billion people.

Both parties expect this agreement to significantly reduce tariffs and expand market access.

Von der Leyen and European Council President Antonio Costa are in Delhi, where they met Modi for a bilateral summit.

The European Commission said the agreement would eliminate tariffs on most exports of chemical, mechanical, and electrical equipment, as well as aircraft and spacecraft, following a phased reduction. Notably, the 250,000 vehicle quota will reduce the current 110% duty on motor vehicles to 10%.

After reducing import duties, the deal will lower the cost of European products like cars, machinery, and agri-foods entering India. Sensitive agricultural sectors, including dairy and sugar, have been excluded.

Brussels said the agreement would support investment flows, improve access to European markets and deepen supply-chain integration.

This will make it easier for India’s farmers.

Modi said, “This is a historic agreement.” “This will make it easier for India’s farmers and small businesses to access European markets. It will also boost manufacturing and service sectors. This arrangement will foster innovative partnerships.”

This agreement has come at a time when both India and the European Union are grappling with economic and geopolitical pressure from the US.

Delhi is grappling with the 50% tariffs imposed by President Donald Trump last year amid ongoing talks aimed at securing a trade deal between India and the US, which are still dragging on.

Last week, Trump threatened to escalate his trade war with European allies to protest the US takeover of Greenland before backing down.

That larger geopolitical context was evident in recent statements by leaders.

On Tuesday, von der Leyen wrote, “We have created a free trade area of ​​two billion people, which will benefit both sides. This is only the beginning. We will make our strategic relationship even stronger.”

The day before, Costa stated that, without naming the US, the trade agreement would “send an important political message to the world that India and the EU believe more in trade agreements than tariffs” at a time when protectionism is on the rise and “some countries have decided to increase tariffs.”

Von der Leyen and Costa arrived in Delhi over the weekend, and they were chief guests at India’s colourful Republic Day celebrations on Monday.

On Tuesday, the leaders posed for photographs with Modi, which clearly showed the cordiality between them.

Formal signing is likely to take place later this year after the European Parliament and the European Council approve the agreement.

Along with the trade agreement, India and the EU are also pursuing separate talks on security and defence cooperation, as well as climate action.

On Tuesday, India’s Defence Minister, Rajnath Singh, said he discussed a range of bilateral security and defence issues with European Commission Vice President Kaja Kallas, including opportunities to build a reliable defence ecosystem and integrate supply chains to develop future-ready capabilities.

The two sides are working on a draft security and defence partnership, covering areas such as maritime security, cyber threats, and defence dialogue, Reuters News Agency reported.

“This is a perfect example of partnership between two major economies of the world… This agreement represents 25% of global GDP and one-third of global trade,” Modi said while inaugurating the India Energy Week conference on Tuesday.

The EU is India’s largest trading partner in terms of bilateral goods trade, with trade expected to reach $136 billion (£99.4 billion) in 2024–25, nearly doubling over the past decade.

Negotiations for the agreement between India and the EU began in 2007 but stalled in 2013 due to barriers to market access and regulatory demands. Discussions formally resumed in July 2022.

Access to India’s automobile market, agricultural commodities, and carbon-linked tariffs were the main sticking points, and analysts will be closely examining the final agreement to understand its stance on these issues.

Officials on both sides worked hard over the past few days to finalise the outstanding chapters of the agreement, with the goal of completing them before the visits of EU leaders.

This agreement has come at a time when pressure is increasing on Delhi and Brussels to secure alternative markets for exporters.

In the last seven months, India has signed major trade agreements with the UK, Oman, and New Zealand; the 2024 agreement signed with the four-nation European Free Trade Association bloc of Switzerland, Norway, Iceland, and Liechtenstein has come into effect.

Meanwhile, the EU signed a trade deal with South American trade bloc Mercosur earlier this month after 25 years of negotiations.