EU-India Free Trade Agreement Finalized

The European Union (EU) and India reached a compromise on a free trade agreement (FTA) on January 27. Both sides will reduce tariffs on numerous products to revitalize trade.

The European Commission revealed that India will set a quota framework of 250,000 vehicles per year for tariffs on EU-made cars, and will gradually reduce the current 110% tariff to 10%. Tariffs on auto parts will be eliminated in 5-10 years. Tariffs on EU agricultural products will also be reduced. The tariff rate on wine will be reduced from 150% to 20% in stages. Tariffs on processed foods such as pasta and chocolate, with a maximum reduction of 50%, will be eliminated.

A massive free trade agreement (FTA) with a population and economy exceeding 20% ​​of the global total will be born. Discontent with the high tariffs imposed by the Trump administration in the United States has accelerated the expansion of a “trade sphere without the United States.”

“This demonstrates to the world that rules-based cooperation can still yield tremendous results. This is just the beginning,” European Commission President Ursula von der Leyen boasted in a statement on January 27 regarding the compromise reached on the FTA. The combined population of EU member states and India is approximately 2 billion, far exceeding the 590 million population of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which includes Japan and the UK. India accounts for 21% of the world’s nominal GDP, also higher than the CPTPP’s 14%.

The EU-India FTA negotiations took nearly 20 years. One of the reasons for the compromise was the presence of US President Trump. Dissatisfaction with Trump’s reckless use of high tariffs brought the two sides closer.

The EU has been trying to reduce its supply chain dependence on China and has recently begun extensive discussions about the necessity of “reducing dependence on the US.” Developing strong trading partners is arguably part of this effort.

Before reaching a compromise with India, the EU also signed an FTA with Mercosur (a customs union of five South American countries) on January 17th. It also proposed cooperation with the CPTPP.

In terms of EU goods trade, India accounts for approximately 2.5%. EU officials believe there is “significant room for growth” compared to China, which accounts for nearly 15% of the global economy, and that untapped potential can be unlocked through FTAs.

The EU will also attract high-end Indian talent to Europe. It will coordinate with member states to discuss measures to facilitate the flow of Indian tech talent within the EU. The EU and India have also agreed to establish a new “security and defense partnership.”

Another EU official stated that “if we cannot expect US assistance in a fragmented world, then working together with the Global South (emerging and developing countries) to solve international problems is indispensable.”

India, which has consistently pursued practical interests through equidistant diplomacy with the US, China, and Russia, can also enjoy the benefits of cooperation with the EU. Given the instability in US-China relations, including the Trump administration’s 50% tariffs on India, the stability of an FTA with the EU, based on clearly defined rules, is attractive in addition to its size.

Swati Prabhu of the Indian think tank ORF expressed anticipation that “the new international logistics corridor connecting India to Europe via the Middle East, the ‘India-Middle East-Europe Economic Corridor (IMEC),’ will further deepen cooperation in the future.”