EU Commissioners Visit India to Expedite Free Trade Agreement Negotiations Amid US Tariff Challenges

Why in News

European Union's top commissioners for trade and agriculture are arriving in Delhi this week with a 30-member negotiating team to accelerate discussions on the India-EU Free Trade Agreement. This visit follows a recent phone call between Prime Minister Narendra Modi and EU leaders Ursula von der Leyen and Antonio Costa, where they emphasized an early conclusion to the deal. The talks have gained momentum due to the ongoing US tariff war, prompting India to seek concessions similar to those the EU recently offered the US on climate-related trade measures.

Key Points

1. EU Commissioner for Trade Maros Sefcovic and Commissioner for Agriculture Christophe Hansen are leading the negotiations, marking their first visit to India since February 2025.
2. The EU team will meet Commerce Minister Piyush Goyal and Agriculture Minister Shivraj Singh Chouhan to resolve key issues like rules of origin, market access, and duties on wine and dairy products.
3. Negotiations have already concluded on 11 chapters, including intellectual property rights, customs and trade facilitation, digital trade, and sustainable food systems, with the capital movements chapter expected to close soon.
4. The visit aims to seal the FTA by December 2025, amid urgency from US tariffs of up to 50% on Indian goods, which have impacted exports like steel and aluminium, dropping by 24.4% to $5.82 billion in FY25.
5. India will push for flexibilities on the EU's Carbon Border Adjustment Mechanism (CBAM), set to take effect from January 1, 2026, following the EU's recent concessions to the US.
6. Bilateral trade between India and the EU stood at $135 billion in FY 2023-24, making the EU India's largest trading partner.
7. This round is part of a broader roadmap with 10 high-level meetings over the next five months, leading to an India-EU leaders' summit in early 2026.

Explained

Political and Economic Context

The negotiations are unfolding against the backdrop of escalating global trade tensions, particularly the US-imposed tariffs under the Trump administration, which threaten up to 50% duties on Indian exports. This has strained India-US trade relations, prompting Delhi to prioritize diversification through stronger ties with the EU. The EU, facing similar pressures, recently indicated flexibilities to the US on its climate regulations, setting a precedent that India now seeks to leverage. This context underscores India's strategy for economic self-reliance, protecting sectors like agriculture and manufacturing from external disruptions while aiming for balanced growth through FTAs.

India-EU FTA Background

The India-EU Free Trade Agreement negotiations began in 2007 but were stalled in 2013 due to differences over issues like tariffs, intellectual property, and services. They were relaunched in June 2022 with a renewed focus on mutual benefits, aiming to reduce tariffs, enhance market access, and boost investments. An FTA is a pact between countries or blocs to eliminate or reduce trade barriers, facilitating easier flow of goods, services, and capital. For passage, such agreements require negotiations on multiple chapters, followed by ratification by respective parliaments—in India's case, through parliamentary approval, and for the EU, consensus among its 27 member states. The current talks cover 26-27 chapters, emphasizing sustainable development and digital integration, with the goal of concluding by end-2025 to support India's Viksit Bharat vision by 2047.

Carbon Border Adjustment Mechanism (CBAM) Issue

The CBAM is an EU regulation designed to impose a carbon tax on imports of carbon-intensive goods like steel, cement, and aluminium to prevent "carbon leakage" and align with the EU's climate goals under the Paris Agreement. It requires exporters to report emissions and pay for embedded carbon, effective from January 2026. For India, this poses challenges as it increases compliance costs—estimated at Rs 15 lakh annually for MSMEs—and could affect $7-8 billion in exports annually. India views CBAM as a non-tariff barrier conflicting with WTO rules, arguing it discriminates against developing nations without equivalent domestic carbon pricing. The EU insists it's a climate measure, not a trade tool, but recent EU-US flexibilities have opened doors for India to negotiate exemptions or transitional support during the FTA talks.

Progress in Negotiations

Out of 27 chapters, 11 have been finalized, covering areas like transparency, small and medium enterprises, competition, and anti-fraud practices. Pending issues include rules of origin (criteria to determine product nationality for tariff benefits), sanitary and phytosanitary measures, and government procurement. The digital trade chapter's progress is vital for India's IT sector, potentially boosting service exports. Two more rounds are scheduled: this week's in Delhi and early October in Brussels. Success depends on finding equilibrium on sensitive sectors like dairy (EU seeks access, India protects farmers) and automobiles (India wants tariff cuts).

Strategic Importance

Beyond trade, the FTA is part of a comprehensive India-EU strategic partnership established in 2004, upgraded in 2020 to include connectivity, defense, and technology. Initiatives like the Trade and Technology Council (TTC), launched in 2022, facilitate collaboration in AI, quantum computing, and semiconductors. Upcoming meetings, such as the Indo-Pacific Forum and counter-terrorism dialogues, highlight shared interests in global stability, including Ukraine and China. The partnership aims for resilience in supply chains, with potential defense pacts for joint military hardware development. For India, this diversifies alliances amid US uncertainties, while the EU gains access to India's growing market and strategic Indo-Pacific role.

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