In a significant move set to reshape global trade dynamics, India and the European Union have finalised a free trade agreement aimed at bolstering their economic and strategic partnership. After nearly 20 years of discussions, the deal promises to impact roughly two billion people and is expected to take several months before its full implementation.
A Historic Accord
The agreement, hailed by European Commission President Ursula von der Leyen as the “mother of all deals”, emerges at a crucial time when both India and the EU are navigating a complex international trade landscape, particularly amidst increasing tariffs imposed by the United States. Indian Prime Minister Narendra Modi expressed optimism about the deal, stating, “This agreement will bring major opportunities for the people of India and Europe, representing 25 per cent of the global GDP and one-third of global trade.”
This landmark accord encompasses free trade in nearly all goods exchanged between the EU’s 27 member states and India, facilitating reduced tariffs on various products, including textiles, pharmaceuticals, and notably, European wines and automobiles.
Expanding Beyond Commerce
Alongside trade, the deal includes frameworks for enhanced defence and security collaboration, along with provisions aimed at easing mobility for skilled workers and students. Modi remarked during a joint press conference in New Delhi, “The partnership with the EU will strengthen stability in the international system,” echoing sentiments of mutual assurance amid global uncertainties.
The agreement comes in response to previous U.S. trade policies that had strained relations with both India and European partners. Notably, the negotiations gained momentum following former President Donald Trump’s aggressive tariff strategies which left many European nations feeling cornered.
Economic Implications
As per the terms of the deal, India is poised to either reduce or eliminate tariffs on approximately 96.6 per cent of EU exports, while the EU will reciprocate with phased reductions that will eventually cover nearly 99 per cent of India’s exports by trade value. Key sectors in India expected to benefit include textiles, engineering goods, and marine products. For the EU, advantages are anticipated in industries such as automotive, chemicals, and pharmaceuticals.
The agreement also implements a quota system for certain products, including automobiles and wines, significantly lowering duties. For instance, tariffs on EU-made cars will decrease from an eye-watering 110 per cent to as low as 10 per cent over a specified period, while the tariffs on car parts will be completely eliminated within five to ten years.
The Road Ahead
A formal signing of the agreement is anticipated later this year, following legal reviews and the necessary ratification by the European Parliament. Indian Trade Minister Piyush Goyal is optimistic that the deal will be operational by the end of the year. The current trade volume between India and the EU stands at approximately USD 136.5 billion, with aspirations to escalate this figure to USD 200 billion by 2030.
The EU’s strategy of engaging with India also reflects a broader attempt to diversify its trade relations in the wake of past grievances with the United States, particularly under the Trump administration’s unpredictable policies. With this agreement, both regions are looking to establish a resilient trade corridor amid a fracturing global trading system.
Why it Matters
This free trade agreement between India and the EU signifies a pivotal shift in the landscape of international trade, fostering closer ties between two of the world’s largest markets. As global trade barriers intensify, this deal not only underscores the importance of strategic partnerships but also illustrates a collective response to the shifting dynamics of global economic power. By nurturing economic cooperation, India and the EU are positioning themselves as formidable players on the world stage, potentially influencing trade standards and practices for years to come.
