India-EU FTA: After two decades of negotiations, how India and EU finally clinched a trade deal this time

And, the key difference from the last time is evolving geopolitics. America’s shadow on global trade and politics has created a broader strategic objective beyond trade gains.

How the deal fell through last time

The first round of India-EU trade talks was initiated in 2007. By October 2013, New Delhi and Brussels had exchanged offers on tariffs and services, and were focusing on identifying the outlines of a possible agreement for the tricky market-access component of the FTA.

The most politically sensitive topic from India’s perspective at that time was tariffs on car and car parts. By the time landing-zone negotiations started, the Indian elections were looming and prime minister Manmohan Singh’s government was facing political headwinds.

According to a negotiator who worked on the deal, it had become clear to both sides by December 2013 that they should have done two key things differently: Started work on an outline agreement much earlier than when they actually did, and kept their top political leaders updated on the status of the FTA negotiations.

In hindsight, both things had not happened adequately till then. That is something the negotiating teams on both sides did attempt to correct after negotiations restarted in 2022.

For context, while the India-EU deal has taken nearly two decades, the EU-Mercosur negotiations took even longer, beginning in 2000 and concluding only in 2024.

“Given that the EU had just wrapped up the Mercosur talks, there was a sense here that  EU-India talks are reaching a point where there is sufficient political involvement at leaders’ level to narrow the gaps and strike a deal here as well,” an official aware of the Indian perspective said.

The external drivers of the deal

Geopolitics is the reason why the EU-India relationship has become much more important than it was 20 years ago — when it was upgraded to the level of ‘Strategic Partnership’ without much actual substance.

The change has much to do with the growing rivalry between China and the US, and their efforts to coerce each other, and other countries.

A major external factor that propelled the deal was Donald Trump, specifically his tariff actions and penchant for alienating allies. The talks gathered urgency as the dramatic shifts in American trade policies forced countries to scout for newer markets. “While his name might not have been taken, the Trump factor was looming large as the discussions were being wrapped up,” a person on the Indian side said.

The latest move by the US to raise tariffs on imports from South Korea, one of the first countries to clinch a trade pact with Washington DC, is yet another reminder that America will continue using tariffs to arm-twist partners and that there is little sense in driving one-sided trade engagement with the country.

While India is facing steep 50% tariffs, the EU continues to face the risk of higher US tariffs despite a trade deal with Washington due to its tech regulations and differences over Greenland.

Another key driver of the trade deal has also been the shared challenge of China. Indian industry has been encountering pricing challenges, especially while trying to scale up the solar energy and automotive sectors. The EU is concerned about China’s dominance in critical technologies, as China holds a leading global manufacturing position in several areas, exposing the bloc to potential risks.

In this new world, the EU and India share strategic autonomy and economic security goals with a “shared interest in shaping a resilient multipolar global order”. And both are justified in seeing themselves as victims of “American hegemony”, as Canada’s Mark Carney put it.

The EU is keen to frame this agreement in a larger, strategic framework that could lead to a closer, strategic relationship that could foster the formation of the new global supply chains to protect both sides from the “huge volatility” that is underway now.

Why this deal matters, and how issues were ironed out

The trade agreement is among the most comprehensive deals India has ever signed. It could benefit the country’s labour intensive sectors — ranging from marine products, textiles, footwear and sports goods.

India is also likely to open its automobile and alcoholic beverage sectors, given the EU’s strong interest in the areas, albeit in a graded manner or akin to terms offered to partners in other deals, especially the UK and Australia pacts. The EU’s goal in the negotiations was to get 97-99% of its exports into India to qualify for “partial or full tariff liberalisation”.

The major issues for the Indian side were automobiles, and wines and spirits made in Europe. Agriculture and food products, the most sensitive commodities, have been left out as these were “blocking the progress for a long time”.

In the case of the automotive segment, which was the dealbreaker last time, there’s been quite a lot of play by both sides on the “complementary factors” — that India is strong in small and cheaper cars and European is strong in bigger vehicles. So, automobiles are being subjected to a price barrier for imports, and phased tariff reduction over 10 years.

Typically, India approaches trade deals with its biggest negotiating plank being its big domestic market.

Instead, it was the EU that pushed hard to sell its status as the “biggest trading block on the planet with the unprecedented consumer power”.

That was repeatedly offered as the main attraction for Indian businesses and exporters. This comes in the backdrop of a lingering consumption slowdown in India and the inability of Indian exporters to access the American market due to the high tariffs.

Brussels has flagged the strategic imperative of the deal, outlined above, like this: Both sides are “fighting huge dependencies on the critical raw materials and sensitive technologies such as chips or the production of solar panels” and that some of the outcomes from this deal will help both sides from “the economic security point of view” and helping “hedge against instabilities and dependencies”.

The Indian side seems to have warmed up to that point of view. “Every dependency can be weaponised. Both sides have learnt it the hard way. While the text might not mention the US or China, the subtext is that it is important to hedge against these risks and there is a better chance to overcome these together,” an official said. Also, fresh off the success of negotiating the UK and the European Free Trade Association (Iceland, Liechtenstein, Norway, Switzerland) deals, India has somewhat shaken off its traditional diffidence on trade negotiations and approached the EU deal with renewed positivity.

The way ahead

Just like the last time, the negotiations went down to the wire: The talks only concluded on Friday. After subsuming a few chapters, India and the EU have completed talks on 21 chapters.

But there is still some way to go. The legal vetting of the deal will take about five months. The text will have to be translated into the Union’s 24 official languages. The deal will have to be ratified by the European Parliament before coming into effect.

The conclusion of negotiations came right ahead of the India-EU summit in New Delhi on Tuesday, where the leaders announced the wrapping up of the talks. The formal signing will take place later this year after legal vetting is completed.

The EU market 

India accounted for around 5% of EU’s textile and apparel imports in 2024. The EU’s top suppliers in 2024 were China (28%), Bangladesh (22%), Turkey (11%), Vietnam (6%), and then India.

Also, Bangladesh, Vietnam, Ethiopia all have zero duty access to the EU, either via FTAs or through LDC or least developed countries concessions. India’s average tariffs for goods from the EU are currently around 10-12%. The EU’s average tariffs for Indian goods are much lower, at around 3-4%.

Notably, more than 75% of India’s exports to the EU attract less than 1% tariffs even without the trade deal. Most of these Indian goods may not gain significant market access even after the FTA is signed compared to what India would have to offer by pruning its own high tariffs on a broad range of European goods.

Amid the negotiations, it was also increasingly becoming clear to India that as the steep 50% US tariffs, which kicked in from August 27, 2025, were weighing on Indian goods exports — including product categories such as shrimps, gems and jewellery, auto components and electric machinery — it could redirect some of that output into Europe and other Asian markets.

An analysis of data released by the Commerce and Industry Ministry showed that while gems and jewellery exports to the US plummeted 76% in September compared with last year, total gems and jewellery exports registered only a marginal 1.5% dip. Shipments to the United Arab Emirates jumped 79%, and Belgium 8%, the data showed. A similar pattern was visible in auto components — exports to the US dropped 12% in September, but shipments to Germany, the UAE, and Thailand, helped total auto component exports grow 8%. Marine product exports grew 25% in September and 11% in October, largely due to higher exports to the EU, alongside China, Japan and Thailand. This reinforced the view that leveraging India’s trade linkages with other parts of the world, including the EU, could help mitigate the blow if a trade deal with Washington DC does not fructify soon.

Problem areas

The EU has a plethora of regulations, which has been a problem for developing countries such as India. The Carbon Border Adjustment Mechanism (CBAM) — the world’s first carbon tax — is among them. The 27-nation bloc began implementing it starting January 1.

In its current form, CBAM would apply a carbon-related charge to the import of goods from the power sector and energy-intensive industrial sectors, such as cement, steel, aluminium, oil refinery, paper, glass, chemical and fertilisers from countries with lower environmental ambitions and regulations than the EU. Then there is the EU Deforestation Regulation (EUDR), aimed at preventing products sold in the EU from being sourced from deforested land. The regulation is likely to kick in from December 2026.

According to Delhi-based think tank GTRI, the EUDR is expected to affect India’s agricultural exports to the EU, valued at $1.3 billion, more severely than exports from competing countries due to India’s higher deforestation rate. Unlike quality standards, where only the final product’s quality matters, the EU’s regulations impose complex compliance mechanisms, seemingly designed to increase the cost of imports and protect local producers.

The problem for India is that its shipments must be protected from these excessive regulations that are difficult to comply with by the country’s Small and Medium-sized Enterprises (SMEs), which account for nearly 40% of India’s exports. The EU has given some exemptions and carve-outs to exporters from the US. Chances are that Indian negotiators have pushed for parity on this issue, and any other carve-outs the Brussels gives to a trading partner in the future.

Rapid response forum

From the EU’s perspective, a bugbear on the Indian side is the bevy of so-called quality control orders (QCOs) that India has developed as a system of mandatory standards that require certification following audits of manufacturing facilities. That is a non-tariff barrier that the EU has stridently opposed. Most products subject to QCOs, according to a negotiator from Brussels, are not subject to mandatory third-party certification in Europe and these QCOs have been flagged as “a major obstacle for marketing products” in India. “Creative legal solutions are being explored,” a person aware of Brussels’ point of view said, adding that Maros Sefcovic, the EU trade commissioner, has specially red flagged these as non tariff barriers. The QCO issue is also a priority in negotiations between India and the US. India has dismantled some QCOs in the textile and steel sectors amid an internal pushback, but multiple others still fester.

To tackle problems such as the QCOs, the EU side has proposed a sort of a ‘rapid response forum’ that can take up these sorts of problems to the top level as quickly as possible, whenever either side sees some barriers to trade. That is being seen as an institutional arrangement, which could address these issues.

As both sides reaffirmed, an EU-India trade deal will have not only economic benefits but will also reinforce the broader economic and political links between the EU and India at a time when world affairs are under severe strain. This will help reconstruct a rules-based global order for the new multipolar world and is being pitched as particularly important for the multilateral trade and climate regimes, where converging EU and Indian positions could have a major influence on the redesign of international institutions and rules.