Negotiating trade deals with Europe

PM Modi and EU's von der Leyen aim for a free trade agreement by year-end, amid global economic challenges and contentious negotiations since 2007.

Prime Minister Narendra Modi and European Commission President Ursula von der Leyen have set their negotiators the formidable task of stitching together a free trade agreement (FTA) within the year, at a time when the global economy is grappling with the fallout of the chaotic policies of the Donald Trump administration in the US. While the European Union (EU) is India’s largest trading partner, accounting for trade in goods and services worth almost $198 billion in 2023, the two sides have struggled to reach common ground on a trade deal. The negotiations formally began in 2007, before being suspended in 2013 and then revived in 2022. Clearly, the trade wars set off by US president Donald Trump’s tariff threats and unilateral decisions were a trigger for India and the EU setting a deadline for the first time for their proposed FTA. As negotiators from the two sides begin the tenth round of talks since the resumption of discussions in 2022, it is clear they have an onerous task on their hands.

It is helpful that von der Leyen has been a champion of closer strategic and trade relations with India (@narendramodi)

One of the biggest challenges is the slow-moving bureaucracy of the EU, and another is India’s need to open up its economy while retaining safeguards for its small and medium enterprises and agricultural sector. The European side has made no secret of its desire to remove barriers and help firms from the 27 EU member States, especially smaller enterprises, to export more, simultaneously opening up services and public procurement markets. India and other members of the Global South have their concerns about the EU’s Carbon Border Adjustment Mechanism (CBAM), or a tariff on carbon intensive products, that is set to kick in from 2026, while a number of European States perceive India as increasingly protectionist. There are other contentious issues, such as agricultural tariffs, especially on European dairy products and alcohol, automobile tariffs, and data protection and security to facilitate seamless e-commerce.

However, it is helpful that von der Leyen has been a champion of closer strategic and trade relations with India. Besides playing a key role in the creation of the India-EU Trade and Technology Council, her decision to come to New Delhi with virtually the entire College of Commissioners was a powerful signal of the importance she attaches to India. The Modi government too has shown the political will to firm up trade deals that suit the country’s economic interests. India needs stronger trade partnerships at a time when the US is privileging its domestic interests — Washington has set April 2 as the deadline for its partners to change tariff structures in favour of US imports — and it will be in New Delhi’s interest to widen the European basket in a world in a state of churn.