India and EU close to sealing trade deal, await nod from top Council in Brussels

Why in the News

The European Commission has forwarded its proposal for the conclusion of a Free Trade Agreement (FTA) between the European Union (EU) and India to the European Council, the step that immediately precedes signature. The Commission is the EU’s main executive body and proposes the trade legislation. The European Council, comprising the heads of state or government of the 27 member states along with its own President and the President of the Commission, takes the final decision on authorising signature. On authorisation this becomes the largest trade agreement either side has concluded, eliminating or reducing tariffs on 96 per cent of EU goods exports to India and securing market access for more than 99 per cent of India’s exports to the EU by trade value. Signature is not conclusion, since the European Parliament’s consent and India’s own internal ratification both remain. The agreement also answers a problem neither side names in its text, which is that both import most of their industrial inputs from China.

How does an EU trade agreement get approved?

1. The Commission negotiates and proposes: The European Commission conducts the negotiation and then proposes the legislation for concluding the agreement.
2. The Council authorises signature: The European Council defines the general political direction and priorities of the EU, and its members take the final decision on whether the agreement is signed.
3. Parliament’s consent follows signature: The agreement then requires the consent of the European Parliament before conclusion and entry into force.
4. India ratifies in parallel: Indian authorities are going through their own internal ratification procedures at the same time.

What is the existing size of the relationship?

1. Current trade: The EU and India already trade over Euro 180 billion worth of goods and services a year, with one Euro equal to about US $1.16.
2. Employment on the EU side: That trade supports close to 800,000 EU jobs.
3. What the agreement would be: On authorisation it would be the largest trade agreement ever concluded by either the EU or India.

What does the agreement give the EU?

1. Tariff elimination on almost all its goods: Tariffs on 96 per cent of EU goods exports to India would be eliminated or reduced.
2. The value of the duty relief: The reductions would save around Euro 4 billion a year in duties on European products.
3. Competitive position in the Indian market: European companies would find it easier to access the Indian market and to compete on a more level playing field.
4. The consumer side: Indian consumers would gain increased choice and more competitive prices.

What does the agreement give India?

1. Near total market access for goods: It would secure market access for more than 99 per cent of India’s exports to the EU by trade value.
2. Services and the movement of professionals: It unlocks high-value commitments in services, complemented by a comprehensive mobility framework enabling the movement of skilled Indian professionals.
3. The labour-intensive sectors it targets: Textiles, apparel, leather, footwear, marine products, gems and jewellery, handicrafts, engineering goods and automobiles are named as the gainers.
4. The immediate tariff effect: Tariffs of up to 10 per cent on almost $33 billion of Indian exports fall to zero on the agreement’s entry into force.

Why did the two sides restart negotiations in 2022?

1. China’s trade surplus was the trigger: A key reason for reopening talks in 2022 was China’s growing trade surplus with both partners.
2. Both import their industrial inputs from the same source: The EU and India each import most of their industrial requirements from China, and Beijing’s tightening grip on manufacturing supply chains is reflected in its record trade surplus, which trade friction with the United States has not reduced.
3. Both are restricting Chinese goods in strategic sectors: Brussels imposed tariffs of up to 35 per cent on Chinese electric vehicles in 2024, and India continues to levy over 100 per cent duty on automobiles imported from China, and is opening the sector to developed countries through trade agreements.
4. The dependence has been assessed and not removed: A 2025 report by the Delhi Policy Group found both India and the EU still significantly dependent on China.
5. The pandemic changed the calculation: The COVID-19 pandemic in 2020 exposed the vulnerability of China-centric supply chains, prompting both to reassess dependencies and to pursue diversification and de-risking.

What pressure is the United States applying to both sides?

1. The stated objective: India and the EU are both under US pressure to reduce dependence on Chinese products and to avoid being used as transhipment hubs.
2. Indian manufacturing clusters named: A US report last month described several global manufacturing city clusters as “ugly sister” cities, including the Pune-Gujarat-Chennai industrial corridor, and stated that the United States loses when these hubs win.
3. The argument it makes: The report held that the longer the system operates unchecked, the harder it becomes to restore lost industrial capacity, and that illegal transhipment hubs will continue to siphon off American manufacturing one product line at a time.

Challenges to the India-EU free trade agreement

1. A carbon levy sits outside the tariff schedule: The EU’s Carbon Border Adjustment Mechanism, a charge on the embedded carbon of an imported good, applies irrespective of the tariff concessions granted. Eg. It covers iron and steel, aluminium, cement, fertilisers, electricity and hydrogen, with the definitive charge beginning in 2026.
   The Fix: Agree mutual recognition of India’s carbon pricing under its Carbon Credit Trading Scheme, so a charge paid in India is set off at the EU border.
2. Deforestation rules add a traceability duty to a tariff cut: The EU Deforestation Regulation requires geolocation of the plot of production for listed commodities, which a smallholder supply chain cannot document. Eg. Coffee, cocoa, rubber, soy, palm oil, cattle and wood are covered by it.
   The Fix: Fund plot-level geolocation through the commodity boards, so the compliance cost does not fall on the individual grower.
3. Rules of origin decide who actually uses a zero duty: A concession is usable only where the product clears the value addition test, and an export assembled from imported inputs may not. Eg. Electronics assembled in India from imported components can fail a threshold that garments made from Indian fabric clear comfortably.
   The Fix: Agree cumulation, so inputs sourced from the partner count as originating and the concession reaches assembled goods.
4. Ratification is a sequence, not a decision: Council authorisation and Parliament consent are separate steps, and an agreement classed as mixed can additionally require ratification by each member state. Eg. The EU’s agreement with Mercosur concluded negotiations in 2019 and remained outside force for years afterwards.
   The Fix: Split the text so the trade chapters enter into force on Parliament’s consent, with investment protection carried in a separate instrument.
5. Non-tariff measures bind harder than tariffs in food trade: Sanitary and phytosanitary limits decide whether a consignment enters at all, and a zero tariff does nothing for a rejected shipment. Eg. Indian marine and food consignments face EU rejections on antibiotic residue and aflatoxin limits.
   The Fix: Agree recognition of testing by notified Indian laboratories, so a consignment is certified once at origin rather than retested at the border.

Conclusion

The text is settled and the decision has moved from negotiators to governments. Three gates remain in sequence: authorisation by the Council, consent of the European Parliament, and India’s internal ratification, and the concessions take effect only at entry into force. Those concessions are also the part of the agreement least likely to decide its value, since the measures that actually restrict Indian exports operate through carbon, deforestation and food safety rules that no tariff schedule touches. What to watch is the Council’s authorisation decision, and whether the agreement is classed as a mixed agreement, which would add ratification by every member state to the path.

Matching Previous Year Question

“[2010] In the context of bilateral trade negotiations between India and European Union, what is the difference between European commission and European Council? 1. European Commission represents the EU in trade negotiations whereas European Council participated in the legislation of matters pertaining to economic policies of the European Union 2. European Commission comprises the heads of State of govt. of member countries whereas the European Council comprises of the persons nominated by European Parliament Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 ANSWER: (d)”