On Tuesday, January 27, the European Union and India signed a comprehensive free trade agreement. Indian Prime Minister Narendra Modi described it as a “milestone” in free trade agreements, while European Commission President Ursula von der Leyen praised the agreement as the “mother of all agreements”.
Against the backdrop of escalating geopolitical tensions and global trade relations being put to the test, India and the EU have been engaging in sporadic negotiations for nearly two decades (since 2007), with significant acceleration in the past six months leading to the achievement of this agreement.
The two parties finally concluded negotiations late Monday night on January 26, reaching an agreement to create a vast market covering approximately 2 billion people. However, the agreement still needs to go through subsequent approval processes, including from EU member states, the European Parliament, and India. Previously, India has signed trade agreements with countries such as the UK, Oman, and New Zealand.
This agreement is expected to open up India’s historically highly protected market to the 27 EU member countries, with a focus on manufacturing and services industries. The agreement will significantly reduce import tariffs on key European products such as automobiles and wine in exchange for the convenience of exporting Indian textiles, gemstones, and pharmaceuticals to Europe.
For India, this agreement is undoubtedly a shot in the arm as the country currently faces 50% punitive tariffs from the US (25% basic tariff, 25% for importing Russian oil), impacting its textile, gemstone, and agricultural exports. Additionally, India is also trying to escape the pressure of China’s monopoly and export restrictions on the manufacturing supply chain.
According to a statement released by the EU on January 27, the trade in goods and services between the EU and India exceeds €180 billion (approximately $214 billion), creating nearly 800,000 job opportunities in the EU. The goal of this agreement is to double EU exports to India by 2032 and eliminate or reduce tariffs on 96.6% of goods, estimated to save European companies around €4 billion (approximately $4.75 billion) in costs.
The statement also mentioned that the agreement will reduce India’s automobile tariffs from the current 110% to gradually 10% within five years, allowing for up to 250,000 European cars to enter the Indian market annually, far surpassing the previous quota of 37,000 cars imported from the UK last year. Automobile parts tariffs will be completely eliminated in 5 to 10 years, benefiting several European car manufacturers.
Additionally, the agreement will cut India’s tariffs on EU wine from 150% to 75%, ultimately reaching 20%; olive oil tariffs will decrease from 45% to 0% within five years; tariffs on processed agricultural products such as bread and sweets will be reduced by up to 50%; machinery, chemicals, and pharmaceuticals tariffs will be completely eliminated from 44%, 22%, and 11%, respectively, to zero tariffs.
During a meeting with Indian Prime Minister Modi on January 27, Ursula von der Leyen stated, “We have reached the greatest agreement in history, creating a free trade zone with 2 billion people, benefiting both sides. We are sending a message to the world: rule-based cooperation is still effective.”
Modi responded, “This agreement brings enormous opportunities for 1.4 billion Indians and millions of Europeans, becoming a prime example of cooperation between the world’s two largest economies.”
European Council President António Costa also remarked, “At a time when the global order is undergoing fundamental reshaping, this cooperative agreement sends a clear signal to the world.”
EU Commission data shows that as of the past nine months leading up to December, India’s exports to six major EU markets (Netherlands, Germany, Italy, Spain, France, and Belgium) totaled $43.8 billion, while exports to the US amounted to $65.88 billion.