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With American tariff threats lurking over the European continent, the European Union (EU) has turned towards India, Latin America, Gulf countries, and other regional partners, to overcome its dilemma over its Transatlantic economic partnership. Across the Atlantic, U.S. President Donald Trump has announced 25% tariffs on the EU Bloc, claiming it was created to “screw the United States.”
Illustration by The Geostrata
President Trump intends to impose tariffs on European goods, with an implementation of 25% duty on steel and aluminium imports from the EU. Similarly, he announced to impose reciprocal tariffs on countries with high trade barriers, which translates primarily to India, which would likely impact the trade dynamics, straining the global and regional economy.
Amidst this reality, the European Commission President Ms. Ursula von der Leyen underscored the importance of a Free Trade Agreement (FTA) with India, "It is time to be pragmatic and ambitious. And to realign our priorities for today’s realities."
The team of European Commissioners visited India at the end of February 2025, signalling the accelerated endeavours towards finalizing the FTA towards the end of this year. This article explores the strategic and economic pivoting of the European Union towards India in the face of the American tariff threats, and its significant implications on India-EU trade relations.
The negotiations of India-European Union Broad-based Trade and Investment Agreement (BTIA) commenced in 2007, and the 10th round of talks were likely to be held in Brussels in March 2025. After almost two decades of negotiations, there seems to be a silver lining in finalising the trade deal. However, various barriers persist that have previously hindered this agreement. Some of these include tariffs, regulatory measures, restrictive market access, investment protection, etc., leading to disagreements between the two parties.
India is reluctant – primarily due to domestic concerns – to reduce import duties on European dairy products like cheese, skimmed milk, etc, which would increase competition in the domestic market hampering margins of India's local brands, milk cooperatives, etc. Similarly, agricultural protectionism is a sensitive topic on the negotiations table because of certain factors.
Firstly, due to its potential harm towards local industries if tariffs are reduced on European imports as per its recommendation, and secondly, due to Non-Ad Valorem tariffs. Additionally, there are strict Sanitary and Phytosanitary measures, which makes it difficult for Indian agricultural products to penetrate European markets.
Furthermore, there is restriction of certain Indian products in European markets due to labour rights, sustainability measures, and data protection. According to the European negotiators, India needs to align with global standards, and adopt international best practices, in order to standardise India exports in tandem with international norms.
Moreover, the EU is likely to impose the Carbon Border Adjustment Mechanism, wherein carbon-intensive Indian exports such as aluminium, steel, etc, could face tariffs as high as 35%.
This EU initiative is in sync with its policies towards environment protection, however, it is likely to harm exports from developing countries, who are yet to transit from non-renewable to renewable sources of energy.
In addition, trade in services remains another point of contention, as India wants the EU to include it under the EU’s General Data Protection Regulation to simplify data-flow. However, the EU has emphasised on strengthening Indian privacy laws.
Moreover, the EU seeks stronger legislation to protect its companies’ investment rights, but Indian policies’ restrictive approach has created considerable hurdles for European investments, thus preventing them from expanding in the Indian market. India’s decision is in tune with its preventive measures, to protect the nation from foreign economic dominance or exploitation.
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In brief, there are substantial barriers between India and Europe to establish an FTA. It is a difficult road to navigate, nevertheless, Europe is in dire need to diversify its strategic partners, and India, too, aims to expand its economic footprint in Europe, thus countering Chinese dominance in the continent, and most importantly, to advance its economic prowess.
The India-EU BTIA can flourish the trade and investment sectors, and significantly contribute towards bolstering strategic partnership between the two. India is the EU’s largest trading partner, and accounted for €124 billion worth of trade in goods in 2023 or 12.2% of total Indian trade.
BTIA can exceedingly lead to over $190 billion of bilateral trade. European businesses can venture and contribute to India’s growth story, and likewise, India can benefit from lower tariffs, and access to European markets, ushering into a new era of enhanced economic cooperation with the EU.
If the FTA is worked out in favour of both the parties, the world will soon witness a new proliferating partnership between India and Europe. Despite the positive talks, India is far behind to compete with China in being the strongest link in the EU's supply chain. On one hand, Europe and China conduct over 15% of the world trade, and on the other, India and Europe are stuck at 2% of the world trade.
If the wide-ranging problems related to tariffs, investment, services, regulations, sustainable practices, IPRs, etc, are resolved to cater for the needs of both the EU and India, then, there are high possibilities towards a positive outcome of BTIA. This will open new avenues of economic growth, and reduce the negative implications from American tariffs, thereby reducing the U.S.’s hegemonic approach in international trade. With a pragmatic approach, the India-EU BTIA can become an outstanding agreement and a cornerstone in strengthening the India-EU bilateral ties.
ARYA GHADIGAONKAR
TEAM GEOSTRATA
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