European Council President Antonio Luis Santos da Costa and European Fee President Ursula von der Leyen shall be chief friends at India’s Republic Day celebrations subsequent Monday.
Moreover state banquets and the ceremonial pomp of the occasion, the 2 leaders could have a extra urgent merchandise on their agenda – advancing free commerce talks with Asia’s third largest economic system. This comes at a very attempting geopolitical second for Europe, with President Donald Trump first threatening to escalate his commerce conflict with European allies for opposing a US takeover of Greenland after which backing off.
The selection of friends additionally carries an necessary diplomatic message from India – Delhi is accelerating strategic and commerce ties with the remainder of the world because the deadlock over Washington’s 50% tariffs on India spills over into the brand new yr.
“[It] sends a sign that India maintains a diversified international coverage… and that it isn’t beholden to the whims of the Trump administration,” Chietigj Bajpaee of the London-based Chatham Home think-tank informed the BBC.
Some studies say the deal might be introduced as early as 27 January when leaders from each side meet for a high-level summit. Each von der Leyen and India’s Commerce Minister Piyush Goyal have known as it the “mom of all offers” – highlighting the significance they’ve positioned on concluding negotiations which might be nearing the end line after almost 20 years of onerous bargaining on each side.
The pact shall be India’s ninth free commerce settlement (FTA) in 4 years, coming off the again of a string of offers with the UK, Oman, New Zealand and different international locations. For Brussels, it follows the just lately concluded commerce cope with the Mercosur buying and selling bloc in addition to with Japan, South Korea and Vietnam.
“Each side now search dependable commerce companions, as threats arising out of the geopolitics have created a tumultuous setting for commerce. The urge is equally robust – for India to offset US tariff points, and the EU to offset commerce dependence on China which it considers unreliable,” says Sumedha Dasgupta, senior analyst on the Economist Intelligence Unit.
The deal will even mark a “persevering with and vital effort to shed India’s notoriously protectionist carapace”, provides Dasgupta.
Moreover the diplomatic signalling, what’s in it for the 2 sides?
Nearer commerce ties with India are necessary to the European Union (EU) due to its rising financial stature. India is the world’s fourth largest and quickest rising main economic system and on monitor to cross $4tn (£2.97tn) in GDP, overtaking Japan this yr.
As von der Leyen mentioned in her speech on the World Financial Discussion board in Davos, the EU bloc becoming a member of forces with India would create a free market of two billion folks, accounting for 1 / 4 of worldwide GDP.
For Delhi, the EU is already its largest buying and selling bloc, and the deal will mark the restoration of what’s known as the Generalised System of Preferences (GSP) – which take away import duties from merchandise coming into the EU market from growing international locations.
“India exported about $76bn of products to the EU whereas importing $61bn, incomes a commerce surplus, however the withdrawal of EU GSP advantages in 2023 eroded competitiveness for a lot of Indian merchandise,” in line with Ajay Srivastava of the Delhi-based World Commerce Analysis Initiative (GTRI).
“An FTA would restore misplaced market entry, decrease tariffs on key exports comparable to clothes, prescribed drugs, metal, petroleum merchandise and equipment and assist Indian corporations higher take in shocks from greater US tariffs,” says Srivastava.
However India is predicted to safeguard politically delicate areas like agriculture and dairy from the settlement, whereas sectors like automobiles, wine and spirits will probably see tariffs come down in a phased method, which is consistent with the strategy it adopted in earlier offers – like with the UK.
“India’s proclivity has been to undertake a phased strategy in the direction of negotiating commerce offers by shifting extra politically-sensitive points into subsequent rounds of negotiation. In doing so, the geopolitical symbolism of the deal is as necessary because the financial substance,” says Bajpaee.
Regardless of the progress, some deep divides stay.
For Europe, mental property safety is a serious space of concern. It’s searching for higher information safety and tighter patent norms.
For India, a brand new carbon tax often known as CBAM (Carbon Border Adjustment Mechanism) imposed by Europe beginning this yr is a serious fault line within the discussions.
The CBAM “successfully acts as a brand new border cost on Indian exports, even when import duties are eradicated beneath the FTA”, says Srivastava of GTRI. “That is notably damaging for MSMEs [micro, small and medium-size industries], which face excessive compliance prices, advanced reporting necessities and the danger of being penalised utilizing inflated default emissions values.”
Whether or not the settlement in the end turns into a “growth-enabling partnership or a strategically uneven deal” will rely upon how these closing points are resolved, says Srivastava.
However within the longer run it is going to be a win-win, say analysts.
“In the end it might expedite commerce decoupling from the US and different unreliable companions. It would imply decreasing dependencies on Trump’s America – or China for that matter – decreasing vulnerabilities to on-again, off-again tariffs, export controls and the overall weaponisation of provide chains,” says Alex Capri of the Nationwide College of Singapore.
In response to Capri, India’s excessive carbon emissions and considerations over its human rights document have led to some pushback towards the deal in Europe. However India’s discount of the acquisition of Russian crude oil from November 2025 might assist its easy passage within the EU parliament, whose approval shall be required for the pact to grow to be efficient, say analysts.
“Political friction with the US since early 2026 implies that EU leaders will now be extra welcoming in the direction of this commerce deal than they might have in any other case been,” says Dasgupta.
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