Interviews | Economy | South Asia

EU-India Free Trade Agreement: Deal Of Democracies

Insights from Nicolas Kohler-Suzuki.

The Diplomat author Mercy Kuo regularly engages subject-matter experts, policy practitioners, and strategic thinkers across the globe for their diverse insights into U.S. Asia policy. This conversation with Nicolas Kohler-Suzuki – adviser for trade and economic security at the Jacque Delors Institute in Paris – is the 501st in “The Trans-Pacific View Insight Series.”

Explain the strategic significance of the EU-India free trade agreement (FTA) as a partnership between the world’s largest democracies. The EU-India FTA is strategically significant because it alters the long-term incentive structure for European and Indian firms to trade, invest, and build supply chains across the two markets. For India, it will be the deepest trade agreement it has ever concluded. For the EU, it will increase market access to one of the largest and fastest growing economies in the world. 

In view of economic pressure from China and policy uncertainty linked to the United States, the FTA may encourage European companies to view India not only as a consumer market but also as a production hub that can help to de-risk supply chains. That said, the ratification process, including scrutiny in the European Parliament, and long phase-in periods for tariff preferences, mean the biggest structural effects are more likely to become clearly visible in the mid-2030s rather than in the next few years.

Examine how the EU and India will each benefit from the trade deal.

For the EU, the FTA promises better access to the fast-growing Indian consumer market. Most importantly, it lowers very high Indian tariffs on key EU exports like spirits and cars through tariff-rate quotas. The labor mobility arrangement that was signed in parallel with the FTA may also help address skill bottlenecks, notably in IT and other high-skill services. 

For India, the agreement offers immediate export gains in sectors where EU tariffs had eroded India’s competitiveness compared to Vietnam and Bangladesh. Tariff elimination on labor-intensive goods (garments, textiles, shoes, handicrafts, and marine products) could therefore raise its market share in the EU quickly. Over time, clearer rules for trade and investment may also help attract EU capital and technology and support India’s ambition to grow as a manufacturing hub. 

Analyze the impact of the EU-India FTA on the global trading system.

With the global trading system under pressure from China’s industrial overcapacity and Donald Trump’s erratic application of tariffs, policy unpredictability is rising, and with it business uncertainty. The EU-India FTA is a strong signal from the European Union, the world’s second-largest economy, and India, the fifth-largest, that governments still seek stability through negotiated legal commitments. It also offers both partners a backstop if multilateral disciplines keep deteriorating. 

How might the EU-India trade partnership strengthen the rules-based international order?

Maybe paradoxically, the current period of turbulence in the global trading system could eventually trigger a wave of competitive liberalization. The U.S. push for concluding its own “deal” with India directly on the heels of the conclusion of the negotiations of the EU-India FTA hints at a world where major economies may continue to reduce trade barriers with each other. 

A key systemic question is whether deeper economic integration with the EU and the U.S. will also eventually shift India’s stance on WTO reform, especially on plurilateral agreements (e.g., on investment facilitation and electronic commerce) which India has long resisted. If domestic constituencies benefiting from a more open Indian economy strengthen, India may over time become more amenable to updating multilateral rules.

Assess the FTA’s symbolism and signaling from Brussels and New Delhi toward Washington and the international community.

The agreement was under negotiation for almost 20 years. The willingness to compromise in recent months is therefore sending a clear message that Europe and India will band together if they are mistreated. While the U.S. has shown that it is willing to hold the multilateral trading system hostage to its political whims, Brussels and New Delhi are signaling their continued support for an open economic order. 

The agreement also symbolizes a joint commitment to de-risk supply chains through diversification, particularly to reduce dependence on China. It demonstrates that two of the world’s largest economies intend to constructively shape the global agenda on trade, digitalization, and climate change amidst a difficult transition to a multipolar order.

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The Diplomat author Mercy Kuo regularly engages subject-matter experts, policy practitioners, and strategic thinkers across the globe for their diverse insights into U.S. Asia policy. This conversation with Nicolas Kohler-Suzuki – adviser for trade and economic security at the Jacque Delors Institute in Paris – is the 501st in “The Trans-Pacific View Insight Series.”

Explain the strategic significance of the EU-India free trade agreement (FTA) as a partnership between the world’s largest democracies. The EU-India FTA is strategically significant because it alters the long-term incentive structure for European and Indian firms to trade, invest, and build supply chains across the two markets. For India, it will be the deepest trade agreement it has ever concluded. For the EU, it will increase market access to one of the largest and fastest growing economies in the world. 

In view of economic pressure from China and policy uncertainty linked to the United States, the FTA may encourage European companies to view India not only as a consumer market but also as a production hub that can help to de-risk supply chains. That said, the ratification process, including scrutiny in the European Parliament, and long phase-in periods for tariff preferences, mean the biggest structural effects are more likely to become clearly visible in the mid-2030s rather than in the next few years.

Examine how the EU and India will each benefit from the trade deal.

For the EU, the FTA promises better access to the fast-growing Indian consumer market. Most importantly, it lowers very high Indian tariffs on key EU exports like spirits and cars through tariff-rate quotas. The labor mobility arrangement that was signed in parallel with the FTA may also help address skill bottlenecks, notably in IT and other high-skill services. 

For India, the agreement offers immediate export gains in sectors where EU tariffs had eroded India’s competitiveness compared to Vietnam and Bangladesh. Tariff elimination on labor-intensive goods (garments, textiles, shoes, handicrafts, and marine products) could therefore raise its market share in the EU quickly. Over time, clearer rules for trade and investment may also help attract EU capital and technology and support India’s ambition to grow as a manufacturing hub. 

Analyze the impact of the EU-India FTA on the global trading system.

With the global trading system under pressure from China’s industrial overcapacity and Donald Trump’s erratic application of tariffs, policy unpredictability is rising, and with it business uncertainty. The EU-India FTA is a strong signal from the European Union, the world’s second-largest economy, and India, the fifth-largest, that governments still seek stability through negotiated legal commitments. It also offers both partners a backstop if multilateral disciplines keep deteriorating. 

How might the EU-India trade partnership strengthen the rules-based international order?

Maybe paradoxically, the current period of turbulence in the global trading system could eventually trigger a wave of competitive liberalization. The U.S. push for concluding its own “deal” with India directly on the heels of the conclusion of the negotiations of the EU-India FTA hints at a world where major economies may continue to reduce trade barriers with each other. 

A key systemic question is whether deeper economic integration with the EU and the U.S. will also eventually shift India’s stance on WTO reform, especially on plurilateral agreements (e.g., on investment facilitation and electronic commerce) which India has long resisted. If domestic constituencies benefiting from a more open Indian economy strengthen, India may over time become more amenable to updating multilateral rules.

Assess the FTA’s symbolism and signaling from Brussels and New Delhi toward Washington and the international community.

The agreement was under negotiation for almost 20 years. The willingness to compromise in recent months is therefore sending a clear message that Europe and India will band together if they are mistreated. While the U.S. has shown that it is willing to hold the multilateral trading system hostage to its political whims, Brussels and New Delhi are signaling their continued support for an open economic order. 

The agreement also symbolizes a joint commitment to de-risk supply chains through diversification, particularly to reduce dependence on China. It demonstrates that two of the world’s largest economies intend to constructively shape the global agenda on trade, digitalization, and climate change amidst a difficult transition to a multipolar order.

Mercy A. Kuo is Senior Contributing Author at The Diplomat.

EU-India Free Trade Agreement

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