India and the European Union (EU) are set to engage in the 10th round of negotiations for the Broad-based Trade and Investment Agreement (BTIA) in Brussels from March 10-14. The talks come at a time of escalating global trade tensions, particularly due to US President Donald Trump’s threat to impose reciprocal tariffs on all nations, including India and the EU.European Commission President Ursula von der Leyen’s recent visit to Delhi has added momentum to the discussions, with both sides committing to finalising the long-stalled agreement by the end of the year, the Reuters reported. However, deep-seated differences on tariffs, regulatory standards and sustainability commitments continue to pose challenges.AdvertisementLong road to a trade agreementNegotiations for an India-EU free trade agreement began in 2007 but stalled in 2013 due to diverging ambitions. Talks resumed in 2021 with a broader agenda covering trade, investment protection and geographical indications. The agreement, if finalised, would be India’s most comprehensive trade deal, with the EU standing as India’s second-largest trading partner after the US, accounting for $190 billion in bilateral trade in FY2024, a Mint report said.India is keen on expanding its exports in textiles, pharmaceuticals and IT services, while the EU aims to gain better access to India’s automobile, financial and technology sectors. However, contentious issues remain unresolved requiring significant compromises from both sides.One of the primary obstacles in the negotiations is market access. The EU is pushing for tariff eliminations on over 95 per cent of its exports to India, while India is willing to open only up to 90 per cent of its market. This difference in approach is evident in specific sectors.The EU is demanding lower tariffs on dairy products such as cheese and skimmed milk powder, but India remains firm in protecting its dairy farmers. According to the Global Trade Research Initiative (GTRI), India’s dairy sector is highly sensitive with millions of small farmers dependent on it. Reducing tariffs on EU dairy imports could severely impact domestic production.Mint reported that another significant point of contention is the automobile sector. The EU wants India to lower its high import duties of 100-125 per cent on fully built luxury cars to around 10-20 per cent. However, India remains cautious as the automobile industry is a major contributor to its manufacturing GDP and employment.AdvertisementOn the other hand, India is seeking tariff reductions for its textile exports, which currently face EU tariffs of 12-16 per cent. Removing these tariffs could significantly boost India’s textile industry, helping it compete with Bangladesh and Vietnam. Given that India exported $5.1 billion worth of garments to the EU in FY2024, easing tariffs could provide a much-needed boost to this labour-intensive sector.Services and investment protectionThe services sector also presents hurdles. India seeks acknowledgment as a data-secure nation under the EU’s General Data Protection Regulation (GDPR) to enhance digital trade opportunities. Additionally, India is pushing for easier short-term business visas for its professionals. However, the EU is demanding greater access to India’s banking, financial services and legal services sectors, while simultaneously maintaining barriers such as high salary thresholds and local hiring requirements for Indian IT professionals.AdvertisementInvestment protection remains another challenging aspect. India insists on retaining its Model Bilateral Investment Treaty, which prioritises regulatory autonomy, whereas the EU seeks stronger safeguards for its investors. India had previously terminated 22 investment treaties with EU nations due to concerns over excessive investor rights, indicating that any new framework would need to balance investor protections with India’s policy flexibility.Sustainability and regulatory challengesSustainability commitments have emerged as a divisive issue in the negotiations. The EU is advocating for binding commitments on labour rights and environmental standards, while India prefers a more flexible approach.A major concern for India is the EU’s Carbon Border Adjustment Mechanism (CBAM), which imposes additional tariffs on carbon-intensive imports such as steel and aluminium. According to GTRI, even if a trade deal is signed, CBAM could negate the benefits for Indian exports unless exemptions or compensatory measures are negotiated.AdvertisementThe geopolitical angleThe timing of the negotiations is crucial as they coincide with heightened geopolitical tensions and trade uncertainties. US President Trump has threatened to impose steep tariffs on imports from all countries, including India and the EU, potentially disrupting global trade flows.In this context, the India-EU deal could serve as a hedge against US trade protectionism, providing both parties with greater economic security and alternative trade routes, the Reuters said in a report.Von der Leyen, in her recent visit to India, emphasised the importance of strengthening EU-India ties in the face of shifting global power dynamics. She stated that both parties stood to lose from a world dominated by spheres of influence and isolationism while standing to gain from one based on cooperation and working together, reflecting a shared strategic interest in deepening economic engagement as a counterbalance to the unpredictability of US policies.AdvertisementA tough road aheadDespite the mutual recognition of benefits, concluding the trade deal will not be easy. India remains reluctant to lower tariffs in key sectors, while the EU has been hesitant to ease visa restrictions for Indian professionals.The EU’s demand for lower tariffs on whiskey, wine and automobiles clashes with India’s push for greater access for its pharmaceutical and textile exports. Additionally, India opposes the EU’s plan to introduce a 20-35% tariff on high-carbon goods from 2026, citing concerns over the impact on its manufacturing sector.The coming months will be decisive in determining whether the nearly two-decade-long negotiations finally result in a trade agreement. While both India and the EU have expressed a strong commitment to concluding the deal by the end of the year, the path remains fraught with challenges.Resolving disputes over tariffs, services, investment protection and sustainability standards will require substantial diplomatic efforts and compromises from both sides.If successful, the trade agreement could significantly boost economic ties opening new avenues for cooperation in technology, clean energy and manufacturing. As India and the EU seek to level out the differences, the outcome will have far-reaching implications not only for bilateral trade but also for the evolving global economic order.More from India
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India, EU huddle for trade agreement talks amid rising geopolitical tensions over Trump tariffs
