The India-EU free trade agreement (FTA) that comes amid US President Donald Trump’s tough dealings with both the 27-nation bloc and New Delhi, with demands that they cave in to Washington’s demands, is “politically embarrassing for the US”, former foreign secretary Kanwal Sibal said.

Against the backdrop of tariffs and pressure from Trump, both the EU and India were incentivized to finalize their own trade deal.

“The India-EU FTA is an important development. It comes in the wake of the fragmentation of the global trading system, the destruction of the WTO rules-based trade order by the US and the weaponization of tariffs by the US. With punitive US tariffs on India, Trump’s animus towards the EU and forcing unilateral trade with the EU, and the obligation to unilaterally trade with the EU, was permanently suspended by both the EU parliament as for India’s own trade deal This deal is politically embarrassing for the United States,” he said.

Sibal drew parallels between what Trump wants and what India and the EU decided. While Trump used the tariffs to reject a fair and win-win deal and “extract undue concessions from India”, the deal with the EU was balanced and both sides expanded their options.

“This agreement will fast-track other agreements that are being negotiated and will also help push forward the review of previous unsatisfactory agreements with Japan and Asean,” Sibal said.

INDIA-EU FTA

India and the European Union agreed on a global free trade pact that will gradually reduce tariffs on EU vehicles and a wide range of European goods. Indian exports will have unprecedented access to the EU market. The deal, described as the largest in India’s history, is due to be signed by the end of the year and is expected to take effect in 2026 or early 2027. It will create an integrated market of around 2 billion people, combining India’s economy with the EU, the world’s second-largest economic bloc.

The pact covers goods, services, investment, professional and student mobility and technical cooperation. Both sides will enjoy tariff reductions or eliminations and expanded trade opportunities. The EU will remove duties on more than 93 percent of Indian products, including textiles, clothing, chemicals and leather. The rest of the exports will face gradual reductions or concessions based on quotas. Indian textiles, currently subject to a duty of up to 12 percent in the EU, will have duty-free access, helping exporters better compete with countries such as Bangladesh.

For the EU, more than 90% of its products will have duty-free access to India for 10 years, and 30% of European goods will see tariffs removed immediately. The main European exports to benefit include automobiles, wines, spirits, beer, olive oil, fruit, processed foods and meat products, many of which currently face duties of 33% to 150% in India.

An important feature is the reduction of tariffs on European motor vehicles. Car tariffs will drop from 110% to 10% for up to 250,000 vehicles a year, a quota more than six times that granted in the UK. The commerce ministry said the quota-based liberalization will allow EU carmakers to introduce models in higher price bands and open up possibilities for making in India and exporting from India. In 2024, Europe exported motor vehicles worth €1.6 billion to India, and the deal is expected to increase this figure significantly.

Machinery, electrical equipment, aircraft and spacecraft, optical, medical and surgical equipment, plastics, chemicals, iron and steel and pharmaceuticals from the EU will also enjoy duty-free access to India.
The agreement excludes concessions for certain sensitive sectors. India will not reduce duties on dairy, soya flour and cereals, while the EU will protect the sugar, beef, meat and poultry sectors. On the services side, the EU has offered India access to 144 out of 155 sub-sectors, and India will open 102 sub-sectors to the EU. The pact includes measures to facilitate student mobility and post-study work visas between the two markets.