The conclusion of a free trade agreement between the European Union and India carries significance well beyond the relevant economic benefits it could bring to both sides.
For India, this is the most significant market-opening agreement since economic liberalization reforms began in 1991. The deal also marks the EU’s first comprehensive FTA with a fast-growing lower-income economy that is also a political leader in the Global South.
More broadly, Brussels has concluded ambitious FTAs with almost all countries in the Americas and the Indo-Pacific, including four members of the BRICS and the G20 — Brazil, India, Indonesia and South Africa.
This article is part of the The Parliament’s special policy report “The EU’s trade question.”
EU-India realism
While the EU-India FTA includes less ambitious commitments on market access, tariffs and procurement than the EU’s agreements with Southeast Asian countries, this largely reflects India’s lower level of development.
Concluding the negotiations required pragmatism from both sides. When I oversaw FTA negotiations for the European Commission from 2007 to 2014, India refused to negotiate on labor or environmental standards.
The agreement signed last January includes a sustainable development chapter with commitments comparable to those in other EU FTAs, including the implementation of International Labour Organization conventions and environmental issues.
Brussels has accepted, however, that disputes over how these commitments are implemented should be resolved through consultations between the two sides rather than formal arbitration by an external body.
The deal also provides for cooperation on the implementation of the Carbon Border Adjustment Mechanism and is accompanied by a memorandum of understanding on climate cooperation under which the EU has pledged €500 million for an initial two-year pilot phase.
These measures could pave the way for closer and more practical cooperation on decarbonization as India gradually develops its own carbon pricing system.
For the FTA to be truly transformative, it must make India a more attractive destination for European investment.
India has vast potential to develop its manufacturing sector, but so far it has attracted less foreign direct investment than other countries in the region.
FDI accounts for 4% of gross domestic product in Vietnam but less than 1% in India. Unfortunately, the agreement includes no commitments on investment in manufacturing and little progress has been made in parallel negotiations on investment protection.
Both sides should urgently explore alternative ways to give new political momentum to investment negotiations.
Beyond market access and investment protection, one promising option would be to complement the FTA with a Clean Trade and Investment Partnership — such as the one Brussels signed with South Africa — focused on attracting investment to support decarbonization.
Blueprint for the Global South
The agreement is expected to be ratified in early 2027 and should prove less controversial than the EU-Mercosur deal, given the absence of major agricultural sensitivities.
But both sides should be prepared to fully embrace the geopolitical significance of concluding an ambitious agreement at a time of major disruption to the international economic order.
Traditionally, the EU and India have not been aligned on issues including World Trade Organization reform or climate diplomacy. However, the new geopolitical context creates an opportunity for both sides to deepen cooperation in support of a restructured but still rules-based global system.
The EU’s broad network of trade agreements could provide the basis for a new alliance in support of this reform agenda.
When Indian Prime Minister Narendra Modi and European Commission President Ursula von der Leyen decided to relaunch FTA negotiations in 2021, the objective was always to go beyond the bilateral economic benefits of a mere trade deal and establish a partnership with geopolitical significance.
If anything, this ambition has become even more necessary today and could lay the foundation for a new strategic engagement between the EU and other key players in the Global South.
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