India, EU strike ‘mother of all deals’ free trade agreement and defence pact in the age of Trump
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European Council President Antonio Costa, European Commission President Ursula von der Leyen and Indian Prime Minister Narendra Modi shaking hands ahead of their meeting at the Hyderabad House in New Delhi, India, on Jan 27.
PHOTO: REUTERS
- India and the EU agreed to a free trade agreement (FTA), dubbed the "mother of all deals", aiming to reshape economic cooperation by lowering tariffs on goods.
- The FTA and the security pact are highly symbolic of a key strategic pivot for the middle powers looking to diversify their economic reliance on China and the US.
- Alongside the FTA, defence and worker mobility pacts were signed, signalling a strategic shift amid global uncertainties, although differences on Russia persist.
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NEW DELHI – India and the European Union have agreed on a long-awaited free trade agreement (FTA)
The trade pact holds the promise of reshaping economic cooperation by lowering tariffs on a range of goods. European wines, spirits and luxury cars are set to get cheaper in India.
Indian exporters in labour-intensive sectors like apparel and engineering goods are set to get wider access to Europe, while certain categories like marine products will be duty-free.
According to India’s Ministry of Commerce and Industry, the FTA provides for lower or zero tariffs for 99 per cent of Indian exports into the EU once the agreement is signed and ratified by both sides. Similarly, 90 per cent of EU exports will see reduced or zero tariffs. Tariffs on certain items, like automobiles, will be reduced in a phased manner.
India will slash tariffs on European cars from up to 110 per cent to 10 per cent for an annual quota of 250,000 vehicles, while wine duties drop from 150 per cent to 20 per cent or 30 per cent.
“We delivered the mother of all deals,” European Commission president Ursula von der Leyen said after summit-level talks with Indian Prime Minister Narendra Modi and European Council president Antonio Costa on Jan 27.
The FTA, she said, “will create levels of growth that neither side can achieve alone, and by combining this strength, we reduce strategic dependencies at a time when trade is increasingly weaponised”.
She called the agreement “a strong message that cooperation is the best answer to global challenges”.
Mr Modi described the agreement as “a new blueprint for shared prosperity”.
The FTA and the security pact are highly symbolic of a key strategic pivot for the middle powers looking to navigate a rapidly evolving geopolitical landscape by diversifying their economic reliance on China and the United States, and strengthening strategic ties.
The Europeans’ already strained relationship with their main ally was further roiled by US President Donald Trump’s willingness to ride roughshod over diplomatic norms in his recent attempt to own Greenland.
India’s impetus to find new markets was underscored by its floundering trade talks with the Trump administration, which has been irked by New Delhi’s purchases of Russian oil.
Decades in the making
The FTA sealed negotiations nearly two decades in the making.
EU-India trade talks, launched in 2007, stalled in 2013 over market access disputes, as the EU pushed for import duty cuts on automobiles, wine and spirits, and India sought greater access for its pharmaceuticals and easier movement of its professionals. Talks were formally relaunched in 2022 amid supply chain shocks following the Covid-19 pandemic.
The FTA spells hope for Indian exporters, including those in areas like gems and jewellery and textiles, who have been hit hardest among all countries by a 50 per cent tariff from the US, and could benefit from greater access to the European market.
However, exporters will not see immediate relief as the agreement still needs legal vetting and ratification by both sides.
Commerce and Industry Minister Piyush Goyal said they hope to implement the FTA this year.
Lower tariffs do not automatically mean market access as India seeks to push manufacturing to become more globally competitive.
“Tariff reduction yes, but what will be the effective market access? That is something that will really need to be seen,” said trade expert Biswajit Dhar, a former professor at Jawaharlal Nehru University, pointing to the EU’s stringent regulations and non-tariff barriers.
“It is not as if the problem created by the US is suddenly resolved by EU market access.”
Still, industry bodies in India view the pact as a major breakthrough.
“The FTA eliminates tariff on 100 per cent of apparel tariff lines, which will enhance market access to all member countries of the EU,” said Dr A. Sakthivel, chairman of India’s Apparel Export Promotion Council.
Trading of goods between India and the EU stood at US$136 billion (S$172.1 billion) in the 2024-2025 financial year, according to data from the Indian Ministry of Commerce and Industry.
European Commission data puts India as the EU’s ninth-largest trading partner at 2.4 per cent of total trade in goods in 2024. The US and China accounted for 17.3 per cent and 14.6 per cent, respectively.
India, once wary of FTAs, has moved quickly over the past seven months to finalise agreements with Britain, New Zealand and Oman. It is also seeking to update older pacts like the 2010 India-ASEAN Trade in Goods Agreement.
For the EU, closer ties with India will open access to a large consumer market and strengthen its strategic footprint in Asia.
The two sides also appeared to have reached some compromise in sensitive areas like the EU’s Carbon Border Adjustment Mechanism. In full force from Jan 1, 2026, this regulation imposes a carbon price on certain imports, including iron and steel that India exports to the EU.
Under the FTA, any concessions given to other countries will also apply to Indian exporters.
A mobility agreement was also struck, which Dr von der Leyen said would make it easier for Indian students, researchers and seasonal and highly skilled workers to go to Europe. She also announced the creation of a European Legal Gateway Office to aid worker mobility.
Ms Priyam Gandhi-Mody, executive director of the Future Economic Cooperation Council, a non-profit, said the agreement sent a strong message of cooperation at a time when protectionist tendencies were getting stronger.
“This is a big step forward for the world. It signifies there is belief in globalisation and protectionism is not the way to go.”
Still, India has protected sensitive areas like dairy and agriculture, with Mr Goyal saying that both sides had ensured such items were either kept out of the ambit of the FTA or subject to gradual tariff reductions.
Closer military ties
Alongside the economic pacts, New Delhi and Brussels also signed a defence pact on Jan 27, against the backdrop of the US’ increasing protectionism and waning appetite for global leadership.
The India-EU Security and Defence Partnership covers maritime cooperation through increased naval exercises, anti-piracy operations and collaboration on cyber security.
Still, differences remain.
Europe is critical of India’s longstanding friendship with Russia
A joint statement after the summit said “both sides will continue to support efforts towards the achievement of a comprehensive, just and lasting peace in Ukraine through dialogue and diplomacy”.
“I think the message, of course, to the US would be that for all the uncertainties that Mr Trump has created here, there are like-minded partners that are still willing to bet on each other and work with each other,” said Professor Harsh V. Pant, vice-president of studies and foreign policy at the Observer Research Foundation in New Delhi.
“It shows how far the world order has evolved for an actor like the EU, which had been diffident about defence and strategic matters but suddenly now is willing to bet on India.”
