Image source: Getty
Since the president of the EU Ursula von der Leyen Visit to India From February 27 to 28, accompanied by 22 of the 27 European commissioners, the momentum to conclude the Indian-EU (ALE) free trade agreement has visibly accelerated. High -level discussions covering trade, technology, security and defense have transmitted the criticality of the agreement for both parties in a rapidly evolving geopolitical landscape. However, the ambitious objective set by President von der Leyen and Prime Minister Naretra modified to finalize negotiations by the end of 2025 are considered with skepticism, such as major obstacles like India High prices on agricultural imports And strict EU regulations persist.
The impasse in the ALE negotiations in 2013
India was one of the first diplomatic partners of the European Economic Community, the relationship being high to a “Strategic partnership” In 2004. ALE negotiations began in 2007 due to growing economic ties, India rising from the EU 15th The largest trading partner in 2002 at his 10th The largest in 2007. Negotiations covering goods, services, intellectual property and sustainable development continued for 15 laps before stopping suddenly in 2013 due to a “” “Ambition gap».
India was one of the first diplomatic partners of the European Economic Community, the relationship being high to a “strategic partnership” in 2004.
Despite a decade of negotiations, no agreement has been concluded. However, India-EU relations have continued to strengthen and evolve over the years. Bilateral trade between India and the EU has reached us$ 137.41 billion During the financial year 2023-24, making the largest trading partner in EU India. Services trade has also experienced coherent growth, reaching us$ 59 billion in 2023Alongside a strong investment imprint, as more than 6,000 European companies now operate in India.
Several factors have contributed to the disruption in discussions in India-EU and continue to play an essential role in training current discussions:
- Standing on market priorities:
The EU pleaded for increased access and a 150% reduction In the prices of the wine, cheese and spirits sectors, while also looking for agricultural concessions. These sectors are particularly sensitive to India, because a large percentage of the population derives its means of subsistence from agriculture. In India, Over 60% of the population is based on agriculture, compared to Less than 2% In the most populous Member State of the EU, Germany, making the liberalization of the market politically and socially difficult.
- Strategy led by India services:
The young, qualified and English workforce of India underpins its emphasis on the trade in liberalization services, in particular under Modes 1 and 4 of the general WTO Agreement on Services Trade (GATS). India has prioritized market access to its service providers on goods trade, a request that the EU was reluctant to respond.
The breakdown of negotiations has undoubtedly had a greater negative impact on India. With the suspension of preferential tariff treatment under the Generalized preferences scheme (GSP) At the beginning of 2023, India is now negotiated with the EU only under the WTO Most favored nation (MFN) Principle. Meanwhile, competitors like Vietnam, Bangladesh and Sri Lanka appreciate preferential prices. The restoration of the GSP advantages could offer a certain relief, but a complete ALE would offer India much higher and long -term strategic advantages.
India has prioritized market access to its service providers on goods trade, a request that the EU was reluctant to respond.
Discord points in recovery negotiations
India and the EU concluded 11 Negotiation cycles Since the talks resumed in 2022, aimed at finalizing what could be the The largest EU Ale. The snacks for both parties include agriculture and dairy products, government purchases, labor standards, sustainable development and investment -related critical problems. Among these, several have become central to determine the path to follow:
- Agriculture and dairy products:
India argues that high prices are necessary to protect its small producers. He imposes a 39% prices on agricultural imports, considered unfair by the EU against an average MFN rate of 11.7% on Indian exports. This protectionist position remains a key obstacle, the former German vice-chancellor Robert Habeck even offering the Exclusion from agriculture Ale to advance talks on industrial trade. Additional friction stems from EU requests to Best access to India dairy marketIn particular for European cheeses – a sector that employs several women and vulnerable groups in India.
- Services:
In the trade in services, the main challenges are not resolved and can only be met by reciprocity. India seeks Mutual recognition agreements (ARM) For professional qualifications in fields such as medicine, engineering and accounting, because the current rules of EU visas impose high minimum wage thresholds. The EU also limits the provision of remote services (Mode 1) by forcing Indian companies to set up local offices, by reversing the objective of digital trade. In addition, India has long urged the EU to grant the status of “secure data” General Data Protection Regulations (GDPR). Without this designation, Indian companies are disadvantaged by higher compliance costs and legal obstacles when managing the data of EU citizens 一 hedges not face by counterparts in Japan or South Korea.
India is looking for mutual recognition agreements (ARM) for professional qualifications in fields such as medicine, engineering and accounting, because the current EU visa rules impose high minimum wage thresholds.
- Carbon border adjustment mechanism (CBAM):
Indian stakeholders have raised concerns about the evolution of EU sustainability regulations, which pose significant challenges for small and medium -sized Indian enterprises. The chief among these is the Cbamimposing a 20–35% sample on imports with high carbon intensity. CBAM poses the biggest challenge for India among EU’s environmental measures because it targets a larger and more precious export base. Originally covering iron, steel, cement, aluminum and fertilizers, CBAM has spread to include indirect hydrogen emissions, which makes it difficult for countries with fewer resources to comply with regulations. This is particularly worrying for India, whose iron and steel exports to the EU have been evaluated for us$ 6.64 billion During the year 2023-24.
Although intended for major transmitters like China and Russia, CBAM has drawn critical of the Minister of Commerce Piyush Goyal, who argues it disproportionately Development expenses like India, although it is the lowest world -class transmitter in the world. Confidentiality problems have further agitated CBAM’s acceptability in India because it requires submission of 1,000 data points During the transition period until January 2026.
Approach the CBAM and wider commercial barriers
One of the means to compensate for the impact of CBAM, as suggested by a European delegation directed by Gerassimos Thomas, is through Domestic carbon price. However, this poses challenges for developing countries where the introduction of a carbon tax can face public resistance due to the higher marginal cost. The regressive nature of CBAM, linked to consumption levels, exacerbates this problem. However, well -designed carbon policies can relieve. For example, in 2018, Argentina imposed a United States$ 10 per carbon tone carbonwhich, despite being lower than EU rates, alignment signals to resolve emissions and reduce CBAM costs. To legitimize the CBAM, the EU should reframe it in the context of a broader climate cooperation strategy, extend the exemptions under the MFN principle and focus on redistribution of projections 1.6 to 3.4 billion dollars In income to combat global disparities in green funding.
Its FTA with Singapore and Vietnam illustrate flexible approaches such as the example of sensitive sectors or allow progressive liberalization.
Beyond non-pricing obstacles, traditional tariff barriers are hampering the India-EU trade negotiations. While proposals to temporarily exclude ALE agriculture can reduce friction, significant obstacles persist in the industrial sector. Progress will require flexibility on both sides. For India, this could mean improvement Access behind borders And recognizing that his rates remain among the highest in the world. THE Eu-mercosur ftawho tackled several Non-tariff problemscan offer useful information. On the EU side, priority to pragmatism on perfection is crucial. His fta with Singapore and Vietnam Illustrate flexible approaches such as the exemption from sensitive sectors or allowing parasitic liberalization. With India, sectoral exhibitions through the Commerce and technology advice (TTC), while postponing more controversial areas like agriculture, can prove to be a more effective strategy.
While India rolls up AGLE Negotiations with the United Kingdom after three and a half years, the enthusiasm finally develops to finally seal the Imminent India-EU agreement, having been in progress for more than a decade. Several key problems covered in the agreement in India-Uk are also in good place in the current talks with the EU. For example, while the CBAM remains uncertain In the India-UK agreement, India has undertaken to gradually reduce 90% prices goods exchanged during the decade. These developments could pave the way for smoother negotiations to finalize the Indian-EU FTA, strengthening the von der Leyen REMARK That the planets can indeed be aligned this time.
Nayana Sharma is a research trainee at the observing research foundation.
The views expressed above belong to the authors. ORF research and analyzes now available on Telegram! Click here To access our organized content – Blogs, long forms and interviews.
About The Author
