Though India expects the FTA would help increase agricultural exports, conformity with the EU’s strict food safety laws could be a challenge

Almost two decades after they agreed to initiate negotiations to formalise a bilateral Free Trade Agreement (FTA), India and the EU finally announced the conclusion of the agreement. The FTA promises to benefit the two partners, coming as it does at a time when the global economy is beset with uncertainties caused by Trump’s tariff war and the consequent dismantling of global trade rules. The escalating risk of trading with the US has forced major economies to explore ways of diversifying their export destinations. For both India and the EU, the newly minted FTA provides an opportunity to increase their bilateral trade and reduce their exposure to the US market.

This FTA promises to increase India’s presence in the market of one of its largest trade partners that accounted for over 17% of the country’s exports in 2024-25. India could benefit from the EU’s decision to eliminate import tariffs on 99% of its exports in terms of trade value. Several labour-intensive manufacturing sectors, including textiles and clothing, leather, footwear, marine products, gems and jewellery, and engineering and automobiles, could be among the major beneficiaries, as the EU has offered to remove import duties on almost $33 billion of India’s exports once the implementation of the agreement gets under way.

According to the Government of India, agricultural and processed food sectors could also receive “a transformative boost” under the India-EU FTA since commodities, such as tea, coffee, spices, fresh fruits and vegetables, and processed foods, are to gain additional market access. One of the major pluses for India is that its FTA with the EU does not require it to reduce import duties on major cereals and dairy products. India has, thus, been able to protect its sensitive agricultural products, preventing the farming community from facing adverse import competition.

Getting enhanced access in partner countries’ markets for service sectors has been among India’s key interests in bilateral trade deals. The EU seems to have met India’s expectations, as it has opened several sectors in which India has perceived strengths, including IT and IT-enabled services, education, financial services, and other business sectors. But the most noticeable gain for India in this sector is the EU’s commitment to provide “seamless movement of skilled Indian professionals”, which was one of India’s key demands.

For the EU, its two-decade wait for clinching this bilateral trade deal seems to be well worth it, as it has secured substantial concessions to increase its presence in the world’s 4th largest economy. India has offered to reduce or eliminate tariffs on 97% of its imports from the EU. Included in the concessions that India has offered are sharp reductions in the tariffs on automobiles from 110% to 10%, but future imports would be regulated through an annual quota. The EU would consider this as a major gain, since India had stridently refused to reduce tariffs on automobiles, preventing the deal from going through earlier.

India has agreed to reduce import duties on a range of products, including pharmaceuticals, processed agricultural products, and machinery, though in most cases, tariffs would be reduced after 5-7 years. This transition period should stand the Indian industry in good stead, for it needs to improve its competitive strength to face import competition.

Though India has kept major agricultural commodities out of the trade deal, it has opened its domestic market for processed agricultural products to the EU. Tariffs on processed food, such as confectionary, breads, pastry, pasta, chocolates, pet food, and sheep meat, would be phased out over a period of time.

The Indian government is quite upbeat about the prospects of benefiting from this deal stemming from the lower levels of tariffs offered by the new FTA partner. However, realisation of the expected benefits may not be easy, as the EU uses a plethora of regulations that act as non-tariff measures. Importantly, many of these key regulations are embedded in the FTA.

The chapter on Trade and Sustainable Development of the Agreement introduces two sets of regulations, one to enhance environmental protection and climate change, and the other for effective protection of workers’ rights. The EU has always favoured significant reduction of the carbon footprint, and for doing so, it has adopted strict domestic regulations for restricting emissions.

Earlier this year, the EU imposed the Carbon Border Adjustment Mechanism (CBAM), which is a carbon tax imposed at the border on imports. The CBAM would make it difficult for Indian businesses to enter the EU market, as they would have to bear high compliance costs, eroding their competitiveness. The only silver lining is that the EU has offered to extend to India some concessions that it had earlier provided to the US, which may benefit the MSMEs.

In all its FTAs, the EU has insisted that its partner countries must ratify the Core Conventions of the International Labour Organisation, ensuring effective protection of workers’ rights. India has not ratified two of the key conventions—freedom of association and the right to collective bargaining—to lend flexibility to its labour market. It would be of interest to see whether the EU forces the Indian government to amend its labour laws.

Though India expects that the FTA would help increase agricultural exports, conformity with the EU’s strict food safety standard laws could be a formidable challenge. The EU has explicitly stated that human, animal, and plant health is not negotiable.

India has accepted one of the EU’s major demands to implement a high level of protection and enforcement of intellectual property rights. Specifically, the EU demanded that India must protect new plant varieties using the provisions of the UPOV Convention, which prevents farmers from saving seeds from one harvest and reusing them in the next. India has in place a law that allows farmers to save their seeds, besides protecting new plant varieties developed by them. The centre must ensure that this legislation is not bartered away.

BISWAJIT DHAR