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The leaders of the European Union and India announced a comprehensive trade deal on Tuesday, which comes after nearly two decades of negotiations that have been increasingly urgent in the past six months after US President Donald Trump imposed tough tariffs.
Both Indian Prime Minister Narendra Modi and Ursula von der Leyen, president of the European Commission, have called it “the mother of all treaties.”
Modi reiterated that the trade agreement is the largest and most comprehensive ever signed by India, representing a third of all world trade.
The free trade agreement cuts tariffs on around 97 percent of European goods imported into India, and is expected to double EU exports to the South Asian country by 2032.
“We are creating a market of two billion people,” von der Leyen said when the deal was announced.
“This is a story of two giants, the second and fourth largest economies in the world. Two giants who choose to cooperate in a win-win way.”
India and the European Union have struck a long-term trade deal that will cut tariffs on many goods, aimed at boosting two-way trade and reducing dependence on the US.
The announcement of the landmark agreement came after India’s annual Republic Day celebrations, where von der Leyen and European Council President António Costa were honored as guests of honour. It is an event that Indian leaders often use to express their priorities.
To open a secure domestic market of India
The deal will remove India’s high-profile trade barriers and open up a tightly controlled domestic market for many goods, including European cars.
The price of cars bought in Europe from car companies such as Volkswagen, Renault and Mercedes-Benz will be reduced to 10% compared to the increase of 110% for other cars.
India also agreed to reduce duties on European wine, chocolate, and olive oil and other products.
For its part, New Delhi will benefit from the elimination of tariffs on textile goods, leather, gems and jewelry, and other goods entering the EU, and the agreement promises easy access for highly skilled Indian professionals to work in Europe – a big win for the country’s workers.
Von der Leyen said the agreement is “a strong message that cooperation is the best answer to global challenges,” and will “reduce strategic interdependence at a time when trade is increasingly weaponized.”
Negotiations following Trump’s prices, the war in Ukraine
A global challenge that many countries face is the Trump administration’s trade policy, which has already accelerated negotiations between EU leaders and New Delhi.
“This momentum we’ve seen is thanks to President Trump,” said Praveen Donthi, senior India analyst with the International Crisis Group.
Indian exports to the US were hit with a 50 percent tariff in August, part of which Trump signed as punishment for the country’s purchase of cheap Russian crude oil, after Moscow invaded Ukraine.
The EU, meanwhile, negotiated a 15 percent lower tariff last year, but the group of European countries faced the threat of additional tariffs after opposing the US president’s efforts to annex Greenland.
India has recently hosted a series of foreign leaders who have called on the country to sever trade ties in the face of growing threats from the US – including Canadian politicians, despite two years of strained ties stalling trade talks.
Foreign Minister Anita Anand was in Delhi and Mumbai last October, and Prime Minister Mark Carney plans to visit India in the coming months to try to sign deals on uranium, energy and minerals.
BC Premier David Eby is blasting India over national liquefied natural gas and mineral exports during his week-long trade visit, as the two countries untangle themselves from a diplomatic crisis sparked by Canada accusing India of involvement in the killing of a prominent BC Sikh activist.
According to Donthi, the free trade talks between the EU and India, which started in 2007 but ended in failure before resuming in 2022, were disrupted because Europe was slow to recognize the country’s growing importance in the world economy. But all that changed after the Russian invasion of Ukraine.
“They are awakened that India and Russia are good friends,” added Donthi, and he wanted to know “how to make India move forward. [their] long.”
In particular, Tuesday’s comprehensive agreement did not include contentious points of contention such as more access to India’s agriculture and dairy sectors — another indication that both sides were eager to sign the deal quickly.
The Modi government has also been under pressure to bring home good trade news, Donthi said, after talks between India and the US fizzled last year.
“This is New Delhi’s way of sending a message to its supporters and to the world at large: We will diversify. We will not depend on one big country, even if it is the most powerful country in the world.”
Officials said the formal signing of the agreement would take place later this year and, after extensive legal review, could enter into force as early as 2027.
