India and the European Union have begun the 10th round of Free Trade Agreement negotiations, aiming to finalize the pact by the end of 2025. Key issues include agricultural trade, tariff reductions on wines and automobiles, and market access for services. Both sides are also addressing challenges such as digital trade barriers and the EU’s carbon tax. Despite disagreements, there is a strong push to deepen economic ties and resolve issues for a mutually beneficial agreement.
India and the European Union (EU) have begun the 10th round of negotiations for their Free Trade Agreement (FTA), aiming to finalize the pact by the end of 2025. Several factors could drive these negotiations forward, including the ongoing global tariff war triggered by the U.S., and India’s revised stance on import duties in its latest budget. These developments create an environment where both parties may find common ground more easily than in previous rounds.
The talks in Brussels, scheduled from March 10 to March 14, follow high-level discussions in India last month, where European Commission President Ursula von der Leyen and a full delegation of commissioners engaged in detailed deliberations on the broader India-EU relationship. The EU represents an equally significant market for India as the U.S., with bilateral goods trade valued at US$ 190 billion. However, while trade discussions with the U.S. remain uncertain, negotiations with the EU have been ongoing since 2022 in their current phase. India’s key concerns in the FTA negotiations revolve around agricultural trade, tariff structures on wines and automobiles, and ensuring flexibility in the movement of professionals for services.
Experts highlight that both sides aim to expand trade, but disagreements persist over the extent of tariff reductions, regulatory barriers, and market access across various sectors. The EU is pushing for tariff elimination on over 95% of its exports, while India may only agree to open up about 90% of its market.
In agriculture, the EU is seeking lower tariffs on products like cheese and skimmed milk powder. However, India remains cautious due to the EU’s stringent regulatory standards, which could still pose hurdles for Indian farmers and food producers even if tariffs are reduced. The EU also wants India to slash import duties on wines from the current 150% to around 30-40%. Given that India previously offered a 50% tariff rate in its trade agreement with Australia, a similar approach could be considered for the EU. Key discussion points may include:
Labour-Intensive Sectors and Automobile Tariffs
India’s textile exports to the EU currently face tariffs of 12-16%, making them less competitive than exports from countries like Bangladesh and Vietnam, which enjoy preferential access under EU agreements. Reducing these tariffs could provide Indian manufacturers with better market opportunities.
In the automotive sector, EU manufacturers are pushing for a reduction in India’s import duties on completely built-up (CBU) vehicles from 100-125% to around 10-20%. While the EU already exports over $2 billion worth of automobiles and auto parts to India annually—primarily in completely knocked-down (CKD) form, which attracts a 15% tariff—India has been hesitant to lower tariffs for foreign carmakers, as seen in its past agreements with Japan and South Korea. A possible compromise could involve allowing a limited number of European vehicles to enter at reduced tariffs.
Services Sector and Digital Trade Barriers
In the services sector, European businesses are seeking greater access to India’s financial, legal, banking, accountancy, and auditing markets. Additionally, the EU imposes restrictions on remote service delivery and does not recognize India as a data-secure nation, which limits cross-border data flows—an issue India wants to address in the negotiations.
At the second meeting of the India-EU Trade and Technology Council (TTC) in New Delhi on February 28, 2025, both sides reaffirmed their commitment to deepening digital collaboration through the Working Group on Strategic Technologies, Digital Governance, and Digital Connectivity. They pledged to leverage their respective strengths to drive a human-centric digital transformation and advance trustworthy technologies, including AI, semiconductors, High-Performance Computing, and 6G, benefiting both economies and societies.
India and the EU also agreed to enhance joint research and innovation efforts to boost competitiveness while ensuring economic security. Additionally, they committed to strengthening global digital connectivity within a secure and resilient cyber ecosystem.
The Carbon Tax Debate and New Trade Challenges
A key challenge in the negotiations is the EU’s Carbon Border Adjustment Mechanism (CBAM), often referred to as a carbon tax. India has pushed for exemptions for its small and medium enterprises (SMEs), citing concerns that compliance costs could place a heavy financial burden on smaller businesses. During the recent TTC meeting, both sides recognized these challenges and agreed to explore measures to ease the impact on SMEs. Another regulatory hurdle is the European Union Deforestation Regulation (EUDR), which mandates that exporters to the EU verify their products do not originate from land deforested after December 31, 2020. This rule will come into effect on December 30, 2025, for large and medium-sized companies, while micro and small enterprises will have until June 30, 2026, to comply.
India has been raising concerns about these regulations in bilateral discussions for over a year, Additionally, India worries that these non-tariff barriers disguised as measures would limit its market access at a time when both sides are working toward finalizing a trade agreement. As negotiations resume, India and the EU face the challenge of balancing their economic interests while ensuring a mutually beneficial agreement. With the year-end deadline set, both sides may need to show flexibility and commitment to resolve outstanding issues and finalize a trade deal that strengthens their economic partnership.
