India-EU trade deal talks set to begin Monday amid major unresolved issues

New Delhi: India and the European Union (EU) are all set to engage in the 10th round of negotiations for the broad-based trade and investment agreement (BTIA) in Brussels from 10-14 March, as both sides aim to resolve key issues and finalise the long-pending trade deal by the end of the year.

The negotiations, which began in 2007, have moved slowly due to disagreements over market access, tariffs, regulatory standards, and sustainability commitments. However, recent high-level engagements, including European Commission President Ursula von der Leyen’s visit to Delhi in February, have added momentum to the process.

According to a report by the Global Trade Research Initiative (GTRI), critical sticking points remain in agriculture, dairy, automobiles, wine, textiles, services, and investment protection. The EU is pushing for tariff removal on over 95% of its exports to India, while India is considering opening up to 90% of its market, as per the GTRI report.

Agriculture remains a contentious area, with the EU seeking lower duties on cheese and skimmed milk powder, which India protects to support its dairy farmers. GTRI noted, “India’s dairy sector is highly sensitive, with millions of small farmers dependent on it. Reducing tariffs on EU dairy products could hurt domestic production.”

In the automobile sector, European manufacturers want India to reduce import duties on fully built cars from the existing 100-125% to around 10-20%. However, India remains cautious.

“The automobile sector is a major contributor to India’s manufacturing GDP and employment. Any drastic tariff cut on European luxury cars could impact domestic manufacturers,” said Ajay Srivastava, the founder of GTRI.

A compromise may involve allowing a limited number of European cars at lower tariffs, as seen in India’s agreement with Japan.

For better access for textile exports

India is also seeking better access for its textile exports, which currently face EU tariffs of 12-16%. The report states that “removing tariffs on Indian textiles from day one of the agreement could boost India’s exports significantly, helping its labour-intensive industry compete with Bangladesh and Vietnam”.

The services sector presents another challenge. India wants recognition as a data-secure country under the EU’s General Data Protection Regulation (GDPR) to facilitate digital trade, as well as easier short-term business visas for its professionals.

The EU, in turn, is demanding greater access to India’s banking, financial services, and legal services sectors. GTRI report notes that “India faces barriers such as high salary thresholds and local hiring requirements in the EU, which limit the movement of its IT professionals.”

Investment protection remains unresolved, with the EU seeking stronger safeguards for its investors. India, however, is firm on its Model Bilateral Investment Treaty, which prioritises regulatory autonomy, as per the report.

“India had terminated 22 investment treaties with EU nations earlier, citing concerns over excessive investor rights. Any new investment rules will need to strike a balance between protection and India’s policy space,” the report said.

Sustainability and labour issues are another area of divergence. The EU is pushing for binding commitments on labour rights and environmental standards, while India prefers a flexible approach. Additionally, the EU’s Carbon Border Adjustment Mechanism (CBAM), which imposes additional tariffs on carbon-intensive imports such as steel and aluminium, is a major concern for India.

“Even if a trade deal is signed, CBAM could negate the benefits for Indian exports. India must negotiate exemptions or compensatory measures,” as per the GTRI report.

The ninth round of negotiations between India and the European Union (EU) for FTA took place in New Delhi from 23–27 September 2024. The talks focused on core trade issues, including goods, services, investment, and government procurement.

Mutual benefits understood

Despite these hurdles, both sides recognise the benefits of a trade agreement. Bilateral trade between India and the EU reached $190 billion in FY2024, making the EU India’s second-largest export market after the U.S. The GTRI report notes that “India stands to gain significantly in textiles, pharmaceuticals, and services, while the EU could expand its presence in India’s automobile, financial, and technology sectors.”

Talks resumed in 2021 after years of deadlock, and negotiations were relaunched in 2022 with a broader scope covering trade, investment protection, and geographical indications. “With both sides pushing to conclude the deal in 2025, the coming months will be crucial in determining whether a breakthrough can be achieved after nearly two decades of discussions,” said Srivastava.

India’s alcoholic beverage trade with the EU shows a significant gap, particularly in wines. In 2024, India exported just $1.5 million worth of wines to the EU, while its imports stood at $412.4 million. In spirits, India exported blended whiskeys, vodka, brandy, and liqueurs worth $64.9 million, compared to imports worth $22.3 million, mainly consisting of brandy, gin, tequila, vodka, and liqueurs.

In FY 2024, India’s key goods imports from the European Union included machinery and computers worth $12.9 billion, with turbojets accounting for $1.6 billion. Electronics imports stood at $10.2 billion, driven by mobile phone parts worth $2.8 billion and integrated circuits (ICs) valued at $1.8 billion. Aircraft imports amounted to $5.4 billion, while medical devices and scientific instruments were valued at $3.6 billion.

In FY 2024, India’s key goods exports to the European Union were led by petroleum products, totaling $19.9 billion, with diesel exports accounting for $12 billion and aviation turbine fuel (ATF) contributing $6.8 billion. Electronics exports stood at $8 billion, driven by smartphone shipments worth $4.3 billion.

The textile and garment sector saw exports of $1.6 billion and $5.1 billion, respectively. Machinery and computers were exported at a value of $5.2 billion, while organic chemicals contributed $5 billion. Iron and steel exports stood at $4.7 billion, and gems and jewelry shipments were valued at $3 billion. Pharmaceuticals exports reached $2.9 billion, and auto parts exports totaled $1.6 billion.