India and EU Take Steps Towards a Major Trade Agreement

India and the European Union (EU) are on the verge of concluding a significant free trade agreement, a move that is expected to yield substantial economic benefits for both parties. As European leaders prepare to attend India’s Republic Day celebrations, the urgency to advance trade discussions has become increasingly apparent in the current geopolitical landscape.

High-Profile Guests and Trade Talks

European Council President Antonio Luis Santos da Costa and European Commission President Ursula von der Leyen will be the esteemed guests at India’s upcoming Republic Day festivities. While the event will feature the customary state banquets and ceremonial elements, at the forefront of their agenda will be elevating trade negotiations with a nation poised to become one of the largest economies in the world.

This effort comes at a significant time, as the EU seeks to strengthen ties amidst complicated international relations, particularly in light of volatile trade policies from the United States. The invitation to the European leaders signals India’s intention to diversify its international relationships and ensure its economic independence.

An expert from the Chatham House think-tank, Chietigj Bajpaee, remarked that this move signifies India’s commitment to a multilateral foreign policy, ensuring it is not excessively influenced by the changing whims of U.S. policies.

An Agreement on the Horizon?

Both leaders are expected to convene for a high-level summit on January 27, where a historic trade deal might be announced. Both von der Leyen and India’s Trade Minister Piyush Goyal have dubbed this agreement as the “mother of all deals,” emphasizing the significance of finalizing negotiations that have been in the works for nearly two decades.

The anticipated trade pact represents India’s ninth free trade agreement in just four years, following similar deals with the UK, Oman, and New Zealand, among others. For the EU, this move follows recent agreements with the Mercosur trading bloc, Japan, South Korea, and Vietnam.

As geopolitical tensions have intensified, both parties are eager for a reliable partnership in trade—India to mitigate challenges with U.S. tariffs and the EU to reduce its reliance on an increasingly unpredictable China.

What’s at Stake for Both Sides?

The potential fostering of deeper trade relations is crucial for the EU as India’s economy rapidly ascends the global ranks. India is projected to exceed $4 trillion in GDP this year, surpassing Japan and solidifying its position as the world’s fourth-largest economy.

As noted by von der Leyen at the World Economic Forum, a collaboration between the EU and India could give rise to a free market of around two billion individuals, representing a quarter of the global GDP. For India, the EU serves as its largest trading bloc. The completion of this trade agreement could reinstate the Generalised System of Preferences (GSP), which eliminates import tariffs on products from developing nations.

According to trade experts, regaining access to the EU market is vital for India, especially after the revocation of GSP benefits in 2023, which had hindered the competitiveness of many Indian exports.

Challenges and Considerations

Nonetheless, significant challenges remain in the path of this agreement. For the EU, a primary concern is robust intellectual property protection, while India is wary of new carbon tax regulations introduced by the EU, which could serve as a border charge on Indian goods, irrespective of the potential elimination of traditional tariffs.

Experts warn that this carbon border adjustment mechanism could create compliance hurdles for smaller enterprises in India, possibly stymieing the benefits of the trade pact.

In conclusion, whether this upcoming trade agreement ultimately results in a mutually beneficial partnership or becomes skewed will hinge on how these lingering issues are resolved. However, many analysts predict that this agreement could pave the way for India to move away from less reliable trading partners, reducing exposure to volatile tariffs and trade restrictions.