Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
New Delhi and Brussels have agreed a trade deal that will eliminate up to €4bn of tariffs on EU exports and could double shipments from the bloc to India.
The pact, billed by Brussels as the largest ever concluded by either side, will slash or reduce tariffs on 96.6 per cent of EU exports to India, reducing the costs of European goods, including cars, alcohol and machinery. Sensitive agricultural sectors for both sides, such as dairy, sugar and some meats, were left untouched.
The sides sealed the agreement on Tuesday during a visit to India by European Commission president Ursula von der Leyen and European Council president António Costa.
“Dear prime minister, we did it. We delivered the mother of all trade deals,” von der Leyen told India’s Narendra Modi. “This is a tale of two giants — the world’s second and fourth-largest economies,” she added.
Modi hailed a “new era” in relations at the signing ceremony. He said the agreement “will make access to the EU market easier for our farmers and small businesses”.
Both Brussels and New Delhi have faced a barrage of tariffs from US President Donald Trump, who has imposed levies of up to 50 per cent on some Indian exports over the country’s purchases of Russian oil.
Last week, Trump threatened EU countries with additional tariffs of 10 per cent if they opposed his ambitions to control Greenland.
“In an age of trade wars and great-power coercion, New Delhi and Brussels have chosen not retreat but alignment,” said Brahma Chellaney, a professor at the Centre for Policy Research think-tank in New Delhi. He added that the deal would make the India-EU relationship “a strategic anchor of the 21st-century global order”.
New Delhi’s tariff reductions are part of Modi’s efforts to open up the country’s cosseted economy and attract investment to join global supply chains.
Levies on European cars will be gradually reduced from 110 per cent to 10 per cent, with a quota of 250,000 vehicles a year.
Tariffs of up to 44 per cent on machinery, 22 per cent on chemicals and 11 per cent on pharmaceuticals will be mostly eliminated. Steel and iron levies of up to 22 per cent will also be phased out over a 10-year period.
Tariffs of more than 36 per cent on European food products, which the EU called “prohibitive”, would also be reduced or removed, the bloc said.
Indian tariffs on EU wine will fall from 150 per cent to 75 per cent and eventually to levels as low as 20 per cent, while those on olive oil will go from 45 per cent to zero over five years. Tariffs on processed agricultural products, such as bread and confectionery, of up to 50 per cent will also be eliminated.
The deal will go to the European parliament and EU member states, as well as India’s cabinet, to gain approval before it comes into effect. The EU and India trade more than €180bn worth of goods and services per year, according to Brussels.
The EU has also promised €500mn to support Indian industry’s efforts to decarbonise, after New Delhi sought to avoid the bloc’s new carbon tax on steel, chemicals and other goods.
India has sealed a flurry of recent trade pacts, including with the UK, New Zealand and Oman. Modi’s government has closed or is negotiating agreements with countries that account for about 55 per cent of its total trade, according to Barclays economists.
European industry groups welcomed the deal, which trade group Spirits Europe called “transformational”.
India Business Briefing
The Indian professional’s must-read on business and policy in the world’s fastest-growing big economy. Sign up for the newsletter here
But some were sceptical about whether India would drop more trade barriers. Steel industry group Eurofer said ahead of the agreement that trade was “heavily unbalanced, largely as a result of highly protectionist steel standards and procurement policies in India”.
The Indian dairy industry, a politically delicate sector for New Delhi, was excluded. Sensitive European agricultural sectors, such as beef, chicken, rice, sugar and ethanol, were also carved out of the agreement.
EU lawmakers last week voted to postpone ratification of a long-sought trade agreement with the Mercosur group of South American economies, which was opposed by farmers in the bloc who argue that they cannot compete with cheaper imports.
Additional reporting by Krishn Kaushik and Chris Kay in Mumbai. Data visualisation by Haohsiang Ko in Hong Kong
