The long-awaited trade deal between the EU and India was finally signed last week, after 20 years of negotiations. The Free Trade Agreement (FTA) will create a market of app. 2 billion people, while 97% of EU export value to India, and 99% of Indian export value to the EU will receive duty-free or lower-tariff access once the agreement is fully implemented. For the full detailed overview, keep reading below.
The “Mother of All Deals”, as the recent EU-India FTA is being hailed as, contains massive and comprehensive changes to the trade between the two countries. The Agreement, once implemented (requires ratification by EU states & India), will cover a market of app. 2bn people, and the size of the agreement is huge. There is a reason it took 20 years to be ironed out.
Overall, the India-EU FTA will eliminate or sharply reduce import duties on the vast majority of goods traded between the two regions. India will eliminate or cut tariffs on over 90% of EU exports, while the EU will eliminate duties on 99.5% of imports from India, in a phased schedule. In value terms, 99.5% of bilateral trade will receive some tariff concessions under the deal. When the agreement is implemented, India will drop tariffs to 0% on 30% of its imports from the EU, while the EU will immediately eliminate tariffs on 90% of imports from India. After the full phase in (mostly within 5-7), India offer covers 92.1% of its tariff lines, or in value terms, 97.5% of its imports from the EU. It should be noted that certain sensitive sectors were not included or given partial liberalisation through duty reduction schedules, tariff-rate quotas (TRQs), or exclusions to protect domestic interests on both sides.
EU – India total exports and imports* (2020 – 2024, EURbn)
Source: Eurostat, InterCapital Research
*All data based on Eurostat nomenclature
Looking at the deal more closely, several sectors stand out in the agreement. These include automobiles, industrial goods and machinery, textiles and apparel, agriculture and food products, and steel. Two separate categories, i.e. carbon tariffs and TRQs, are also worth mentioning.
Automotive Industry
In this sector, India’s import duties on fully built cars in the EU, which have been as high as 100-110%, will be reduced to 10% over a transition period. At the FTA’s launch, tariffs on most EU-origin cars will drop to about 30-35%, then phased down to 10% over the following years, with the phase period ranging from 5-10 years. Furthermore, these reductions are subject to an annual quota of 250k vehicles imported from the EU, with only higher-end cars qualifying, i.e., EU cars priced before 15k are excluded from the tariff concessions.
Furthermore, vehicles are segmented into categories with separate quotas for internal combustion engine (ICE) vehicles and electric vehicles (EVs). For these, 160k ICE cars and 90k EVs can enter the Indian market per year at preferential rates once fully phased in. It is important to note that no duty cuts will apply to imports beyond these quotas, and completely knocked down (CKD) car kits remain excluded from the tariff reduction to support Indian domestic assembly.
This change is set to strongly benefit car makers such as Volkswagen, BMW, Mercedes-Benz, Renault, among others. As a point of reference, the 250k vehicle quota strongly exceeds the 37k annual cap India has granted the Uk in a smaller deal, showing just how massive this deal is. On the EU side, the 10% car import tariff will be eliminated on Indian vehicles over a 7-year period.
EU – India exports and imports cars & car parts* (2020 – 2024, EURbn)
Source: Eurostat, InterCapital Research
*All data based on Eurostat nomenclature
Industrial Goods & Machinery
In the industrial goods & machinery sector, India will scrap tariffs on most industrial goods imported from the EU. This includes removal of duties that were as high as 44% on machinery and electrical equipment, up to 22% on various chemicals, and around 11% on pharmaceuticals. This will make European capital goods, high-end equipment and inputs cheaper in the Indian market, lowering costs for Indian manufacturers and consumers.
On the other hand, the EU will remove its remaining industrial tariffs on Indian goods, although these were already pretty low, with an average rate of 4%. Furthermore, Indian medical devices and appliances, facing an average tariff of 6.7%, will see 99% of tariff lines eliminated, boosting Indian high-end exports such as optical lenses, medical instruments, and measuring equipment to Europe. In general, the EU’s average tariff on imports from India in this sector will decline from 3.8% currently to just 0.1% under the FTA.
EU – India exports and imports of industrial goods and machinery* (2020 – 2024, EURbn)
Source: Eurostat, InterCapital Research
*All data based on Eurostat nomenclature
Textiles and Apparel
For textiles and apparel, India is the major winner in the deal. The EU will grant zero-duty access on all textiles and clothing imports from India, eliminating tariffs that currently run up to 12%. This covers yarns, fabric, ready-made garments and home textiles across all tariff lines. As India is a major producer of these items, gaining duty-free entry into the EU’s apparel market (valued at USD 263bn) is expected to significantly boost India’s exports. This will also even the playing field in terms of competitiveness, bringing India into similar EU preferences to Bangladesh and Vietnam.
From the EU side, its textile industry should benefit from cheaper inputs of items like the cotton yarn from India. EU tariffs on Indian footwear and leather goods, which currently run up to 17%, will also be eliminated. India will maintain its own tariffs on certain textile and apparel imports from the EU for a few years before eventual elimination. In general, 70.4% of EU tariff lines, covering 90.7% of India’s export value, will become duty-free immediately upon implementation, particularly benefiting labour-intensive exports such as textiles, garments, leather products, sports goods, toys, gems, and jewellery.
EU – India exports and imports of textiles and apparel* (2024 – 2024, EURbn)
Source: Eurostat, InterCapital Research
*All data based on Eurostat nomenclature
Agriculture and Food Products
Moving on to agriculture and food products, due to the importance of this sector for both regions, it was among the most sensitive areas of negotiations. India has agreed to cut or remove many EU agri-food exports, especially processed food and beverages, albeit with several safeguards. Indian tariffs, which averaged over 36% on the EU food products, will be strongly reduced in many cases. European wines and spirits will see a steep duty reduction; India’s import tariff on premium wines, currently at 150%, will drop to 75% in the first year, and then gradually to 20-30% at the end of the phase-in.
For spirits like whisky, vodka, and others, tariffs up to 150% currently will be lowered to about 40% over 70%, and slightly longer for gin, at 10 years. Beer, olive oil, speciality processed foods, such as pasta, chocolates, and cheese, will also have import duties eliminated or substantially cut over the implementation period. These concessions will make European food and beverage exports substantially more affordable in the Indian market. On the other hand, the EU will eliminate tariffs on key Indian agricultural and seafood exports, except for a few sensitive items. Indian maritime products, such as shrimp or fish, which currently face a 26% tariff, will now enter at 0% tariffs. Likewise, Indian Tea, coffee, species, certain foods and vegetables, processed foods, and meats, in particular, sheep/goat meat, will gain duty-free or preferential access to the EU.
Furthermore, Indian table grapes, gherkins, dried onions, and sweet corn are among the items that will see better terms. However, both sides have protected their most sensitive farm sectors; India will keep items like beef, dairy, poultry, rice, and sugar entirely outside the FTA’s tariff reductions. Likewise, the EU will maintain existing tariffs, or minimal quotas, on items such as beef, poultry, sugar, wheat flour, garlic, and ethanol.
Without these concessions from both sides, the deal could not have been reached, as both European & Indian farmers worried about the impact. In addition to all of this, the FTA includes a special safeguard mechanism for agriculture, allowing temporary tariff increases or import quantity restrictions if a surge in imports threatens to disrupt domestic markets.
Also, the EU affirmed that its stringent food safety and sanitary standards will remain unchanged, meaning that all Indian agricultural exports must continue to meet all EU standards, although the agreement seeks ways to facilitate meeting those standards.
EU – India exports and imports of food & beverages, incl tobacco (2020 – 2024, EURbn)
Source: Eurostat, InterCapital Research
*All data based on Eurostat nomenclature
Another major part of this is the so-called non-tariff provisions. While this doesn’t affect the agricultural sector only, the FTA aims to establish enhanced cooperation on technical barriers to trade; both sides will work towards mutual recognition of conformity assessment results, meaning products tested and certified in India could be accepted in the EU and vice versa, in certain sectors. Furthermore, the agreement also clarifies that, if India can demonstrate its food safety measures for products achieve the same level of protection as the EU’s, the EU could accept India’s standards as equivalent. Another piece of this pie also includes enhanced information-sharing, digital certification, and cooperation in international standard-setting bodies.
Sanitary and Phytosanitary Measures (SPS) are also key for the food and agricultural trade. The FTA will establish a Joint Working Group for this, bringing regulators together to promptly address market access issues related to plant/animal health. The two regions agreed to increase transparency in SPS import requirements. Equivalence and regionalisation principles, also agreed upon, mean that India can request recognition of its disease-free areas or demonstrate that its inspection systems for certain products are robust enough for the EU to ease restrictions.
In practical terms, this part of the mechanism (which is far more comprehensive than what we described here) will mean that both Indian and EU exports will face fewer rejections and faster clearances.
Steel
In this sector, India negotiated improved access to the EU’s existing tariff-free steel import quotas. The EU will allocate India a quota of 1.6m metric tons of steel per year, duty-free under its safeguard regime. While this amounts to about half of India’s annual steel exports to the EU, it still guarantees substantial access even as the EU is cutting its global steel import quotas by 50%.
EU – India exports and imports of steel & iron* (2020 – 2024, EURbn)
Source: Eurostat, InterCapital Research
*All data based on Eurostat nomenclature, includes steel & iron products
Besides these general groups, there are many other changes recorded in the deal. Carbon tariffs, for example, under the EU’s new Carbon Border Adjustment Mechanism (CBAM), which will apply carbon levies on certain imports, such as steel, cement, and aluminium from 2026 onwards, are not waived for India in this deal. As such, the country did not receive a country-specific exemption from EU carbon duties. However, the FTA did establish a technical working group that will help Indian companies measure and verify the carbon footprints of their exports and prepare for the EU’s carbon requirements. The EU also agreed in a side understanding to provide technical and financial support to help India’s industries reduce emissions. Lastly, India retains the right to seek adjustments if the EU were to offer any flexibility on carbon tariffs to another country in the future, the so-called “no discrimination” assurance.
One other notable category is the tariff-rate quotas, TRQs. A small number of products will be subject to quantitative limits under TRQs rather than full duty implementation. On India’s side, TRQs will apply to certain European fruits, such as apples, pears, peaches, and kiwi, which will have reduced or zero tariffs up to a volume limit. India will also use TRQs for some dairy or poultry products, though core sensitive items remain excluded.
On the EU’s side, a few Indian agricultural exports, such as rice, sugar, and sweet corn, will enter under TRQs to cap volumes. Besides these changes, the FTA also includes changes to customs facilitation, intellectual property rights protections, and a dispute resolution mechanism.
Services
Besides goods, significant changes were agreed upon in services as well in this FTA. The aim here is to liberalise services and facilitate investments between the two economies. Both sides have offered each other substantial market access in services, exceeding what they have committed to at the WHO. In terms of market access, the EU has offered India access to 144 services sub-sectors, while India, in turn, is opening 102 sub-sectors to EU service providers.
EU – India total exports and imports of services (2020 – 2024, EURbn)
Source: Eurostat, InterCapital Research
*All data based on Eurostat nomenclature
This is an extensive coverage across sectors such as IT, professional services, such as engineering, legal, and R&D, business services, telecommunications, financial services, such as banking and insurance, transportation, such as maritime and shipping services, environmental services, education, among many others. For India, the EU’s commitments ensure a stable, non-discriminatory regime for Indian companies delivering services in Europe.
On the Indian side, key EU priorities have been addressed; India’s offer in 102 sub-sectors covers EU interests such as professional services (consulting, accounting, etc.), financial services, telecom, maritime and environmental services, among others. This will give European companies more predictable operating conditions in India’s service market, enabling investment and provision of innovative services across many service sectors. The deal will also allow higher foreign ownership limits in India and lower local partner requirements. Both parties also promised national treatment, i.e. treating foreign service providers on par with domestic providers. The deal also significantly expanded the temporary movement capabilities of professionals between the regions, including business visitors, intra-corporate transferees, contractual service suppliers, and independent professionals, although these categories and their allowance vary between sub-sectors.
Investment liberalisation was also one of the key points, with FTA aiming to facilitate bilateral investment flows. Both parties have committed to a liberal, non-discriminatory investment climate, meaning foreign investors from the other party will generally receive treatment no less favourable than domestic investors. The overall focus here is on the simplification of procedures, transparency, and cooperation in possible investment promotions.
As we said in the beginning, the deal is huge and is rightly called “The Mother of All Deals”. More provisions include digital trade provisions, intellectual property rights, sustainability and environmental clauses, labour standards and social protections, among others.
If this deal is to be ratified by the EU countries and India, it should greatly benefit trade and growth in both regions. At the end of the day, tariffs have proven historically to be quite ineffective, in most cases, increasing costs for the consumers in the country that uses them. With the uncertainty, especially related to trade and relations that are faced by many countries today, reducing trade barriers is a highly positive sign.