Trump's return to the White House has pushed India and the EU closer, with the EU re-evaluating its strategy towards India.

In February this year, all EU commissioners, including President of the European Commission Ursula von der Leyen, visited India, which left a deep impression. On February 28, Modi and von der Leyen in New Delhi pledged to complete a "mutually beneficial" free trade agreement by the end of 2025, and diversify cooperation by opening up to security and defense areas.

Six months later, as the US and China continue to increase political and commercial pressure on Europe, the EU announced a new strategy for the Indian subcontinent on Wednesday, September 17, seeking to deepen relations with India under Modi's leadership.

The strategy document states, "India is the world's leading democratic country and the fastest-growing major economy, an important partner of the EU." The strategy document also adds, "In an increasingly complex geopolitical and geo-economic environment, closer cooperation between the EU and India is more important than ever."

The EU seeks new opportunities

After being pressured by Trump to reach an asymmetrical trade agreement with the United States, the EU is seeking new opportunities and growth momentum. India, the most populous country in the world, is expected to become the third-largest economy by 2030, and is the top candidate for the EU.

The EU is India's largest trading partner, surpassing the US and China. In 2023, goods trade between India and the EU reached $135 billion, and services trade reached $53 billion. However, India still has considerable room for development, as the Indian subcontinent currently accounts for only 2.2% of the EU's goods trade, making it the tenth-largest trading partner of the EU. The European Commission hopes to find new opportunities in the Indian market, especially in automobiles, agricultural products, wines, and spirits.

India urgently seeks new export channels

India itself has been weakened by high tariffs imposed by US President Trump this summer. Since August 27, India has been eager to find new export channels for Indian products due to the impact of a 50% tariff from the US. According to estimates by Bloomberg Economics, the US tariffs could cost India one percentage point of GDP.

The EU and India hope to finalize the two-decade-long free trade agreement by the end of this year.

Obstacles in negotiations

The negotiations between the EU and India began in 2007, but have never yielded results. At that time, both sides promised to reach a trade agreement within two years, but after nearly twenty years, there has been no specific content. In June 2022, both sides resumed negotiations that had been suspended since 2013. Currently, the negotiations face many significant obstacles.

Firstly, tariffs. India is an extremely protectionist country, and Modi has always tried to protect its domestic market. So far, New Delhi's strategy has been to set tariff barriers, limit imports, and force foreign companies to invest, produce, and share their technology in India. India has a low level of industrialization. Indians are worried that opening up the market would lead to losses in Indian agriculture against more competitive European products. Nearly half of the population still directly or indirectly depends on agriculture.

Secondly, the negotiations have hit a deadlock on regulatory and standard issues. India accuses Europe of setting "unreasonable" and "intrusive" standards in environmental and labor laws, and believes Europeans cannot require India to provide the same level of protection.

Thirdly, India's demands for liberalization in the service sector ultimately hindered the agreement. New Delhi asked the EU to end restrictions on Indian IT companies sending employees to Europe.

In recent months, another new factor has disrupted discussions: the carbon border adjustment mechanism. Since 2023, the EU has implemented this mechanism, taxing imported products based on their carbon footprint.

International developments may provide momentum

However, international developments may provide the momentum needed to overcome negotiation obstacles. As a stabilizing force in a multipolar world, the EU and India benefit from a trade agreement. Piyush Goyal, India's Minister of Commerce, stated on September 12 that the pursuit of a "perfect agreement" should not hinder the conclusion of a trade agreement with the EU, highlighting the urgent situation facing New Delhi.

India initially seemed to be in a favorable position in trade negotiations with the US, but Trump suddenly changed his attitude towards India this summer. Frustrated by New Delhi's large-scale purchase of Russian oil, the president of the White House decided to raise the tariff on Indian goods from the already set 25% to 50%. In 2024, India's exports to the US were $87.3 billion.

Indeed, since Russia invaded Ukraine in February 2022, India's stance has been ambiguous. India claims to oppose the war, but has never explicitly condemned the aggressor, Russia. In military equipment, India, the Asian giant, still heavily relies on Russia, which is India's main supplier of military equipment. Since the conflict broke out, New Delhi, like Beijing, has significantly increased its purchases of Russian oil, bringing unexpected profits to Russia. Indian petrochemical giants import crude oil at low prices from Russia, refine it, and then sell the remaining crude oil at market price to Europe. India's demand for hydrocarbons is more than 80% dependent on imports, and purchasing Russian oil is considered crucial and necessary for India.

The EU is the main supporter of Ukraine, and the EU is also annoyed by India's opportunism, but the EU has been restrained in its criticism of India. Europeans are aware of New Delhi's "multi-alignment" strategy: India is both an ally of Moscow and a partner of Europe and the US, and recently accelerated the thawing of relations with Beijing. On September 1, during the Shanghai Cooperation Organization Summit, the leaders of China, Russia, and India attended together, smiling.

A senior European official believes that despite this, Europe still believes that "there is still room to improve relations with India." The EU especially hopes to deepen discussions with India on security and defense to further strengthen its position in the Indo-Pacific region. The EU notes that the Indian army participated in the recent Russian military exercise (Zapad 2025), but the EU says it is pragmatic.

The current international situation may enable the EU and India to finally conclude the two-decade-long free trade agreement.

Source: rfi

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