India EU Free Trade Agreement – Boost to EU India Trade

With an aim to boost trade between India and the European Union, both parties have been discussing a bilateral FTA for almost 2 decades. The India-EU FTA talks began in 2007 but stalled in 2013 due to disagreements over market access and intellectual property rights. Negotiations resumed in June 2022 amid geopolitical shifts, including India's strained relations with China and the EU's desire to strengthen ties with Indo-Pacific allies. Till date, both sides have held eleven rounds of talks, with the latest round held from 12 – 16 May 2025 in New Delhi, where India and the EU have closed five chapters of the FTA including chapters on Intellectual Property, and Customs & Trade Facilitation.

Proposed Structure of the FTA

​The proposed FTA is expected to include 20 chapters, focusing on:

• Goods Trade: Reduction of tariffs and non-tariff barriers
• Services and Investment: Market access for professionals and investment protection
• Digital Trade: Data security and e-commerce norms
• Sustainability: Alignment with the EU's Carbon Border Adjustment Mechanism ('CBAM')

Tariff reductions under negotiation

​The EU seeks significant tariff cuts on:

• Automobiles: Current Indian tariffs of 100%–150% on luxury cars.
• Alcoholic Beverages: Tariffs of 100%–150% on whiskey and wine.

India aims to boost exports in:

• Textiles and Pharmaceuticals: Lower EU tariffs and simplified regulatory approvals.
• IT Services: Enhanced access for Indian professionals.

Non Tariff Barriers ('NTBs') under negotiation

The India-EU Free Trade Agreement negotiations are targeting several specific non-tariff barriers for reduction to facilitate smoother trade between the two regions. Key NTBs under discussion include:

• Technical Standards and Certification: Indian exporters often face complex EU requirements for product standards, testing, and certification, especially in sectors like food, chemicals, and pharmaceuticals. The FTA aims to harmonize or mutually recognize certain standards to reduce duplicative testing and compliance costs.
  

• Sanitary and Phytosanitary (SPS) Measures: The agreement seeks to address stringent EU SPS regulations that affect Indian agricultural and food exports, such as those on chilies, tea, basmati rice, and shrimp. Streamlining SPS procedures and ensuring they are science-based is a priority.
  

• Import Licensing and Pre-shipment Inspections: Lengthy and complicated licensing, approval, and inspection requirements have been significant hurdles for Indian exporters. The FTA aims to simplify and expedite these processes. 

• Rules of Origin and Documentation: Complex rules of origin and excessive paperwork are being targeted for simplification to make it easier for companies to prove the origin of their goods and claim FTA benefits. 

• Carbon Border Adjustment Mechanism (CBAM): The EU's upcoming CBAM, which acts as a carbon tax on imports with high carbon footprints (such as steel and aluminium), is a major NTB for Indian exporters. India is negotiating for transitional support and clearer guidelines to mitigate its impact. 

• Behind-the-Border Barriers: These include government procurement restrictions, distribution limitations, and investment-related measures that can disadvantage foreign companies. The FTA aims to increase transparency and reduce such barriers. 

• Movement of Professionals and Services Trade: India prioritizes easier temporary work visas for IT professionals, while the EU links this to liberalizing its service sectors. The FTA could boost EU services exports to India by nearly 100%, with Indian services exports growing by 50%. Telecommunications and financial services are key focus areas.
     

By addressing these NTBs, the FTA is expected to enhance market access, reduce compliance costs, and promote fairer competition for businesses on both sides.

Areas of conflict hindering the finalisation of FTA​

While the key chapters under negotiation cover government procurement, intellectual property, and dispute resolution, some of the key areas of conflict are: 

• Rules of Origin: Stalemate persists on defining product nationality, critical for tariff benefits.

• ​Services Liberalization: The EU seeks access to India's legal and accounting sectors, which is partially not in alignment with domestic professional bodies.​
  
• Data Security: India's push for “data-secure" status to facilitate digital trade faces EU scrutiny. 
• Stringent quality standards: India has emphasized addressing the EU's stringent quality standards and technical regulations, which disproportionately affect sectors like agriculture and manufacturing.
  
• Duties imposed by CBAM: The EU's proposed CBAM, set to impose 20%–35% tariffs on high-carbon imports (e.g., steel, aluminium) from 2026, remains contentious. Indian officials argue that these measures could negate FTA benefits unless paired with support for green transition. 

• Profit repatriation and dispute resolution: The EU demands easier profit repatriation and international arbitration for disputes, while India insists on resolving issues through local courts first. Progress has been made on mediation mechanisms, with dispute settlement norms largely agreed upon.
      
  

Impact on European “Mittelstand" ('SMEs')​

A. Opportunities:

• ​Automotive and Machinery: European SMEs in automotive parts, industrial machinery, and clean energy technologies stand to gain from reduced Indian tariffs (currently 7.5%–15%) This could boost exports to India's growing market, especially in electric vehicles and renewable energy infrastructure.

• Digital and Agri-Tech: By prioritizing AI, smart farming, and circular economy projects, SMEs in these sectors could leverage India's expanding tech ecosystem. 

• Skilled Labor Mobility: By increasing visas for Indian IT professionals, talent shortages for tech SMEs in Europe can be resolved.

B. Challenges:

• Competition from Indian Imports: Textiles, leather goods, and generic pharmaceuticals from India could pressure European SMEs in these sectors due to lower tariffs and cost advantages.
  
• Regulatory Compliance: Meeting India's certification requirements and non-tariff barriers (e.g., Bureau of Indian Standards ('BIS')) may increase operational costs for European SMEs unless the said issue is addressed in the FTA.

C. How to Prepare Yourself

• Market Research: Identify niche sectors in India's $3.5 trillion economy by carrying out a professional Market Research, such as green hydrogen, sustainable packaging, agri-tech, healthcare tech where huge demand will be created for European goods.
  

• Local Partnerships: Partner with Indian firms to adapt products to local preferences and regulatory requirements. With decreased tariff rates, importing European Goods would find easier entry in the Indian Market. Take professional help for Partner Search, if needed. 
• Setting up operations in India: Lower tariff rates, uniform standards for quality and cheaper labour force would make India a favourable destination to manufacture for global demand. In order to leverage this opportunity to reduce overall manufacturing costs, EU companies can explore the possibility of setting up business presence in India in advance. 
• Outsource: Tap into India's IT talent pool through eased visa channels for project-specific collaborations.

Conclusion

The India-EU FTA represents a strategic alignment with far-reaching economic implications. While tariff reductions and market access dominate talks, resolving regulatory misalignments and balancing competing interests will determine its success. For businesses, adapting to new compliance frameworks and leveraging sector-specific opportunities will be critical to harnessing the agreement's potential.