India and European
Nations Push for Faster FTA Launch Ahead of Trump’s Return
New
Delhi aims to seal an FTA with the four-nation EFTA soon, in a move that may
give impetus for a similar deal with the larger EU
India’s
drive to finalise a free-trade agreement (FTA) with the four-nation European
Free Trade Association (EFTA) could jump-start talks with the larger EU,
fuelling optimism that Brussels could lean closer to New Delhi due to the
return to the White House of anti-multilateralist Donald Trump and Europe’s
trade row with China.
Asked
about the status of the agreement with the EFTA last week, Indian Commerce
Minister Piyush Goyal said it was “progressing very fast”.
He
added there was strong political support for the deal and that it had “cleared
an important hurdle” in Switzerland, with implementation expected by the end of
2025.
Observers
say Europe is preparing for a more distant relationship with Washington after
Trump becomes the next US president, which will spur the region’s efforts to
forge closer relations with India.
“From
the minister’s statement, it is very clear that the Indian government will be
concluding [an FTA with] the EFTA soon. This may provide a greater push for
India-EU engagement [for a similar deal],” said T.S. Vishwanath, a principal
adviser at international trade consultancy ASL-Legal in New Delhi.
On
Tuesday, Indian Prime Minister Narendra Modi issued a statement to congratulate
Antonio Costa for becoming President of the European Council.
Noting
the progress of the India-EU partnership over the past decade, the two leaders
agreed to work towards bolstering the bilateral ties. “They underlined the need
for early conclusion of a mutually beneficial India-EU FTA,” the statement
said.
India
signed a Trade and Economic Partnership Agreement (TEPA) with the EFTA in March
2024, under which the South Asian country would receive investment commitments
totalling US$100 billion over 15 years from the bloc and allow imports ranging
from Swiss watches to cut and polished diamonds at zero or concessional duties.
The
EFTA’s members are Iceland, Liechtenstein, Norway and Switzerland. In
comparison, any free trade deal between India and the 27-member European Union
would inevitably face more hurdles, analysts say. All the four EFTA nations are
not members of the EU.
“With
Trump coming into office, the EU will have to start looking at more partners,” Vishwananthan said.
India
might also soon conclude its separate negotiations with the United Kingdom for
an FTA and this could also serve as a model for a similar deal with the EU, he
added.
Trade
talks between the two countries are expected to resume later this month,
following a meeting between Modi and British Prime Minister Keir Starmer on the sidelines of the
G20 summit in Rio de Janeiro in November.
Apart
from the proposed FTA, both countries are set to deepen cooperation in areas
including security, education, technology, and climate change.
Analysts,
however, warn that an FTA between India and the EU could run into political
hurdles with coming elections in Germany, Romania and Croatia, which are members
of the bloc.
“While
reasonable progress has been made in talks between the two sides, there are
still outstanding issues that will take more time to resolve,” said Rory
O’Donnell, Partner Strategy: International Agriculture, Food and Trade at Penta,
citing challenges such as deforestation and sustainability.
“The
elections in Germany and the political uncertainty in France with possible
elections in July would make it more difficult for the EU to reach agreement on
some of these outstanding problems,” he said.
But
he added that the unfolding geopolitical landscape would spur the EU to
conclude a trade deal with India.
Trump
has said that he would impose sweeping tariffs on imports from around the world
and demanded that Nato, which comprises most EU members,
pay more for its defence. His intention to end US military support for Ukraine
could also put Washington on a collision course with the transatlantic security
alliance.
Given
“the problems with China and potential problems with the US, where Trump has
talked about tariffs on all exports to the US, there is an incentive for the EU
to do deals elsewhere,” O’Donnell said.
Sustainability
hurdle
The
proposed India-EU FTA also faces a hurdle on the sustainability front.
The
EU is planning to implement a Carbon Border Adjustment Mechanism in 2026, which
seeks to impose a charge on carbon emitted during the production of
carbon-intensive goods.
But
the carbon scheme could pose a challenge for India, which is reliant on fossil
fuels like coal for energy generation. India is likely to seek concessions on
the scheme’s implementation or could even seek a resolution at the World Trade
Organization in the event of disagreement with the EU, according to media
reports.
Harsh
Pant, an international relations professor at King’s College, London, said that
the scheme would not be a deal-breaker for an India-EU FTA as both sides could
look at ways to circumvent it.
“The
stars have aligned themselves in terms of geopolitics for an alignment between
India and Europe. Europe has a disappointing relationship with China and with
its problems, India remains an attractive option,” he said.
Ties
between the EU and China have worsened in recent months after the bloc began
investigating and later imposed higher tariffs on Chinese-made imports of
electric vehicles. The move prompted China to cut brandy imports from Europe
and investigate the bloc’s pork and dairy industries.
Pant
said: “It is up to India and Europe to seize the moment.”