India and EU Lock In Favorable Tariffs

This trade deal, dubbed the "mother of all deals," culminates negotiations that first began in 2007, stalled in 2013, and were formally relaunched in June 2022. The agreement aims to create a market of 2 billion people, representing a quarter of the world's GDP. The European Union is India's largest trading partner, with bilateral trade in goods reaching $135 billion in the 2023-24 fiscal year. The EU's foreign direct investment stock in India hit €140.1 billion in 2023, making it a leading foreign investor in the country. Key EU exports to India include machinery and transport equipment, while India's main exports to the EU are machinery, chemicals, and textiles. Under the agreement, over 90% of Indian exports are expected to receive duty-free access to the 27-nation bloc. In return, India will liberalise tariffs on 86% of its tariff lines by value. This includes a significant reduction on import tariffs for EU luxury cars and wines. The "Most Favoured Nation" (MFN) principle is a cornerstone of the World Trade Organization, ensuring non-discriminatory trade among members. It mandates that any special favor, like a lower tariff, granted to one member must be extended to all other WTO members, promoting equal and predictable trade conditions. Sticking points during the nearly two-decade-long negotiation process included EU demands for lower tariffs on automobiles and dairy, while India sought greater market access for its professionals. The EU's Carbon Border Adjustment Mechanism (CBAM), a levy on carbon-intensive imports like steel, also posed a significant challenge for Indian exporters. This agreement is part of a broader EU strategy to diversify trade partnerships and reduce strategic dependencies, a move intensified by global trade frictions and a more assertive US trade policy. For India, it serves as a strategic hedge against geopolitical volatility and strengthens its economic ties with a major global partner.