“The mother of all deals.” That’s how Ursula von der Leyen, the President of the European Commission, referred to the new free trade agreement between the European Union and India. This deal is a significant milestone after nearly 20 years of discussions.
It connects around 2 billion people and covers economies that account for about a quarter of the world’s GDP. Von der Leyen described the agreement as a “tale of two giants,” highlighting that both sides chose partnership for mutual benefit.
So, what’s in the deal and why does it matter?
Under this agreement, tariffs on over 96% of EU goods sent to India will be cut or eliminated. This will save European exporters an estimated €4 billion (about A$6.8 billion) each year in customs duties.
The automotive industry is set to gain the most. Companies like Volkswagen, BMW, and Mercedes-Benz will see tariffs on their vehicles drop from an eye-watering 110% to as low as 10%. There’s an annual quota of 250,000 vehicles, which is significantly larger than what the UK received in its own trade deal with India.
To protect local manufacturers, cars priced below €15,000 (A$25,500) will face higher tariffs, while electric vehicles enjoy a five-year grace period.
India will also reduce tariffs on machinery, chemicals, and pharmaceuticals, with cuts ranging from 11% to 44%. Notably, tariffs on wine are dropping from 150% to between 20% and 30%, while spirits will see a decrease to 40%.
On the flip side, the EU will cut tariffs on 99.5% of imports from India, including marine products, textiles, leather goods, and more. This access is vital for Indian exporters who have faced challenges due to pressures from U.S. tariffs in recent years.
Despite the deal’s ambitions, it has its limitations. It doesn’t address critical areas like labor rights and environmental standards. While there are mentions of carbon pricing, there are no enforceable commitments that are common in other EU trade agreements. The EU also maintains protections for sensitive agricultural sectors, including dairy and chicken.
Why is this happening now? Three main factors played a role. First, there’s a need to diversify trade partnerships due to global economic uncertainty. Second, U.S. tariffs are affecting both regions—India faces 50%, while the EU deals with 15%. Finally, the rising trend of companies seeking alternatives to the U.S. market is pushing both sides to react proactively.
The EU has been active lately with trade agreements, including recent deals with Mercosur and Indonesia. This EU-India agreement is significantly larger than similar pacts India has made with other countries, positioning it as a key player in international trade.
This deal is not just a commercial win; it sends a strategic message, particularly to the U.S. It demonstrates that countries can seek alternative partnerships in the face of economic pressure.
For Australia, this deal holds implications as well. Australia already has a trade agreement with India that eliminates tariffs on most exports. This new agreement may inspire further negotiations between Australia and India to solidify their trading relationship.
Overall, this EU-India deal showcases a trend: nations are not retreating into isolation but instead are working together to foster mutual trade interests. It reflects a growing desire among democracies to engage in cooperative, rules-based partnerships.
