On January 27, India and the European Union announced the conclusion and successful consensus of their Free Trade Agreement (FTA) negotiations. This marks the end of a marathon negotiation process that spanned nearly 20 years. According to data disclosed by both parties, once implemented, the trade liberalization coverage for goods will reach 96.6% for India and 99.3% for EU exports, placing it at the high end of the EU’s existing bilateral trade agreements.
Both sides have characterized the agreement in high-profile terms. The EU hailed it as a “landmark” trade arrangement, with European Commission President Ursula von der Leyen describing it as the “mother of all agreements.” India described the pact as its “largest free trade agreement in history,” emphasizing that it will open a massive market of hundreds of millions of high-income consumers for Indian exporters and is expected to provide long-term growth for “Make in India” initiatives and export-oriented industries.
However, market reactions have remained relatively lukewarm. Following the announcement, major stock indices in India and Europe showed no significant volatility, and relevant manufacturing or export-oriented sectors failed to establish a clear trend. While this is partly due to the fact that the agreement will not take effect immediately, it stems more from a cautious assessment of the “Rules for Market” trade-off. Observers remain prudent regarding the realization of tariff reductions, the enforcement of rules of origin, the actual burden of compliance costs, and the physical relocation of industrial chains.
The agreement has also drawn external scrutiny. U.S. Treasury Secretary Scott Bessent expressed “deep disappointment” publicly, arguing that by prioritizing trade considerations over broader strategic objectives in the current geopolitical climate, the EU risks weakening the coordination of international actions. These remarks come against the backdrop of repeated U.S. reservations regarding the EU’s strategy of leveraging “regulatory exports” to gain market access.
I. “Market Access in Exchange for Rules”
In traditional free trade agreements, tariff reductions were the most direct and attractive bargaining chips. However, as global tariff levels have generally declined, the EU’s room for “concessions” has continued to narrow. From 2024 to 2025, the EU’s weighted average Most Favored Nation (MFN) tariff on all products was only 2.9%, with approximately 29% of imported goods already enjoying duty-free status. Consequently, over the past decade, the EU has progressively shifted the focus of its trade policy from “reducing tariffs” to “establishing regulatory thresholds.”
Since 2019, with the formal introduction of “Open Strategic Autonomy” and the concept of institutional competition, rules and regulations have replaced tariffs as the core tools in the EU’s external economic relations. In this process, rules regarding the environment, labor, subsidies, and data have evolved into specific, verifiable industrial standards written into FTA clauses and tied directly to market access.
In the textile, apparel, and footwear industries, European buyers have expanded their audits from product quality to include labor compliance, working hour records, minimum wage payments, wastewater treatment, and chemical usage. These requirements are often written directly into purchase orders and are linked to the ability to secure long-term contracts.
In high-emission sectors such as steel, cement, and chemicals, rules permeate the production phase itself. Factories must provide not only technical parameters but also carbon emission accounting reports, energy structure descriptions, and third-party verification documents. For production bases primarily reliant on coal power, the introduction of carbon costs may offset the price advantage gained from lowered tariffs.
In the automotive and components sector, regulatory constraints are even more direct. Rules of origin, subsidy transparency requirements, and technical standards overlap, requiring vehicle manufacturers and component factories to provide details on supply chain sources, government support, and production processes. Otherwise, even if a product meets technical standards, it may be denied entry to the European market.
In manufacturing and service sectors related to digital services, e-commerce, and cloud computing, rules are similarly embedded into corporate operations. Factories and service providers must meet EU data protection requirements regarding data collection, storage, and cross-border transmission. Some business models have been forced to adjust, with some even requiring the deployment of local data hubs within Europe.
Under this framework, market access no longer depends solely on tariff levels but on a company’s ability to continuously meet a set of accountable compliance requirements. For external economies, entering the European market is no longer just a competition of price and technology; it is a comprehensive test of their understanding of rules, compliance capabilities, and long-term cost endurance.
India is by no means unaware of this shift. The protracted negotiation process of the India-EU FTA is a concentrated reflection of this ongoing maneuver.
II. A Compromise or a Calculated Strategy?
Since its launch in 2007, the India-EU FTA negotiations have seen both sides locked in a tug-of-war over core issues like tariff reductions, service sector liberalization, intellectual property, government procurement, and sustainable development. Progress was exceptionally slow. By 2013, negotiations stalled due to irreconcilable differences and were viewed by outsiders as “indefinitely shelved.”
In 2021, the EU proactively restarted negotiations, driven by multiple strategic calculations. Amid the accelerated restructuring of global supply chains and the increasing prominence of the EU’s “de-risking” strategy, Brussels urgently needed to expand its roster of partners with alternative manufacturing capabilities. Among emerging economies, India is one of the few that possesses the market scale, manufacturing capacity, and geopolitical maneuverability required. Simultaneously, the EU hopes to deepen economic ties with India to balance U.S. influence and expand its own policy and economic footprint in the Indo-Pacific, all while maintaining transatlantic alignment. Furthermore, the UK’s completion of Brexit in 2020 and its rapid pursuit of a trade deal with India added urgency to the EU’s actions.
The most direct leverage the EU offered in the FTA was a substantial tariff reduction on Indian goods. According to information released by India, once the agreement takes effect, the EU will gradually eliminate tariffs on approximately 99.3% of Indian goods. About 70% of tariff lines will reach zero duty immediately upon implementation, covering over 90% of India’s export value to the EU. This will primarily benefit India’s most competitive sectors, such as textiles, apparel, leather, footwear, and light industrial consumer goods.
In exchange, India committed to gradually reducing tariffs on approximately 96.6% of EU exports, covering agricultural products, machinery, chemicals, and high-end industrial intermediates where Europe holds an advantage. In services and investment, India also agreed to a limited opening of financial, professional, and digital services while improving operational transparency and stability for foreign firms. However, many of these arrangements are phased and conditional, allowing India to retain significant policy autonomy over key industries.
In terms of trade volume, the exchange appears asymmetrical. In 2024, the EU’s total imports were $2.64 trillion, while India’s were $697.75 billion—roughly one-quarter of the EU’s. In bilateral trade, the EU’s goods exports to India in 2024 neared €49 billion, while its imports from India reached €71 billion. The EU’s intent is clearly aimed at long-term supply chain restructuring and industrial layout adjustments.
Regarding rules of origin, the EU did not impose the strictest model on India, allowing it to reach standards gradually within its current industrial structure. On regulatory issues like sustainable development, labor, and the environment, the agreement maintains the EU’s characteristic high-standard orientation but allows for a phased transition and flexibility in implementation for India.
Of particular note is that the Paris Agreement was not explicitly written into the India-EU FTA. As the core framework for emission targets and responsibility sharing in global climate governance, the Paris Agreement has frequently been used as a mandatory reference in the EU’s recent external trade arrangements. Its omission from the main text of this agreement is seen as a strategic win for India, securing a degree of breathing room.
Are these arrangements a compromise of principle by Brussels, or a calculated pragmatic trade-off?
III. An Unpriced Contest
The internal and external environments surrounding the EU-India negotiations differ significantly from those during the EU-Vietnam negotiations. The EU-Vietnam FTA was concluded in 2019, and the Paris Agreement was included in its sustainable development chapter as a binding climate commitment. At that time, the Carbon Border Adjustment Mechanism (CBAM) had not yet entered the EU’s legislative agenda, the global trade system was still dominated by multilateral rules, and the EU had not yet proposed frameworks like “de-risking” or “strategic autonomy.”
Today, Brussels has rolled out a suite of internal policies and regulatory tools regarding carbon border adjustments, foreign subsidy screenings, corporate due diligence, and digital regulation. While FTAs previously functioned to define rights and obligations, they now increasingly serve as “interfaces” for these regulations. Among these internal rules, the most concerning is the EU’s Carbon Border Adjustment Mechanism (CBAM). As a key tool for the EU to extend its climate policy to partners, it officially entered its fee-collection phase on January 1, 2026.
On January 28, European Commission Chief Spokesperson Eric Mamer (Pinho) pointed out that the EU has not committed to modifying CBAM or granting India preferential treatment; India’s treatment will be no different from that of other countries. Since the mechanism’s inception, India has criticized the policy as a potential “green trade barrier.”
India’s consistent approach to major power relations is to maintain high mobility between different forces. It has not severed energy or defense cooperation with Russia, and while it participates in strategic dialogues with the U.S., it avoids deep alignment. This “multi-directional” diplomatic and economic strategy provides India with significant room to maneuver.
In its FTA negotiations with the EU, India has continued this approach. In this game of “market access for rules,” the moves made by both sides are difficult to price explicitly. Whether the two have truly met their match remains for time to tell.