India, EU gear up for 10th round of FTA negotiations

The 27-member European bloc sees India, with its democratic values and robust economy, as a natural trade partner to ensure trusted supply chains amid turbulent global conditions, according to officials familiar with the matter.

“India is the go-to country for most of the developed world amid an expected change in trade dynamics after President Trump assumes power in January. EU would not like to miss the bus after investing over two years in negotiating an FTA with India since June 2022,” said a person close to the negotiations.

Sustainability regulations like labour standards, deforestation rules and carbon tax have been key stumbling blocks despite nine rounds of talks, with the Europeans insisting these be seen as trade matters. “India is not averse to the idea of environment protection. In fact, it is committed to fulfil the obligation by 2070. But, clubbing these in the free trade deal would amount to putting non-tariff barriers in a sly, which was not acceptable,” the official said, and added that “it seems that some convergence on this matter is seen recently, which is indeed a positive sign”.

A second person aware of the matter said that “things have changed after the outcome of the US presidential election in early November. The eagerness and positive signs were visible during commerce secretary Sunil Barthwal’s recent meeting with senior EU officials and European diplomats.”

Commerce secretary Barthwal met EU director general Sabine Weyand in Brussels on November 21, where both sides showed renewed eagerness. They discussed FTA negotiations progress, cooperation under the India-EU Trade and Technology Council, and market access issues.

While EU seeks zero-duty market access for its goods in India with reciprocal benefits, inclusion of sustainability measures like carbon tax could potentially nullify trade advantages for Indian exporters. Key concerns include the Carbon Border Adjustment Mechanism (CBAM) and EU deforestation regulation (EUDR).

The carbon tax burden for India is estimated at 0.05% of GDP, according to a July report by the Centre for Science and Environment. The EU is India’s second-largest export destination, receiving merchandise exports worth $76 billion in 2023-24, while India imported goods valued at over $59 billion.

CBAM could lead to tariffs of up to 35% on carbon-intensive Indian exports like cement, aluminium, fertilisers, chemicals, iron and steel. The tax, being implemented in phases from October 2023, becomes fully effective January 2026.

Meanwhile, EUDR’s implementation deadline for deforestation-free certification of products like cattle, wood, cocoa and derived goods has been extended by a year to December 30, 2025.