The India-European Union (EU) free trade agreement (FTA), inked last week, ensures a soft landing for both sides following the deterioration of ties with the United States.
Stripped of the hyperbolic rhetoric of European Commission President Ursula von der Leyen, who called it “the mother of all deals”, the FTA augers well for bilateral trade and, more specifically, opens up an alternative market for Indian exports hit by Trump’s punitive 50% tariff hike.
But the phased reduction of tariffs means the FTA’s impact will be felt over time and the projected reliefs are notional at this point.
Add to that the long drawn process of getting the deal ratified by the European Parliament and the gains become more perceptual than real.
This is especially true in the case of India after Brussels withdrew tariff concessions for Indian goods and services under its Generalised System of Preferences (GSP) in 2023. The FTA, in effect, simply offers an opening for New Delhi to restore its trading status with the 27-nation EU bloc, while in turn ensuring access for European exports into India’s burgeoning consumer market.
The FTA was preceded by two decades of stalled negotiations that noticeably picked up pace after Trump cracked the tariff whip on America’s trade partners last August.
Clearly, the White House’s disruptive trade policies are a key catalyst for concluding the India-EU trade deal. The new synergy between the two trading blocs is calculated to shift the centre of gravity of global trade away from the US and China, freeing up an alternative trading space for the “middle powers” in a joint push to break free from the hegemony of Washington and Beijing in global trade.
The new calculus foresees a shift in the geopolitics of trade with a push towards evolving a rules-based international order not answerable to Washington and Beijing.
The move aligns squarely with the aims and strategy outlined by Canadian Prime Minister Mark Carney in Davos last week.
But India and the EU will also need to iron out the creases around climate goals and New Delhi’s dependence on Moscow for its oil supply.
The trade deal envisages the EU as a stakeholder in India’s transition to renewable energy such as solar power, alongside an aim to wean New Delhi away from its dependence on Russian oil.
The geopolitical implications of the India-EU trade deal, therefore, are as consequential as the economic ones. It takes New Delhi closer to its foreign policy cornerstone of “non-alignment”.
The FTA with Europe caps a flurry of recent trade deals launched by India, marking yet another milestone in its global outreach. Coinciding with the European Commission’s diversification strategy, the FTA aims to counter the overbearing influence of the US and China on the global trading system which has dwarfed the authority of the World Trade Organisation (WTO).
India is already engaging with strategic alliances, such as AUKUS, aimed at the containment of China in the Indo-Pacific region. Maritime collaboration with Europe resonates with India’s strategic interest of emerging as a counterweight to China in the Indo-Pacific.
But the inescapable dilemma before India and the EU is to advance their strategic and trade partnership without alienating America and China as critical trading partners.
That calls for sharp tightrope diplomacy rather than any attempt to match the political brinkmanship that has come to define the Trump administration’s trade policies.
Venu Menon is a senior journalist based in Wellington. He was Consulting Editor of The Hindu in India prior to moving to New Zealand