India and the European Union have sealed a landmark long-term trade deal, Prime Minister Narendra Modi said on Tuesday, as both sides seek to fend off shaky ties with the United States.
After nearly two decades of intermittent negotiations, the pact is meant to open India’s large and heavily protected market to free trade with the 27-member EU, its biggest trading partner.
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EU chief Ursula von der Leyen said on Tuesday that a new trade deal between India and Europe had created a huge market “with two billion people”, according to AFP.
“Europe and India are making history today,” von der Leyen said in a statement in New Delhi, where she met Prime Minister Narendra Modi. “We’ve made the mother of all deals. We’ve created a free trade zone with two billion people that benefits both sides.”
What has to happen for the deal to work?
According to an official report from the European Commission, here are the steps the EU still needs to take:
1. Publish the negotiated text proposals.
2. Legal revisions and translations into all official EU languages.
3. Propose an agreement to the Council for signature and conclusion.
4. Acceptance by the Council.
5. Signing of the agreement between the EU and India.
6. Consent of the European Parliament to the agreement.
7. The Council’s decision to close the deal (essentially allowing it to enter into force).
8. Once India also ratifies the agreement, it can enter into force.
How will the deal prevent products of non-Indian origin from being imported into the EU via India just to benefit from tariffs?
The EU and India have agreed on rules of origin that ensure that only products that have undergone significant processing in one of the parties can benefit from the tariff preferences in the agreement. This will help avoid a situation where other countries simply export to India and re-export to the EU, benefiting from tariffs.
Trade between India and the EU
India and the EU were also expected to finalize agreements to facilitate the mobility of seasonal workers, students, researchers and highly skilled professionals, along with security and defense partnerships, AFP reported.
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“India and Europe have made a clear choice. The choice of strategic partnership, dialogue and openness,” von der Leyen wrote on social networks. “We’re showing a fragmented world that another way is possible.”
Why is the India-EU trade deal important?
India is on track to become the fourth largest economy this year, according to International Monetary Fund projections.
Relying on Moscow for key military hardware for decades, New Delhi has tried to reduce its dependence on Russia in recent years by diversifying imports and pushing its own domestic manufacturing base, AFP reported.
As for India, tariff cuts with the EU will lead to more exports in labour-intensive sectors, helping to partially offset the impact of US tariffs, said Ajay Srivastava, a former Indian trade official, according to Reuters.
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He said the deal would also provide an immediate price advantage for EU products in India due to some relief from its high tariffs, such as up to 110% on cars.
The India-US trade deal fell apart last year after a breakdown in communication between the two governments.
Meanwhile, talks between India and the EU resumed in 2022 after a nine-year hiatus and gained new momentum after Trump imposed tariffs on multiple trading partners, including a 50% tariff on Indian goods.
(With input from agencies)
