India engaged with the US for trade agreement

“We have made very significant progress. We are very close to seeing that come to fruition. The two sides remain in touch. I think even during the time that we were in the final throes of negotiating this deal (India-EU FTA), the trade negotiators were in touch with their US counterparts as well… We are hopeful of a positive outcome on that front," one of the people said on the condition of anonymity.

Trade talks with the US have been delayed, even as Washington moves to draw New Delhi into Pax Silica, a brand-new technological alliance of nations to counter China in chips, critical minerals, and AI infrastructure. India’s external affairs minister S. Jaishankar is expected to attend the critical minerals ministerial in Washington next week.

“The US market is as important, if not more important; and we, therefore, have to keep our eyes on the ball there in terms of wanting to get that trade deal across the finish line as well. So, it is definitely not being done with the spirit of one-upmanship or anything," the person said, adding, “We don’t see one against the other. The US is also doing deals with multiple other partner countries. They don't ask us when you have to….I think in this sense, everybody understands that the economic requirements of each country are different," the person said.

Sergio Gor, the new US ambassador to India, on 12 January said both sides continue to "actively engage" on the trade deal, in his first address after taking charge in New Delhi.

India and the EU on Tuesday announced the successful conclusion of negotiations for a historic free trade pact, with tariff cuts levelling the playing field for Indian manufacturers in a key developed market. India’s biggest gain is improved market access for goods. The EU will eliminate tariffs on over 90% of tariff lines, covering 91% of trade value, rising to 99.3% with partial liberalization. This sharply improves competitiveness for India's labour-intensive exports such as textiles, apparel, footwear, marine products, chemicals and pharmaceuticals, which earlier faced EU duties of 6-12% or more.

However, the EU has kept its carbon border tax system out of the scope of the trade deal, and the proposed FTA with the EU does not mitigate the immediate impact of the EU’s Carbon Border Adjustment Mechanism (CBAM). Indian exports of steel and aluminium will continue to face Europe’s carbon tax.

“CBAM is a horizontal regulation and is applicable to all (EU) partner countries and their domestic industry. So, if you can’t give derogation to the domestic industry, how can you give it to others? The burden of CBAM is on both; it is a reality," the person said.

While a certain understanding has been reached on CBAM, including an agreement to set up a technical dialogue that will address pathways for Indian industries to access the market despite the regulation, the biggest challenge is how the levy will be calculated. India and the EU will work together to ensure that CBAM verifiers in India are accredited by the EU agencies, enabling Indian industry to access them. Also, the technical group will ensure that any future Indian carbon trading system is taken into account and plugged into the CBAM framework, so that industries participating in India’s emerging carbon trading ecosystem have their carbon costs accounted for. Also, the EU has committed that any flexibility extended under CBAM to any partner country later would automatically apply to India as well.

“So, we have created this as a more living document. It's not that we can do it every day, but every five years, we can have a look at it," the person added.

In FY25, India’s bilateral trade in goods with the EU stood at $136.54 billion, with exports worth $75.85 billion and imports amounting to $60.68 billion, resulting in a surplus. India-EU trade in services reached $83.10 billion in 2024.

There's a lot more to the visit of the EU leaders and officials than the FTA, since some far-reaching understandings were reached, a second person said, making the whole greater than the sum of its parts. “It is never easy to do FTA with the European Union, because we are at two different development levels."

The deal announced jointly by Prime Minister Narendra Modi and European Commission president Ursula von der Leyen at the 16th India-EU Summit in New Delhi, follows negotiations relaunched in 2022 after talks first began in 2007. It positions India at the centre of one of the world’s largest integrated economic partnerships, covering a combined India-EU market of nearly two billion people and close to a quarter of global GDP. From India’s perspective, the agreement delivers unprecedented market access, with over 99% of Indian exports by trade value set to receive preferential or duty-free entry into the EU market.

“Now, looking at why we wanted this FTA to be done, I think, one; we have already done the FTA with the UK. We have done FTA with the European Free Trade Association (EFTA), which is in the same vicinity. And the supply chain of the EU is very integrated in both these parts. It's just that it is a different bloc. So, having a FTA with the EU enables a $30 billion common market between India and that region," the second person said.

India inked the Trade and Economic Partnership Agreement (TEPA) with four EFTA nations of Switzerland, Norway, Iceland, and Liechtenstein in March 2024, with the FTA becoming effective from 1 October last year. India also inked the Comprehensive Economic and Trade Agreement (CETA) with the UK in July last year, which is expected to be implemented in the first half of this year.

“Our intention is obviously to get this (India-EU FTA) done as quickly as possible, and I must say that in the discussions yesterday, the EU side was equally forward-leaning on that front, that this agreement must be implemented very, very quickly. In terms of actual steps, this is not an FTA that will need to go to each of the individual 27 member states' Parliaments. It will only go to the European Council, which is a collection of the 27 heads of state and government as the case may be, which meets on a monthly basis… Once it is done there, it will go to the European Parliament for approval," the person said.

“On agriculture, it has been a combination of quotas on both sides to take care of sensitivity," the person said.

India has shielded dairy, cereals, poultry, soymeal, certain fruits and vegetables, while the EU has protected beef, sugar, rice, chicken meat, milk powder, honey, bananas and soft wheat, on which current tariffs will be maintained. India will, however, get better EU market access for its tea, coffee, spices and processed food, while opening up domestic market for EU spirits, wine and olive oil.