analysis
India as Europe’s partner
A new one World trade order arises
The EU and India agree on a trade agreement – and even opponents of the Mercosur treaty with South America are impressed. What’s different this time? And who benefits most?
Something is happening in European trade policy. In recent months, the European Union has signed trade agreements with the often neglected Indonesia and the Mercosur countries. The latter still has hiccups, as the European Parliament last week decided by a narrow majority to refer it to the European Court of Justice for review. Postponed is not canceled, advocates say. In addition, the contract could be applied provisionally.
Now the third coup: In New Delhi, Commission President Ursula von der Leyen, Council President António Costa and Indian Prime Minister Narendra Modi initialed a trade agreement that is intended to create a free trade area for almost two billion people. Modi says it could take about a year for the treaty to come into force.
In Europe, the text must first be translated into all 24 official languages, legally examined, approved by a qualified majority of the member states (at least 15 out of 27, which make up more than 65 percent of the population) and by the European Parliament. So there are still a few hurdles to overcome. Nevertheless, supporters are optimistic.
Andreas Franz, ARD New Delhi, on the agreement on a free trade agreement with India
Even France is in favor of it
In contrast to the agreement with the Mercosur states, large parts of agriculture are not covered by the agreement. Beef and poultry farmers as well as grain farmers were particularly vocal against Mercosur. They complained that Latin American farmers don’t have to follow the same rules as them. They also feared the price war against competition from Argentina and Brazil.
France in particular fought against the agreement with the Mercosur states with all available means. But this time it’s completely different. The French government has already signaled that it is very interested in a closer partnership with India. The sensitive points – beef, poultry, ethanol and grain – are excluded, the CO2 border tariff (CBAM) should remain intact. To achieve this, France hopes to open up a market for its wines, spirits and luxury goods that has so far been largely unsaturated.
Hope for growth
The Indian market is also of great relevance for Germany, especially for the automotive industry. To date, customs duties of 70 to 110 percent have been due at the Indian border. Some carmakers pushed the rate down to 35 percent by assembling their cars in India. Nevertheless, German brands rarely travel across the country. VW, for example, only sold 42,000 cars in India in 2024.
The tariffs should now fall to 40 percent and later to ten percent. However, these rates are only intended for a quota of 200,000 combustion engines per year. The Indian market therefore remains difficult to access for European car manufacturers. But at least, say supporters, they now have a foot in the door.
The chemical industry and mechanical engineering should benefit the most on both sides. High growth is also expected for European electronics and plastics manufacturers. India, in turn, hopes to sell more medicines and IT services to the EU. Because of the high US tariffs, the Indian textile and jewelry industry urgently needs to get rid of clothing and leather in other markets. Indian manufacturers want to keep up with competitors from Vietnam and Bangladesh through lower tariffs.
Trump caused haste
The main person responsible for accelerating new trade agreements around the world is US President Donald Trump. U.S. trade policy is encouraging once-close partners to sign new deals. Canadian Prime Minister Mark Carney and Chinese President Xi Jinping recently announced an agreement. It is no coincidence that the EU’s negotiations with Mercosur concluded almost at the same time after 26 years and with India after more than 20 years.
Trump brought haste to the action. India, for example, had taken a stand on issues of environmental standards for years and had barely moved until recently. EU Trade Commissioner Maroš Šefčovič was quoted by confidants after several trips to New Delhi as saying that the Indian food was just as spicy as the ongoing negotiations. But now the breakthrough.
Big gap to the USA and China
What applies to Mercosur also applies to India: economic institutes such as Kiel and Cologne expect welfare gains, both for the EU and for its trading partners. However, Argentina, Brazil and India will not replace the USA and China. To date, India is the EU’s ninth largest trading partner. However, business with the country with the largest population in the world only accounts for a little more than two percent. The USA (17 percent) and China (15 percent) are, at least so far, many times more important.
On the other hand: what would be the alternative? Continue to insist on old partnerships and hope that they won’t finally break down? While the United States is imposing tariffs on the world and using trade policy as a geopolitical means of pressure, China is increasingly sealing off its market and undermining the world trade order in its own way with high subsidies.
If the Europeans are the only ones who stick to the rules of international trade, according to the analysis of more and more responsible figures in Brussels and the EU capitals, they will come under the wheels. In this respect, Europe needs to slowly but surely build new partnerships. Don’t put all your eggs in one basket: This old saying also applies to the EU’s trade policy.
