EU trade chief Maros Sefcovic.Image: keystone
January 27, 2026, 08:0301/27/2026, 08:21
The EU and India have completed negotiations to build a huge new free trade area. This was announced by EU Commission President Ursula von der Leyen and Indian Prime Minister Narendra Modi in New Delhi.
The aim is to stimulate the exchange of goods and services between the EU and India by reducing trade barriers and tariffs. The aim is to promote growth and jobs while at the same time reducing undesirable dependencies on other countries. Against the background of the US’s aggressive customs and trade policy and China’s increasing desire for power, the agreement is also seen as a geopolitically significant step.
EU Commission President von der Leyen said: “The EU and India are making history today and deepening the partnership between the world’s largest democracies.” A free trade zone with two billion people would be created from which both sides would benefit economically. It also sends a signal to the world that rules-based collaboration continues to deliver excellent results.
Market with almost two billion people
The agreement will not be as comprehensive as the one that the European Union recently concluded with the Mercosur states Brazil, Argentina, Uruguay and Paraguay. Given the size of the Indian market, it is still one of the largest agreed to date.
India is the most populous country in the world, ahead of China with more than 1.45 billion inhabitants. Around 450 million people live in the EU. Together, the two sides represent nearly a quarter of the world’s GDP and population.
Car manufacturers can hope for tariff reductions
According to the EU, the German auto industry in particular could benefit from the agreement, as India has so far imposed tariffs of up to 110 percent on imports of vehicles from the EU. These are now to be gradually reduced to 10 percent for at least 250,000 vehicles per year, while they will be completely abolished for car parts after five to ten years. Tariffs of up to 44 percent on machinery, 22 percent on chemicals and 11 percent on pharmaceuticals would also be largely eliminated, it is said.
Similar protests to those with the Mercosur agreement are not expected, as the agreement is not intended to include areas sensitive to local farmers. “Sensitive European agricultural sectors will be fully protected as products such as beef, poultry, rice and sugar are excluded from liberalization under the agreement,” the EU Commission said. All Indian imports would also have to continue to comply with the EU’s strict health and food safety regulations.
At the same time, the EU emphasizes that new opportunities are opening up for European farmers in India. Accordingly, Indian tariffs on wine will be reduced to 75 percent when the agreement comes into force and then later reduced to up to 20 percent. Tariffs of up to 50 percent on processed agricultural products such as bread and confectionery are to be completely abolished.
EU sees enormous potential
On the potential of EU-India trade relations, the EU said the agreement is expected to result in a doubling of EU exports to India by 2032 by eliminating or reducing tariffs on 96.6 percent of the value of EU goods exports to India. Overall, the tariff reductions would enable savings of around four billion euros per year in taxes on European products. According to EU figures, more than 6,000 European companies are already represented in India.
An EU official in Brussels said trade with India so far only accounts for around 2.5 percent of total EU trade in goods – compared to almost 15 percent for China. Despite comparatively high tariffs on the Indian side, trade between the EU and India has already grown by almost 90 percent in the last ten years.
Signal to Trump
The agreement is also seen as extremely relevant because trade relations with the USA have recently become unpredictable due to US President Donald Trump’s customs policy. Von der Leyen said last week: “We are choosing fair trade instead of tariffs. For partnership instead of isolation.” The EU wants sustainability instead of exploitation and is serious about risk reduction and diversifying supply chains.
Chancellor Friedrich Merz also strongly advocated for the conclusion of the negotiations in mid-January. More than 2,000 German companies are already active in India today, and more and more Indian companies are also investing in Germany, he said at a meeting with Modi. With a bilateral trade volume of almost $50 billion in goods and services, a record high, Germany is India’s most important partner in the European Union.
Signing of the deal
It will probably take some time before the agreement can be signed. The reason is that the text of the contract still needs to be legally checked and translated into all official languages of the EU. It then has to be approved by the member states and the European Parliament.
There were already negotiations on a free trade agreement with the fifth-largest economy from 2007 to 2013. However, the talks failed at that time and were not resumed until 2022. Interest in an agreement has recently increased on both sides in view of Trump’s behavior.
The USA now imposes tariffs of 50 percent on Indian products, including the 25 percent due to its partner’s trade transactions with Russia. India, which has good relations with Moscow and the West, sources a large part of its oil and gas from Russia, which in turn invests the revenue in the war of aggression against Ukraine. (sda/dpa)