EU, US deals connect India to world’s largest markets, open new trade vistas

UPSC Syllabus: GS Paper-2- International Relations

Introduction

India’s recent trade engagements with the European Union and the United States reflect an evolution in India’s trade negotiation strategy. While engaging in long bilateral negotiations, India has remained firm on protecting agriculture, dairy, MSMEs, and small farmers. This approach is supported by India’s transition into a market-driven economy, strengthened by reforms in governance, regulation, and market infrastructure. Against this backdrop, the EU and US deals connect India to the world’s largest markets while balancing domestic priorities with global integration.

Comparing the EU and US Trade Engagements

1. Common protective approach: In both trade engagements, India safeguarded sensitive agriculture and dairy sectors, ensuring domestic farmers and producers were not exposed to import pressure.
2. Flexibility beyond tariffs: Both the EU and the US showed willingness to engage on non-tariff barriers and digital trade, indicating a broader and strategic trade engagement.
3. Key negotiation differences: The EU talks involved issues like CBAM and stronger labour mobility provisions, while these concerns did not feature in the US interim deal.
4. Nature and context of agreements: The EU agreement is a comprehensive FTA, whereas the US arrangement is an interim deal shaped by evolving geopolitical realities.

EU FTA Benefits

1. Unprecedented goods market access: India secured access for over 99 % of its exports by trade value to the EU, strengthening manufacturing and export competitiveness.
2. Boost to Make in India: Preferential access integrates Indian producers into EU value chains, reinforcing domestic manufacturing expansion.
3. Services and skilled mobility gains: High-value services commitments are supported by a comprehensive mobility framework enabling smooth movement of skilled Indian professionals.
4. Labour-intensive sector advantage: Around $75 billion of Indian exports are positioned for growth, with $33 billion in labour-intensive sectors expected to benefit significantly.

For detailed information on India’s Growing Engagement with European Union read this article here

US Interim Trade Deal and its Benefits

1. Geopolitical context and sequencing: The US deal emerged from shifting geopolitical realities and followed major agreements with the EU and UK, reflecting India’s calibrated diplomacy.
2. Managing tariff-related concerns: Even with an 18 per cent tariff, India’s gap from Most-Favoured-Nation (MFN) average tariffs remains among the lowest relative to peers.
3. Export resilience despite tariffs: In the first nine months of FY26, exports of goods and services grew by 4.3 per cent, nearly matching a no-tariff scenario.
4. Energy import flexibility and inflation control: Replacing Russian crude with Venezuelan heavy crude (Merey 16) can still provide discounts of $10–12 per barrel, saving up to $3 billion on the import bill and limiting inflationary impact.
5. Sectoral openings and future pathway: The deal opens a $118 billion textiles and apparel market and removes the 25 per cent penalty on Russian oil imports. It also serves as a step toward a full Bilateral Trade Agreement with further tariff reductions.

Impact of India’s EU and US Trade Engagements

1. Agri and food imports with safeguards: India will reduce or eliminate tariffs on select US industrial and agri goods while protecting the broader domestic market.
2. Soyabean oil and consumer benefit: India remains the largest global importer of soyabean oil, with the US contributing only 3 per cent of $4.3 billion imports in Apr–Nov FY25, making tariff reduction economically beneficial.
3. Tree nuts and fruit imports: Lower duties on almonds, walnuts, pistachios, and cranberries benefit consumers, as domestic production is limited and demand is high.
4. Chemical and pharmaceutical export gains:

• India has a revealed comparative advantage in chemicals and pharmaceuticals, where China and Singapore hold higher shares in US imports.
• Capturing a 2 per cent share from them could add 0.2 per cent to GDP, while gaining an additional 1 per cent share from Japan, Malaysia, and South Korea could add another 0.1 per cent.

5. Apparel export expansion: India’s 6 per cent share in US apparel imports could rise by 5 per cent, adding another 0.1 per cent to GDP.
6. Import diversification strategy: Planned $500 billion imports from the US over five years will diversify capital goods sourcing away from China.

Conclusion

The EU FTA and the US interim deal signal a new phase in India’s trade journey. India balances domestic protection with global opportunity while responding to consumer-driven markets. By negotiating on its own pace and terms, India strengthens exports, diversifies imports, and positions itself as a central player in the evolving trade order.

Question for practice:

Critically examine how India’s trade engagements with the European Union and the United States reflect an evolution in its negotiation strategy and reshape its position in global markets.

Source: Indian Express