The historic EU-India trade agreement faces four structural risks to its effectiveness

 

La Unión Europea and India They have finalized one of the most ambitious free trade agreements (FTAs) after twenty years of negotiations, aiming to consolidate a relationship between economies that together represent a quarter of global GDP. The pact responds to the need for strategic diversification and stability in the face of growing global tariff tensions.

 

A framework for massive opening in a complex geopolitical chessboard

 

The agreement establishes a level of trade openness unprecedented in recent history. UE will liberalize 97 % of its tariff lines for Indian exports—91% immediately—while the India It will gradually reduce its tariffs on more than 97% of European imports. This progress is critical for 144 service subsectors and strategic areas such as intellectual property.

 

According to experts from CofaceThe signing comes at a time of high geopolitical sensitivity. From 2025, Estados Unidos has imposed tariffs of 50% on Indian products, which has pushed Nueva Delhi to seek a more stable framework in the European market. Meanwhile, for the Unión Europeathe pact strengthens its commercial autonomy in the face of external shocks.

 

Markus Kugereconomist for Alemania de Coface, highlights the significance of the milestone: This agreement marks a turning point for the European and Indian economies: it redefines market access, secures key value chains, and creates a trade framework capable of mitigating geopolitical shocks..

 

Indicator / Sector	Agreement Details / Impact
Liberalized Tariff Lines	97% by both parties (EU: 91% immediate)
Automotive Sector (Indian Tariffs)	Reduction from 70-110% to 10% (quota of 250.000 vehicles)
Steelmaking (CBAM Costs)	Possible additional cost of €200 per ton of steel
EU Decarbonization Support	€500 million allocated to India
Services Subsectors	144 areas covered by the pact

 

The four risks that determine the success of the pact

 

Despite institutional optimism, analysts from Coface They identify critical factors that could hinder projected economic benefits:

 

• Economic and sectoral risks: In the automotive sector, although the tariff drops to 10%, the Indian market is 80% dominated by two-wheeled vehicles. In the chemical and steel industries, carbon standards (CBAM) from UE will reduce the competitiveness of Indian producers.
• Global demand: The Indian textile sector may not take advantage of free access if demand in the UE remains weak or if countries like Bangladesh They maintain their competitive advantages.
• Policy implementation: There are fears that the agreement will face similar obstacles to those of the MercosurFurthermore, the speed of granting business visas depends on the individual member states.
• Time factor: Many tariff reductions, such as those for plastics, will be implemented over a period of 5 to 7 years, which could lead to frustration among European companies seeking immediate results.

 

Key points and frequently asked questions about the EU-India agreement

What percentage of tariffs is eliminated with this agreement?

The agreement foresees the liberalization of more than 97% of tariff lines from both sides. The Unión Europea will immediately eliminate 91% of its tariffs on exports from the India.

How does the Carbon Mechanism (CBAM) affect Indian industry?

This is one of the main sectoral risks. Indian steel and chemical producers will have to adapt to strict European standards, which could entail additional costs of up to €200 per ton of steel, despite the decarbonization aid of the UE.

Why is this considered a strategic agreement at this time?

Due to the unstable geopolitical environment and the tariffs imposed by Estados Unidos to India. For the UE, represents a way of diversification and autonomy to secure their global value chains.