In January 2026, trade diplomacy between India and the European Union (EU) reached a decisive phase. After more than a decade of fits and starts, negotiators have entered the most intensive round of talks yet to conclude a comprehensive free trade agreement (FTA) — a pact that could become one of the most consequential of the 21st century, not only commercially but strategically. India’s Commerce and Industry Minister Piyush Goyal’s visit to Brussels for high-level negotiationsunderscores the urgency and political backing behind this drive.
The negotiations span 23 chapters covering goods, services, investment, intellectual property, and sustainable development, reflecting the broad remit of modern trade diplomacy. If concluded successfully, the pact would anchor deeper economic integration between two of the world’s most dynamic markets and reset expectations for trade cooperation in an era when multilateral institutions like the WTO struggle to advance liberalisation.
Historical and Theoretical Foundations: Trade in a Fragmented Order
The post-World War II global trade regime was grounded in embedded liberalism — a compromise between open markets and domestic policy autonomy. Over decades, this framework facilitated tariff reductions under the GATT and later the WTO. Yet the past two decades have seen a rebound of bilateral and regional trade agreements, a phenomenon described by the new regionalism theory as states seeking strategic economic partnerships outside stymied multilateralism.
The India–EU FTA negotiations embody this transition. Trade between India and the EU already exceeds USD 136 billion in goods, with India exporting ready-made garments, pharmaceuticals, and electrical machinery, and importing machinery, vehicles, and industrial products. The EU accounts for about 17 percent of India’s total merchandise exports, making it a vital market for Indian producers and exporters.
From a theoretical lens, this pact illustrates the shift from classical tariff liberalisation toward deep integration, where trade agreements extend into labour, digital governance, environmental norms, and investment protections — territories once considered domestic regulatory prerogatives. Contemporary trade scholars argue that such agreements are as much about aligning standards and rules as about tariff reduction itself.
Carbon Policy Meets Trade Politics: The CBAM Conundrum
Perhaps the most contentious issue on the negotiating table is the EU’s Carbon Border Adjustment Mechanism (CBAM). Set to fully enter Phase II in January 2026, CBAM will levy costs on carbon-intensive imports unless exporters can demonstrate equivalent carbon pricing at home — effectively extending climate policy into trade regulation. Critics, including Indian industry groups, argue that CBAM could impose substantial compliance costs on Indian steel, aluminium, and cement exports, potentially eroding their competitive edge.
From an international political economy perspective, CBAM reflects the emergence of green protectionism: environmental objectives translated into trade measures. While the EU frames it as essential to its European Green Deal commitments, developing economies view it with concern, arguing that such mechanisms can act as non-tariff barriers that disproportionately disadvantage exporters without robust emissions reporting infrastructure.
India’s response highlights the enduring tension between two normative principles: environmental sustainability and developmental equity. The latter, embedded in frameworks like “common but differentiated responsibility,” posits that developing economies should not bear equivalent burdens without adequate policy space and transitional support.
Market Access and Regulatory Sovereignty
Negotiators face differing expectations on market access. The EU has pressed for deeper duty reductions on automobiles, medical devices, and agricultural products, sectors that carry significant economic and political weight in European capitals. India, wary of industrial displacement and domestic political backlash, has adopted a calibrated stance on tariff cuts, especially in agriculture and labour-intensive manufacturing.
Even where tariffs fall, non-tariff barriers (NTBs) — such as divergent sanitary and phytosanitary standards, technical regulations, and data protection rules — loom large. NTBs often act as de facto trade constraints because they touch the core of regulatory sovereignty. India’s insistence on preserving space for its own regulations on data, consumer protection, and labour standards reflects broader concerns about external rule-making impinging on domestic policy prerogatives.
In services trade — where India holds a clear comparative advantage, especially in IT and professional services — regulatory divergences over data protection and mutual recognition of qualifications have slowed progress. These issues illustrate how deeply regulatory autonomy and trade liberalisation are intertwined in contemporary negotiations.
Geopolitical Calculus: Trade, Strategy, and Strategic Autonomy
The India–EU FTA must be understood against the backdrop of shifting geopolitical currents. The United States’ increasingly protectionist trade policies have added urgency to India’s drive to diversify export markets. At the same time, the EU’s strategic calculus includes reducing supply-chain vulnerabilities associated with over-dependence on specific partners, especially in advanced technologies.
This alignment reflects complex interdependence theory, which posits that deep economic ties can act as stabilisers in an uncertain geopolitical environment. For example, the FTA could enhance cooperation under frameworks like the India-EU Trade and Technology Council (TTC), potentially catalysing initiatives such as a “Silicon Silk Road” to bridge semiconductor supply chains.
Yet strategic divergence remains. India’s commitment to strategic autonomy — particularly its independent stance on foreign policy questions — does not always align with the EU’s broader normative expectations on climate, governance, and foreign policy cohesion. This underscores the limits of trade diplomacy in superseding broader strategic and normative divergences.
Socio-Economic Safeguards: Farmers, MSMEs, and Inclusion
Amid high-level negotiations, both sides have reaffirmed commitments to ensure that the FTA incorporates safeguards for farmers and micro, small, and medium enterprises (MSMEs). India’s Commerce Minister highlighted that dialogues in Brussels have emphasised a rules-based trade framework that protects vulnerable sectors while integrating Indian firms into global value chains.
This focus resonates with the developmental state theory, which emphasises the role of state intervention in cushioning domestic actors during economic liberalisation. Incorporating explicit safeguards acknowledges that trade agreements can create winners and losers domestically — a reality that cannot be ignored if such pacts are to be politically sustainable.
Conclusion: A Frontier Defined by Complexity
The India–EU FTA negotiations encapsulate a central tension of contemporary globalisation: expanding economic opportunity while safeguarding policy autonomy in a politically competitive world. The pact’s potential is substantial, promising expanded trade, investment flows, technological cooperation, and strategic alignment between two major global actors. Yet the hurdles — from carbon pricing to regulatory divergence and geopolitical nuance — underscore the complexity of modern trade diplomacy.
Whether the FTA succeeds or falters, it will illuminate the evolving frontier of trade governance: a frontier where economic strategy, regulatory sovereignty, and geopolitical calculation converge.
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