President Trump helps nailing EU-India strategic partnership agreement

Amid geopolitical turmoil, the European Union is in a hurry to find new strategic partners. Mercosur is highly controversial, while the EU-India agreement is mostly viewed positively by both sides

The background of the agreement

While there have been long-standing trade relationships between India and some European countries, trade deals between the European Union (EU) and India began to formalize in 2000, following the first EU-India summit, when the parties agreed to work towards a strategic partnership. As with the EU-Mercosur trade deals, these negotiations dragged on for decades; the most contentious policy fields were the Indian textile industry’s exports to EU markets and EU agricultural products’ exports to India. As a result, the talks were stalled for years. The decision to resume negotiations was made in 2021, and the talks were accelerated by the tariffs imposed by President Trump, leading to the signing of the agreement by EU representatives and Indian leaders. It is expected to enter into force in a year, and its impact will be felt later. The resulting market size is around 2 billion people and accounts for around a quarter of global trade. According to EU calculations, the EU and India already trade more than €180 billion worth of goods and services annually, supporting nearly 800,000 EU jobs. The EU expects the deal to double EU exports to India, with duties eliminated or reduced on 96.6% of EU exports, saving around €4 billion a year for European products.

Key elements of the agreement

At the time of writing, the final text of the agreement was not yet available, but according to an official draft, the strategic partnership should be based on five pillars, as follows:

1. Prosperity and sustainability: The document emphasizes the importance of supply chains and economic security, which would be ensured by diversifying value chains and common strategies for critical raw materials. In addition, energy imports are essential to both partners. In the clean transition subsection, the importance of sharing experience and best practices in offshore wind energy, technology transfer, and expert exchanges was highlighted. In addition, cooperation would be deepened across green hydrogen production, electricity markets, and sustainable aviation fuels. Furthermore, the partners would cooperate more closely in the fields of public health and disaster management necessary due to climate change.
2. Technology and innovation: The EU and India aim to develop cooperation across the entire value chain of critical emerging technologies, such as semiconductors, artificial intelligence, AI projects, high-performance computing (HPC), and space technologies, with innovation hubs through joint R&D projects, talent exchanges, and industrial partnerships. Promoting the digital environment would encourage the convergence of data flows and data protection, strengthen the security of submarine cables, and enhance the interoperability of digital public infrastructures. To strengthen research cooperation, the parties will expand joint calls and exchanges of scientists, in particular under Horizon Europe.
3. Security and defense: The third pillar focuses on regional strategic coordination, crisis management, and strengthening maritime defense, as well as cooperation in the Indo-Pacific region. The Parties will enhance maritime situational awareness, data sharing, and resilience to cyber and hybrid threats as part of their response to conventional and hybrid threats and will work together on counter-terrorism and organized crime measures. In addition, industrial forums and joint projects may be established to foster defense industrial cooperation.
4. Connectivity and global issues: The main objective of the fourth pillar is to develop regional and intercontinental infrastructure links. The most important project is the India-Middle East-Europe Economic Corridor (IMEC). The EU is committed to targeting investments in transport, energy, and digital infrastructure through the Global Gateway program. The Parties will work together on financing and implementing projects in third countries, in particular in Africa and South Asia, and deploying common digital public infrastructures to increase regional connectivity and build resilient supply chains.
5. Enablers across pillars: The fifth pillar aims to increase the implementation ability of the partnership agreement. To this end, it is planned to expand skills and workers’ mobility programs, strengthen student mobility and researcher exchange programs, and establish a European legal liaison office in India to facilitate labor flows, primarily in the information and communication technology sector, thereby providing opportunities for Indian workers.

What does this mean for the Central and Eastern European countries?

The agreement would have positive overall effects on all EU member states; its impact on economic growth can be estimated with some confidence. Various models and empirical studies suggest that an EU-India free trade agreement (FTA) would mean positive, but generally small, growth for the EU, while it would have a clearly perceptible impact in some sectors and regions. In contrast, a trade agreement would bring a relatively larger advantage to India.

One study highlights that the markets of CEE countries are a particularly attractive environment for India, where investment returns have been significantly higher than in Western Europe. Indian IT companies see opportunities in Eastern Europe, both because of its well-trained workforce and its potential as a logistics hub.

Cooperation could help India play a role in labor-intensive manufacturing, a goal Prime Minister Modi has set for his country. This could have a dual impact on our region: some Western European companies could move their production headquarters to India, while it could also offer Central and Eastern European companies the opportunity to manufacture their products in locations with greater production capacity.

However, cooperation also carries risks. Historical experience shows that for Central and Eastern European countries, similar free trade agreements can carry additional risks, such as competitiveness shocks and asymmetric adjustment costs.

The wider significance of the agreement

Strengthening EU-India relations can play an important role in the global geopolitical and geo-economic space. The rise of emerging economies in Asia and the tense situation with the United States pose new challenges for the EU. The world’s largest democracy, India, can become a key player for the EU and an ally in addressing global challenges, such as climate change, terrorism, and geopolitical tensions.

From a geo-economic perspective, India offers the EU an opportunity for economic growth and job creation. India’s rapidly growing middle class and the spread of the digital economy create new markets and business opportunities for European companies. India’s traditional, non-alignment diplomatic culture can contribute to the stability of supply chains, facilitating increased trade and investment.

Deepening relations between India and the EU could help India become an increasingly serious competitor to China in the global market. In some EU industries, such as pharmaceuticals, technology, and textiles, India could replace China in certain segments, thereby reducing Chinese producers’ market share. The agreement could cause geopolitical tensions for China: China has traditionally sought to maintain its influence in India, and a stronger EU-India partnership would make the EU an active player in South Asia, potentially increasing geopolitical competition.

The agreement could also be uncomfortable for the US. Relations between the two partners, already strained, have been further stressed after the US president imposed tariffs on India for buying Russian energy. The US president and his administration may therefore feel that their peace efforts are being further hampered by the partnership agreement signed yesterday.

Photo: europa.eu