India shifts focus to EU as US tariffs stall bilateral trade negotiations

With US tariffs squeezing exports and trade talks stalled, India banks on the UK FTA to push forward EU negotiations, covering autos, wines, procurement and digital trade

The India-US Bilateral Trade Agreement talks are now on rough terrain, with the scheduled sixth round unlikely to take place. The 25 per cent reciprocal tariff has already come into force, meaning India’s exports to the US now face an additional 25 per cent duty over and above the existing MFN rates, with a few key exclusions. In addition, the US has imposed a further 25 per cent tariff on imports from India of oil and arms sourced from Russia.

 

However, the reciprocal tariff is not applicable to pharmaceuticals and their ingredients, energy products, semiconductors and a wide range of electronics including smartphones and tablets. These items, worth more than $25 billion, make up nearly one-third of India’s merchandise exports to the US in FY25, offering some relief to exporters.

 

 

Given the uncertainty over US trade talks, India is seeking alternative strategies to offset potential losses in its top export market. The recently concluded free trade agreement (FTA) with the UK has come at an opportune time, helping to cushion some of the likely losses. More importantly, India is now looking to secure and consolidate access to the wider European market.

 

With the UK FTA concluded and the EFTA agreement expected to take effect in the coming weeks, India’s deal with the UK is expected to catalyse negotiations with the EU. Many of Brussels’ demands are similar to what India has already committed to London. The EU had been awaiting the India-UK FTA text to set realistic expectations from New Delhi.

 

Under the UK deal, India has secured 100 per cent duty-free market access for its exports (covering 99 per cent of UK tariff lines) compared to the earlier 48.2 per cent (covering 47.3 per cent of tariff lines). This is a major boost for labour-intensive sectors that had lost preferential access in 2023 when the UK replaced the GSP scheme with the DCTS.

 

India has also agreed to open up its automobile and wine and spirits sectors, a long-standing demand not only from the UK but also high on the EU’s agenda. While India’s commitment on automobiles is calibrated, the EU may seek further concessions. On whiskies, India will cut tariffs from 150 per cent to 75 per cent on day one, and to 40 per cent by year 10. A similar package could be offered to the EU for wine.

 

A notable feature of the UK FTA is that both sides crossed traditional red lines. India agreed to open its domestic public procurement market for the first time, a demand it had resisted in previous FTAs. The UK, on its part, agreed to a Double Contributions Convention, preventing workers from paying social security contributions in both countries, and provided strong commitments on mobility of professionals.

 

FTA talks with the EU, which resumed in June 2022 after a nine-year pause, are structured as a package deal covering trade, investment protection and geographical indications (GIs). Progress was limited until EU President Ursula von der Leyen’s February 2025 visit, when she and Prime Minister Modi announced a year-end deadline. Since then, negotiations have gained momentum.

 

Following the 11th round in May 2025, five chapters were closed, including Transparency, Good Regulatory Practices, Customs and Trade Facilitation, Intellectual Property Rights, and Mutual Administrative Assistance in Customs Matters. The 12th round in July saw agreements in principle on Digital Trade and an Anti-Fraud clause.

 

After the UK FTA, the EU has clarity on India’s positions on sensitive issues such as autos, wines and procurement. It will likely seek additional concessions, particularly on investment protection, digital trade and GIs. Unlike the UK, for the EU an investment protection treaty is integral to the FTA, with differences remaining over dispute settlement mechanisms.

 

On digital trade, India had resisted commitments on cross-border data flows and localisation with the UK, leaving scope for future inclusion. With the EU, India will face greater pressure, and any concession would automatically extend to the UK under the terms of its agreement.

 

On GIs, the EU has pursued standalone agreements alongside FTAs, seeking stronger protection for agricultural and food products than what is required under WTO TRIPS. India will need to balance EU demands with its own interests.

 

The EU-India political summit is expected by end-2025 or early 2026, with the FTA likely to be a key deliverable. The 13th round of negotiations, scheduled for mid-September, will be the first after the release of the India-UK FTA text and is expected to deliver more meaningful progress, as both sides aim to close the deal by year-end.

 

The author is the Chairman of Hi-Tech Gears Limited.   (These are the personal opinions of the writers. They do not necessarily reflect the views of www.business-standard.com or the ‘Business Standard’ newspaper)