Trade Deal Draft Shows India, EU Agree On 5-Year Most Favoured Nation Status

New Delhi: The India-European Union (EU) trade agreement is set to revolutionise bilateral trade relations, with both sides agreeing to grant each other Most Favoured Nation (MFN) status for a period of 5 years. According to the draft released on Friday, the trade deal turned out to be a mega success in the long-standing trade negotiations and Free Trade Agreement (FTA) between the two economic powerhouses.

The disclosure comes nearly a month after high-level talks between European Commission President Ursula Von Der Leyen, European Council President Antonio Costa, and Prime Minister Narendra Modi in New Delhi.

As per the trade analysts, the agreement, hailed as the ‘mother of all deals’ by EU President Ursula Von Der Leyen, announced on January 27, was to create a free trade zone covering nearly 2 billion people, representing around a quarter of the world's population and about 25% of global GDP. PM Modi lauded the deal, stating that it would unlock huge economic opportunities for India's 1.4 billion citizens and hundreds of millions across 27 EU member states.

The pact will allow 93% of Indian exports to enter the 27 nations bloc duty-free, while EU luxury cars and wines will face lower import costs. The analysts stated that the FTA deal unites India, the world's fourth-largest economy, with the EU, the second-largest economic bloc, forming a market of around 2 billion people.

As per information, under the agreement, India will eliminate or reduce tariffs on 96.6% of EU exports, while the EU will reciprocate by reducing tariffs on 99.5% of Indian goods. It is expected to result in annual duty savings of up to EURO 4 billion for European companies. Key sectors benefiting from the deal include automobiles, machinery, chemicals, pharmaceuticals, and textiles. The agreement was an example of India-EU strong relations, with bilateral goods trade reaching USD 135 billion in FY 2023-24. The FTA is expected to expand commercial ties between the two sides, transforming their relationship across multiple sectors.

The deal came amid rising concerns over US trade measures that have impacted both India and the EU, prompting New Delhi and Brussels to deepen economic cooperation. India and the EU first began FTA talks in 2007, which were paused in 2013 due to differences over the deal's scope, but the negotiations resumed in June 2022.

PM Modi described the agreement as "a new blueprint for shared prosperity", while Ursula Von Der Leyen said it would create "a free trade zone of 2 billion people", strengthening economic security in an increasingly volatile world.

India-EU FTA Features And Benefits

As per information, the FTA will eliminate or reduce tariffs on 96.6% of traded goods by value, with India granting immediate duty-free access on 49.6% of tariff lines and the EU on 70.4%. The agreement also included provisions on intellectual property, labour, and sustainable development. Indian exporters in textiles, leather, gems, and seafood are expected to gain immediate zero-duty access to the EU market.

The deal also opens up services sectors, with India and the EU committing to deeper digital trade cooperation, recognising privacy as a fundamental right. The agreement included an annexure providing for mediation, allowing disputes to be resolved through a fast-track process.

The FTA is expected to strengthen Indian exports, with sectors like textiles, leather, and pharmaceuticals set to benefit from reduced duties and smoother certification. The agreement will also enhance India's services exports, particularly in IT, telecom, and professional services. On the other hand, for the EU, the deal provides mega market access, with tariff reductions on wine, spirits, beer, olive oil, and meat products. The agreement also strengthens EU competitiveness, with annual duty savings of up to Euro 4 billion.

Before implementation, the FTA will undergo legal vetting and ratification by the European Parliament and the Indian administration, expected to take around a year. Once implemented, the agreement will provide a thrust to bilateral trade, investment flows, and supply chain cooperation.