Signal of Opportunity: What the EU-India Free Trade Agreement means for Australia    

Indian PM Narendra Modi meeting the President of the European Commission Ursula Von Der Leyen in 2022 talks. Picture: Press Information Bureau

After almost a decade of stalled talks, India and the European Union (EU) have pledged to establish a free trade agreement (FTA) by the end of this year. The new deal aims to remove domestic market barriers and encourage foreign domestic investment, while maintaining protections around geographical indications to ensure respective agricultural markets are not misused in the name of economic growth. The path to finalising this FTA has not been straightforward, and more roadblocks remain as leaders from both sides face diplomatic delays, increasing tariffs and protectionist challenges from other great powers.

Indian PM Narendra Modi has stated that the new agreement will be built on trust and shared belief in democratic values, foundations that will become increasingly crucial as the international community learns to navigate under an ever-changing global order. Australia will also need to keep a close eye on negotiations, as India – its fourth largest trading partner – seeks to increase its global economic influence. 

How will this new deal contribute to current EU-India trade relations?

Graphs detailing EU-India trade in goods and services over 2014-2023. Source: EEAS trade data

Sectors in focus

The EU is India’s largest trading partner, accounting for 12.2% of total Indian trade. India also relies heavily on the EU, as its second largest destination for exports at 17.5% of total trade, narrowly behind the United States at 17.6%. These figures have grown remarkably over the last decade, due to increasing demand in the pharmaceutical, automotive and digital sectors. Digital technologies in particular will be at the forefront of trade negotiations, as the EU manages a labour shortage in its domestic market. The forthcoming pact will also consider the growing importance of artificial intelligence infrastructures, on the back of the establishment of the EU-India Trade and Technology Council (TTC) in 2022. Clean and green technology is another important, albeit contentious area, where both Indian PM Modi and EU President Ursula von der Leyen have pledged to advance progress through research and development, notably around electric vehicles and semiconductors. 

The overarching goal of this agreement is to ensure a ‘balanced, ambitious, comprehensive and mutually beneficial’ trade relationship now and into the future. While such a stance serves to benefit both economies, other nations such as Australia must proceed along similar lines as its own major trading partners apply pressure. 

The epicentre of such pressure currently emanates from the United States, where President Donald Trump has adopted an America First Trade Policy, and imposed strict tariff measures on almost all US trading partners, with rates as high as 145% on US imports. The White House announced a brief respite for countries who have not outwardly retaliated against these measures, however this is set to expire in July. With this in mind, it is evident that the progress of EU-India negotiations is not only timely, but indicative of an important value shift within its governments towards effective long-term economic solutions.

Lessons for Australia

Anthony Albanese meeting with PM Modi at a trade summit in 2023. Picture: Reuters

Australia must learn from its allies, and strengthen its current ties with India if it hopes to establish a stronger presence in the Indo-Pacific region. While the two nations have benefitted from a comprehensive strategic partnership for the last four years, interest-driven discussions are yet to go far in cementing economic relations. Meanwhile, China’s push in the region saw India sign a landmark deal with the PRC in 2024, the first bilateral agreement between the two countries in five years. This will see a reduction in troops at geographical friction points along their shared border – where tensions have often escalated in fatal clashes – and signals a thawing of once tense relations. 

Australia has made some notable inroads into trade opportunities with India, establishing a New Roadmap for Economic Engagement earlier this year. Informed by public sector consultations, this framework aims to ‘accelerate efforts’ on sectors of key importance, including education, energy, agribusiness and tourism. Australia-India led talks have been slowly progressing, but actionable steps remain underdeveloped, with Indian Foreign Minister Subrahmanyam Jaishankar stating that the countries’ relationship is ‘yet to be recognised’. And while its status will remain unchanged until after Australia elects its next prime minister, the incoming federal government must maintain its view of India as an important economic ally – especially as US foreign policy evolves. 

Under the first Trump administration, Australia looked to Japan for regional economic engagement, creating a six year Strategic Plan with the objective of increasing trade and investment, as well as private-public partnerships. This time, it is imperative that Australian leaders regard India as an important counterpart when advancing its future economic policies.

Looking ahead

“The EU and India have the potential to be one of the defining partnerships of this century” – European Commission President Ursula von der Leyen

Negotiations remain ongoing between the EU and India, as both sides lobby for reduced tariffs, softer legislative penalties and greater concessions for migration into EU states. As the United States and China continue to develop their own economic agendas with and against each other, Australia must utilise the opportunities it currently has as a major power within the Indo-Pacific if it hopes to advance its domestic and regional economic development.