What’s at Stake with the EU-India Trade Deal

Hello! Today is 7 April, and here is your EU news summary for the week. Feel free to share this newsletter with friends and colleagues, and follow us on LinkedIn.

This week’s expert is Pierre Leturcq. Pierre is a Senior Associate at think tanks E3G and IEEP, a consultant on European affairs, and a lecturer at Sciences Po. He is also the founder and coordinator of the Green Trade Network, a network of experts specialising in the intersection of international trade and environmental protection.

On 27 January, the EU and India announced the conclusion of a free trade agreement, nearly twenty years after talks first began.

Beyond the trade concessions, the calculation is clearly geopolitical. The EU’s aim is to anchor India more firmly in a European‑centred trade architecture, despite frictions over the EU’s Carbon Border Adjustment Mechanism (CBAM) and against the backdrop of intensifying US‑China rivalry.

Concessions on Both Sides

India accounts for only a modest share of the EU’s trade in goods (2.4% in 2024), which makes it the EU’s ninth‑largest trading partner, far behind the United States (17.3%), China (14.6%) and the United Kingdom (10.1%).

For New Delhi, however, the equation looks very different: the European market is central, with the EU alone absorbing 11.5% of India’s foreign trade, and goods flows between the two economies have surged by nearly 90% over the past decade.

The agreement provides for a gradual reduction of Indian tariffs on European agri‑food products, in particular wines and spirits (from 150% to 20–50% depending on the product), cars (from 110% to 10% with an annual quota of 250,000 units) and certain cosmetics.

In return, the EU will reduce its customs duties on almost 99% of Indian imports. Duties on olive oil imported from India will fall from 45% to 0% over five years. Another example: tariffs on Indian textiles will also be cut from 10% to 0%.

The Price of Carbon Borders

CBAM remains a major political irritant for New Delhi, and on this point EU negotiators have not blinked.

The mechanism requires importers of certain carbon‑intensive products (steel, cement, aluminium, etc.) to buy certificates mirroring the carbon price they would have paid had those goods been produced within the EU. The bill depends both on the products’ actual emissions and on the CO₂ price on the European carbon market.

Since 1 January 2026, the mechanism has been fully in force and importers must purchase and surrender carbon certificates for their covered imports, according to a calculation that takes into account the free allocations that European producers continue to receive and that are being phased out gradually until 2035.

On 17 December, the European Commission proposed extending CBAM to more downstream products in value chains, such as washing machines or certain automotive components, which could enter into force as early as 2028.

India, but also Brazil, South Africa and China, criticise CBAM as discriminatory. This creates a structural tension: the EU wants to be a champion of open trade, while increasingly resorting to unilateral tools such as CBAM to green its imports, at the risk of fuelling accusations of green protectionism.

India is among the countries most exposed to the mechanism, because of its steel and aluminium exports to the EU.

“India has been very concerned about CBAM and tried, in the context of the FTA negotiations, to obtain bilateral commitments from the EU. The EU has not, however, granted any specific preference to India (which CBAM in any event does not allow for), and India’s proposal for a rebalancing mechanism authorising unilateral retaliation was not taken on board,” explains Nicolas Köhler Suzuki, associate researcher at the Jacques Delors Institute.

During the trade talks, India also feared that the EU might grant exemptions to the United States under its agreement with President Donald Trump, which would have placed India at a disadvantage.

The EU promises to apply CBAM in strict compliance with the WTO most‑favoured‑nation principle, with transparent and non‑discriminatory criteria based on the carbon intensity of products, not on their origin. This promise does not in practice change anything, since EU law already prohibits granting differentiated CBAM treatment to certain countries.

India’s sensitivity is explained by the importance of the European market for Indian steel — around 60% of India’s steel exports — while Indian steel is estimated to be 30–50% more carbon‑intensive than the world average.

To sweeten the pill, the EU is also promising to mobilise 500 million euros to help Indian industry — particularly steel, cement and aluminium — cut emissions. These sectors sit at the heart of bilateral trade and will be directly hit by CBAM. The funding has a dual purpose: to support India’s climate transition and to defuse trade tensions by narrowing the carbon‑intensity gap between European and Indian producers.

This envelope serves two objectives: supporting India’s climate transition and easing trade tensions by narrowing the carbon‑footprint gap between European and Indian producers.

This approach marks an interesting shift: CBAM no longer appears solely as a defensive instrument to protect the European market, but also as a lever for industrial cooperation.

By financing the decarbonisation of key sectors in India, the EU is attempting to turn a source of trade friction into a platform for partnership, and to prepare, in the longer term, a gradual convergence of low‑carbon standards and of systems for measuring, reporting and verifying industrial emissions.

ENERGY • Recent US strikes on Iran have sent EU oil and gas prices up by around 60–70 percent within a month, triggering fears of diesel and jet‑fuel shortages and raising the spectre of a third major economic shock for the EU in six years, after the Covid-19 crisis and the war in Ukraine.

The first 30 days of conflict have already added some €14 billion to the EU’s fossil‑fuel import bill, tightening pressure on public budgets and households.

After the pandemic and Russia’s 2022 invasion of Ukraine, Member States adopted large stimulus programmes that pushed borrowing higher and left public finances more vulnerable to fresh price shocks.

To avoid a new round of expansive fiscal support, European Economy Commissioner Valdis Dombrovskis has urged national finance ministers to restrict themselves to short‑term, targeted emergency measures, warning that excessive spending could create serious budgetary risks.

In parallel, the finance ministers of Germany, Spain, Italy, Portugal and Austria have called on the European Commission to introduce an EU‑wide windfall tax on energy companies. They propose a levy framework similar to the 2022 “solidarity contribution”, which imposed a 33% tax on exceptional oil and gas profits above the four‑year average by more than 20%.

To alleviate pressure on industry, the Commission has also proposed a first set of changes to the EU’s Emissions Trading System (ETS). Installations covered by the system currently face carbon costs of about €75 per ton of CO₂, on top of already high energy prices.

The reform modifies the Market Stability Reserve, which since 2015 has withdrawn permits when stocks exceed a certain threshold in order to raise the carbon price. The new measure removes the so‑called “invalidation clause”, allowing an unlimited number of permits to accumulate in the reserve and giving the EU more flexibility to release them if prices rise sharply.

TRADE • Donald Trump has announced a package of tariff changes on metal and pharmaceutical imports, rolling back some of the toughest “Liberation Day” duties and moving the US closer to the tariff structure agreed in the EU-US Turnberry deal.

Many steel-derived products that had been hit with 50 percent tariffs are now reduced to 15%, while others fall to around 25 percent — still above the Turnberry benchmark but significantly lower than before.

For pharmaceuticals, Washington has confirmed a 15% duty on innovative medicines imported from the EU, instead of the much higher rates signalled for countries without comparable arrangements, again aligning with the Turnberry ceiling.

These steps directly address a core concern in Brussels: that US tariffs applied in practice should not contradict the Turnberry commitments, particularly in politically sensitive sectors such as steel derivatives and branded drugs.

The European Parliament has attached clear conditions to its consent, making approval of the EU-US trade deal conditional on the removal or substantial reduction of “excess” tariffs on steel and aluminium derivatives toward the 15% level agreed at Turnberry.

The European Parliament recently endorsed a modified version of the agreement that explicitly links its approval to progress on these tariff issues. The deal now moves into interinstitutional negotiations between the Parliament, the Commission and the Council, where these conditions will be scrutinised in detail.

• A Bruegel paper argues that the EU should brace for lasting high gas prices after the Iran shock while avoiding short-term fixes that weaken energy security.