Europe EU and India want to establish a huge free trade zone
The EU and India have reached an agreement on a huge new free trade zone. The agreement announced at a summit in New Delhi provides for the dismantling of trade barriers and tariffs in order to boost the exchange of goods and services. This should promote growth and jobs and at the same time reduce unwanted dependencies on other countries.
27.01.2026, 09:02
27.01.2026, 13:53
SDA
Against the backdrop of US President Donald Trump's aggressive customs and trade policy and China's increasing striving for power, the establishment of the new free trade zone is also seen as a geopolitically significant step. Negotiations on the agreement began back in 2007. It should now be signed this year if possible and then enter into force quickly.
EU Commission President Ursula von der Leyen said at the ceremony to mark the conclusion of the negotiations: "The EU and India are making history today and deepening the partnership between the world's largest democracies." A free trade area with two billion people was being created, from which both sides would benefit economically. It also sends a signal to the world that rules-based cooperation continues to deliver outstanding results. India's Prime Minister Narendra Modi said that people all over the world described the agreement as "the mother of all trade deals". Von der Leyen also called it that.
Market with almost two billion people
The agreement with India marks the EU's second major success in trade policy this year. Just over a week ago, von der Leyen and EU Council President António Costa signed the free trade agreement with the Mercosur states of Brazil, Argentina, Uruguay and Paraguay in South America, which had been negotiated for around a quarter of a century.
The agreement now planned with India is less comprehensive because, for example, products such as beef, poultry, rice and sugar are excluded from the liberalization. In view of the size of the Indian market, it will nevertheless be one of the most important agreements to date.
With more than 1.45 billion inhabitants, India is the most populous country in the world, ahead of China. Around 450 million people live in the EU. Together, the two sides represent almost a quarter of global GDP and the world's population.
Car manufacturers can hope for tariff reductions
According to the EU, the German car industry in particular could benefit from the agreement, as India has so far imposed tariffs of up to 110 percent on the import of vehicles from the EU. These are now to be gradually reduced to 10 percent, at least for 250,000 vehicles per year, while they will be completely abolished for car parts after five to ten years. Tariffs of up to 44 percent on machinery, 22 percent on chemicals and 11 percent on pharmaceuticals will also be largely eliminated, it is said.
The EU also emphasizes that new opportunities are opening up for European farmers in India. Accordingly, Indian customs duties on wine, for example, will be reduced to 75 percent when the agreement comes into force and then later reduced to up to 20 percent. Tariffs of up to 50 percent on processed agricultural products such as bread and confectionery are to be abolished completely. Similar protests to the Mercosur agreement are therefore not to be expected - especially as the agreement with India does not include sensitive areas for local farmers.
EU sees enormous potential
With regard to the potential of trade relations between the EU and India, the EU stated that the agreement is expected to lead to a doubling of EU exports to India by 2032 by eliminating or reducing tariffs to 96.6 percent of the value of EU goods exports to India. Overall, the tariff reductions would enable savings of around four billion euros per year in duties on European products. According to EU figures, more than 6,000 European companies are already represented in India.
An EU official in Brussels said that trade with India currently only accounts for around 2.5 percent of total EU trade in goods - compared to almost 15 percent for China. Despite comparatively high tariffs on the Indian side, trade between the EU and India has already grown by almost 90 percent in the last ten years. India's most important exports to EU countries include machinery, household appliances, chemicals, metal plates, mineral products and textiles.
Signal to Trump
The agreement is also seen as extremely relevant because trade relations with the USA have recently become unpredictable due to US President Trump's tariff policy. This affects India as well as the EU. The USA now levies tariffs of 50 percent on imports from India, including 25 percent due to the country's trade transactions with Russia.
Von der Leyen already said last week: "We are opting for fair trade instead of tariffs. For partnership instead of isolation." The EU wants sustainability instead of exploitation and is serious about risk reduction and the diversification of supply chains.
German Chancellor Friedrich Merz had also recently campaigned strongly for the conclusion of the negotiations in mid-January. More than 2,000 German companies are already active in India, and more and more Indian companies are also investing in Germany, he said at a meeting with Modi.
The agreement has yet to be signed
It is still unclear when the agreement will be signed. The reason for this is that the text of the agreement still needs to be legally reviewed and translated into all official EU languages. It must then also be approved by the member states and the European Parliament.
Business representatives called for speed on Tuesday. "After the final political declaration, the next steps must follow swiftly so that the agreement can enter into force quickly," warned Wolfgang Niedermar from the Federation of German Industries (BDI). German industry expects strong impetus from the agreement - especially for key sectors such as mechanical engineering, chemicals, electrical engineering, aerospace, but also for the automotive industry and its suppliers.
Hildegard Müller from the German Association of the Automotive Industry said that even if not all obstacles were removed, the successful conclusion of the negotiations was an important step for Germany as an export country. This would provide urgently needed improved market access in an increasingly protectionist global environment.
