India, EU trying to narrow differences on trade pact; difficult issues on table: Commerce Secy

The ongoing Free Trade Agreement (FTA) negotiations between India and the European Union (EU) have entered their "most difficult phase," underscoring the complexities inherent in forging comprehensive economic partnerships between major global players. This critical juncture, marked by contentious issues such as the EU's Carbon Border Adjustment Mechanism (CBAM), holds immense significance for India's economic trajectory and its role in the evolving global trade landscape.

The history of India-EU trade relations is one of potential and intermittent challenges. Discussions for a Broad-based Trade and Investment Agreement (BTIA) began in 2007 but stalled in 2013 due to significant differences on issues like data security status, tariffs on automobiles, and intellectual property rights. After nearly a decade, a renewed impetus saw the restart of negotiations in June 2022, following the India-EU Leaders' Meeting in Porto in May 2021. Both sides committed to a balanced, ambitious, and comprehensive agreement covering 23 policy areas, including goods, services, investment, government procurement, and intellectual property rights. This restart reflected a shared geopolitical vision and the need to diversify supply chains in a post-pandemic world.

Currently, the primary sticking point is the EU's Carbon Border Adjustment Mechanism (CBAM), set to be fully implemented from January 1, 2026, with a transitional phase beginning in October 2023. CBAM is essentially a carbon tax on imports of certain carbon-intensive goods (like steel, cement, aluminum, fertilizers, electricity, and hydrogen) into the EU from countries with less ambitious climate policies. Its stated aim is to prevent 'carbon leakage' – where industries might move production to countries with lower carbon costs – and to encourage global decarbonization efforts. India views CBAM as a protectionist measure that could disproportionately impact its exports, particularly from energy-intensive sectors, and potentially violate World Trade Organization (WTO) principles. India's Commerce Secretary has highlighted this as a significant challenge in the ongoing discussions.

Key stakeholders in these negotiations include the Indian government, particularly the Ministry of Commerce and Industry, which leads the negotiating team. Indian industries, especially those involved in exporting steel, aluminum, chemicals, and textiles to the EU, are crucial stakeholders, as their market access and competitiveness will be directly affected by the FTA's terms and the impact of CBAM. On the EU side, the European Commission is the primary negotiating body, representing the diverse economic and political interests of its 27 member states. European industries, seeking fair competition and access to the Indian market, also play a significant role, as does the broader EU commitment to its ambitious 'European Green Deal' and 'Fit for 55' climate package, of which CBAM is an integral part.

This FTA is immensely significant for India. The EU is India's second-largest trading partner after the US, and a major destination for Indian exports, accounting for over 15% of India's total merchandise exports. A successful FTA could provide preferential access for Indian goods and services, boost foreign direct investment (FDI) into India, and create significant employment opportunities. It would also enhance India's strategic autonomy by diversifying its trade partnerships and reducing over-reliance on specific regions. Resolving issues like CBAM is critical to ensuring that the FTA genuinely benefits Indian industries rather than imposing new barriers.

From a historical perspective, the renewed push for an FTA reflects a broader trend of India engaging in bilateral trade agreements after a period of caution, especially following its withdrawal from the Regional Comprehensive Economic Partnership (RCEP). This strategic pivot aims to secure market access and integrate India more deeply into global value chains. The current negotiations, therefore, are not just about trade numbers but also about India's proactive economic diplomacy.

Looking ahead, the future implications are profound. A successful FTA would cement India-EU strategic ties, fostering greater cooperation beyond trade, including in areas like climate action, digital transformation, and security. However, failure to bridge differences, particularly on CBAM, could lead to a significant impediment to Indian exports to the EU and potentially force Indian industries to accelerate their decarbonization efforts, which, while beneficial in the long run, could entail substantial short-term costs. The outcome will also set a precedent for India's engagement with other developed economies on issues of climate-linked trade measures.

Constitutionally, the power to enter into and implement international treaties and agreements, like the proposed FTA, primarily rests with the Union government under **Article 253** of the Indian Constitution. This article empowers Parliament to make any law for implementing any international treaty, agreement, or convention. Furthermore, entries in the Union List of the Seventh Schedule, such as **Entry 11 (Foreign Affairs)** and **Entry 14 (Entering into treaties and agreements and implementing of treaties, agreements and conventions with other countries)**, underscore the central government's authority. The implications of trade agreements also touch upon **Article 286**, which deals with restrictions on the imposition of tax on the sale or purchase of goods, potentially relevant if the FTA impacts domestic taxation structures or export duties. From a policy perspective, this aligns with India's **Foreign Trade Policy** objectives of boosting exports and integrating into global trade, as well as its commitment to climate action under the **Paris Agreement** and initiatives like the **National Green Hydrogen Mission**, which could help mitigate CBAM's impact on Indian industries by promoting green production methods.