One of the big news this week has been the trade agreement between the European Union and India. The president of the European Commission, Ursula von der Leyen, announced it this Tuesday: “Prime Minister, distinguished friend, we did it. We closed ‘the mother of all agreements’. We are creating a market of two billion people, and this is the alliance of two giants: the second and fourth largest economies in the world. Two giants that choose to associate in a way that is truly beneficial for all.”
What does this agreement really consist of? Blas Moreno and David Gómez explain the evolution of the negotiations, the most beneficial sectors and the rest of the keys to the historic trade pact.
Tariff reduction
The fundamental point of this agreement is the broad reduction of tariffs on most of the products traded between both parties. Brussels estimates that this agreement will mean savings of around 4,000 million euros annually in tariffs.
They have not been easy negotiations, just as happened with Mercosur. The European Union and India have been in talks since 2007 and between 2013 and 2022 those negotiations stalled. However, the return of Donald Trump has accelerated that final round of negotiations.
Most benefited sectors
To identify which sectors will benefit the most, we have above all the automobile industry – with this competition with China – or machinery, which until now faced tariffs of up to 110%. Other goods, such as wine, oil or pharmaceuticals can also benefit.
The limitations of the agreement
However, we must not forget that India is one of the most economically protectionist countries in the world and this agreement, although beneficial, also has its limitations because it excludes several products from the Indian agricultural market: dairy products, cereals and poultry.
Furthermore, this reduction in tariffs will not be immediate, but progressive. So, although this is “the mother of all agreements”, it also has its limitations.
The new EU alliances that seek to distance it from the US
The most significant thing about this agreement is that it was signed shortly after the European Union did the same with Mercosur (South America) and amid strong pressure and threats from the president of the United States, Donald Trump, to annex Greenland. These new trade alliances raise the question of whether it is possible that the European Union is implementing a broader geopolitical strategy.
Moreno and Gómez explain that Europe is immersed in a plan to diversify alliances and thus distance itself from Donald Trump’s United States, which, since its arrival in the White House, has become more of a rival or even a potential aggressor than an ally for Europe.
“The EU has begun to understand that it has to look for alternatives”
Ultimately, it is about turning one’s back on the US or seeking one’s fortunes on the sidelines of the country, because Greenland is an example, but it can go further. For this reason, the EU has begun to understand that it has to look for alternatives, hence the agreements signed with India and Mercosur. But they are not the only ones, since others have also been previously signed with countries such as Mexico, South Korea, New Zealand or Japan, and others are now being negotiated with Australia, Malaysia, Thailand or the Philippines.
It is not the only geopolitical bloc that is doing this because Canada or the United Kingdom have also done it, whose political leaders have been in China doing business and agreements for the same reason: to give the message that although they are allied countries of the United States, they do not close the door to negotiating with other people, like China, which is also the great geopolitical rival of the United States.
Europe is moving on different fronts, not only in trade agreements
But, aside from these trade agreements, what is Europe doing to distance itself from the United States?
For example, The Wall Street Journal published the other day that European countries had doubled their defense spending in a decade. It is estimated that by 2035, Europe will spend the equivalent of 80% of Pentagon spending on military equipment, when in 2019 this percentage was less than 19%.
But it’s not all about defense. The Government of France, for example, has announced that it will stop using American-made video conferencing software (Zoom or Teams) to prioritize a local platform.
This, which may seem anecdotal, really is not because it is part of a broader strategy within the EU, which seeks to have its “own network of data service providers” to not depend on American companies and have its own “digital sovereignty.”
