At a time when President Donald Trump seems to monopolise global attention, European leaders would do better to refocus on Draghi and Letta’s words, instead of reacting to short-term threats. If in Davos they were still locked in a “rhetorical wrestling match,” they have since shifted from words to action as manifested by the new trade partnerships, shaking hands over the “Mother of All Deals” with India. The free trade agreement reflects the European Union’s effort to diversify its economic partnerships, recentring its effort on its competitiveness strategy, and perhaps gaining more legitimacy that the United States is losing in folds.
This article explores the difference between this India-EU FTA and the other decades-long deal with Mercosur, explaining why despite responding to the same geopolitical necessity of diversification, the first with India was widely welcomed, while the second one in South America has triggered domestic resistance.
If finalised and ratified by the EU Parliament, the India-EU FTA is set to become what has been described by Crabtree and Reuter (European Council on Foreign Relations) as ‘a template for 21st-century trade governance’, connecting two economies that together represent over 25% of the global GDP and home to almost 2 billion people. According to the EU Commission, the agreement will liberalise roughly 96-97% of trade by value and generate an estimated €4 billion in annual duty savings for European exporters. The deal includes major tariff cuts on European food products and cars, with exports expected to double by 2032; at the same time, Indian exporters in textiles and apparel, gems and pharmaceuticals will have a facilitated entry into EU market.
Now understanding the significance of such an agreement, particularly under present geopolitical conditions, what factors have then stalled its signature for more than a decade?
The answer lies in the agriculture sector, which for long has stalled trade negotiations. However, the newly sealed FTA stands out exactly because of its deliberate exclusion of agriculture. India, with over 40% of its population working in agriculture, cannot afford to fully open its market without expecting severe social disruptions. This logic of restraint extends to the European side as well, which decided to maintain tariffs on sensitive goods such as beef, poultry, sugar and ethanol, and focusing liberalisation elsewhere, on products like wine, spirits, beer and olive oil – removing or reducing prohibitive tariffs. This contributed to the protection of European producers, further protected by stringent EU sustainability standards, which continue to shape market access conditions (See the ESPR and CBAM as examples).
Thus, unlike the EU-India FTA, where agricultural issues were eventually settled, the Mercosur deal has not seen a similar resolution.
The latter covers a market of over 700 million people and consists of two legal entities. The EU-Mercosur Partnership Agreement (EMPA) – combining political dialogue, cooperation, and trade – and the interim Trade Agreement (iTA), which enables early implementation of trade and investment commitments ahead of the EMPA’s entry into force. Together, they would remove duties on 91% of EU exports across a timespan of 15 years, making it the largest tariff-cutting pact the bloc has ever reached.
The friction emerged because in South America, beef, poultry and sugar are central to Mercosur exports, which would then directly compete with European products. This triggered extensive reaction from European farmers, worried that this agreement would mean flooding of the European market with cheaper, less-regulated products, and deepening pressure on a sector already under strain. Such discontent was voiced in the European Council by France, Poland, Austria, Ireland, and Hungary.
To mitigate these concerns, the European Commission added safeguards to the deal, including (1) mechanisms to temporarily suspend tariff preferences on imports if these were to depress EU prices of such sensitive products, (2) a €6.3 billion crisis fund for agriculture and (3) the redirection of €45 billion towards agriculture and rural development in the next EU budget.
However, these safeguards were not enough.
Despite the European Commission signing the agreement in Paraguay on January 17, the European Parliament immediately referred it to the European Court of Justice for verification of compatibility with the treaties thereby delaying the process for up to 18 months.
Beyond agriculture, the agreement does represent an important diversification avenue for the EU to access critical minerals such as lithium, nickel and copper – essential for the development of electric vehicles and for the digital transition. For now, the EU extensively depends on China, the single largest processor of these minerals, accounting for between 35-70% of processing activity. However, recent geopolitical developments signal that China is ready to weaponize its primacy, especially given that the EU demand for rare minerals is expected to rise sharply in the tech and automotive industries. Just the demand for lithium batteries – used to power electric vehicles and store energy – is expected to increase 12-fold by 2030. In response to this challenge, the EU is recalibrating its external economic strategy by strengthening engagement with established trade partners in South America.
It is now clear that a Europe that is always reacting and never planning lays bare (and deepens) its vulnerabilities and dependencies. In an international system where both the United States and China are no longer reliable trading partners, the EU has little alternative but to move from defensive adjustment to anticipatory strategy. So, if one deal was ‘brought home’, the Mercosur deal instead exposed the lack of internal interinstitutional coordination. Yet, without prior and sustained consensus, the Commission will find itself alone when discussing ‘strategic autonomy’, leaving this promising discourse empty of its operational and productive dimension.
With this, we will return to the issue in eighteen months – when it will be clear whether the EU has successfully hedged itself against uncertainty.
