The EU is negotiating the "biggest deal in the world". Polish producers may have a problem

• The European Union and India see the deepening of bilateral relations not only as an opportunity to accelerate economic growth, but also as a significant geoeconomic development.
• Since concluding an agreement has become a priority for the Indian Prime Minister and the President of the European Commission, it will be easier to remove obstacles in the negotiations.
• One of the most important of them will be CBAMs (Carbon Border Adjustment Mechanism).
• In Poland, free trade agreements are becoming less popular. It is not too late to influence the favorable provisions in the agreement and properly prepare our business for it.

It has often seemed that a free trade agreement (FTA) EU-India was just around the corner. Also, when the parties returned to talks on the FTA in 2022, it was assumed that the negotiations would be completed within a dozen or so months. These expectations were disappointed. Will it be the same this time?

- The EU-India free trade agreement would be the largest of its kind in the world (...). This partnership comes at the right time for both sides. (...) We will strive to achieve this this year - said the President of the European Commission, Ursula von der Leyen, in New Delhi during a special foreign visit of the entire College of Commissioners on 27-28 February 2025. Indian Prime Minister Narendra Modi echoed her: - We have instructed our teams to conclude a mutually beneficial bilateral free trade agreement by the end of this year .

According to a report by the Financial Times from early June, eight of the twenty negotiation chapters have already been closed.

(Geo)economics, stupid!

This time, geopolitical and geoeconomic reasons seem to prevail in bilateral relations. In a situation where China is flooding the entire world with its increasingly modern products (India's trade deficit with the Middle Kingdom approached EUR 100 billion in 2024, and Europe's significantly exceeded the barrier of EUR 300 billion), and the new US administration is constantly announcing new terms of trade with foreign partners, the development of economic relations between the EU and India seems to be a logical solution .

From the EU's perspective, India could be an alternative to China as a production location , which would implement the derisking postulate. The world's most populous country with a population of 1.4 billion and a rapidly growing middle class (according to the Indian think tank PRICE, by the end of the decade it will grow to 47 percent of the entire population, or about 715 million people) is also an attractive sales market. For New Delhi, Europe appears as a source of technology and investment capital, as well as a rich and absorbent market for Indian industry and services.

If both entities sign the agreement, it will be one of the largest of its kind in the world . Free trade between such giants has the potential to change a lot in the internal markets on the subcontinent and in the EU. After all, we are talking about the world's second (EU) and fifth (India) economy in nominal terms. In India, the EU is already competing with the US for the title of the largest trading partner. For the EU, India's importance is growing rapidly - in 2023 it was in 9th place, and if a trade agreement is concluded, it will quickly become one of the top "five".

What stands in the way of an FTA with India?

The negotiations, which began in 2007, were suspended in 2013 for almost a decade. The concerns that halted the negotiation process at the time have not disappeared. Both sides fear that the agreement will cause too deep economic and social disruptions . Reducing tariffs of over 100% on groups of goods such as dairy products, vegetables, fruits, sugar and confectionery could cause a collapse in production and a crisis in the sectors. Both the EU and India have heavily subsidized their own agricultural production in various ways - and continue to do so - seeing it as an inalienable component of food security and, in the case of India, the basis of existence for over half of the population. Moreover, the countryside and agriculture have traditionally been a social safety net for those who lost their jobs in cities during the crisis.

In turn, different interests and rules regarding intellectual property in the pharmaceutical market caused, on the one hand, European fear of a flood of cheap Indian generic drugs, and on the subcontinent - concern about a practice called evergreening, i.e. maintaining drug patents by European companies by introducing minimal changes to them.

EU negotiators want India to cut tariffs on cars, wine and whisky, which now often amount to more than 100 percent. At the same time, India is seeking lower tariffs and greater market access for important exports such as clothing, textiles and pharmaceuticals.

Agreement with India and the sanctions regime against Russia

Another challenge for negotiators is directly related to the European sanctions regime against Russia following its full-scale attack on Ukraine in February 2022. From the perspective of the European Union, which is increasingly restricting economic relations with Moscow in the successive sanctions packages it adopts, New Delhi's policy will be problematic not only for geopolitical reasons, but also for direct commercial reasons.

India has never joined the sanctions regime against Russia . On the contrary, if in 2021 Russia's share in Indian oil imports was below 1 percent, then in February 2025 almost every third barrel imported by India from abroad was Russian. Russian-Indian trade is growing dynamically and is not limited to hydrocarbons . In 2024, it amounted to a record $66 billion.

India will probably not want to limit its freedom of cooperation with Russia in an agreement with the EU, while from Brussels' point of view, concluding a free trade agreement could potentially further increase India's role as an intermediary in EU-Russia exchange, and thus reduce the effectiveness of sanctions. Let us recall that Indian-European trade was almost balanced until 2022, and only later did the EU start recording a deficit of over 20 billion euros with this South Asian country. At least half of this value was accounted for by fuel imports from a country with no natural oil deposits.

Will CBAM cause talks to collapse?

However, the real bone of contention remains the carbon tax and environmental regulations , as in the case of the stalled trade talks with Australia. An additional burden in the negotiations is the post-colonial discourse, which the Indian side likes to use. What exactly is it about?

From the point of view of Europeans, the Carbon Border Adjustment Mechanism (CBAM), which comes into force in January 2026, is to level the market playing field for our entrepreneurs by imposing fees on the import of high-emission products from countries that have not introduced an emissions trading system comparable to the European ETS.

For the Indians, however, CBAMs are impermissible non-tariff barriers to trade, designed to force a change in domestic and energy policies, which are still largely based on coal. In May, on the occasion of the conclusion of a trade agreement with Great Britain, Indian officials warned that the EU border fee could be a deal-breaker in trade talks with the EU .

- We will take retaliatory action against any non-tariff barriers - said Indian Minister of Commerce and Industry Piyush Goyal, quoted by EUobserver. He was echoed by Finance Minister Nirmala Sitharaman, who described the EU carbon fee as a "repeat of colonialism". - This should no longer be the spirit in which international cooperation, international trade, takes place - she said, adding that developing countries should find their own way to "greening" their economies, without pressure from developed countries, often burdened with the odium of colonizers in India and other countries of the global South. The new fees will, according to current calculations, correspond to tariffs of 20 to 35 percent on high-emission goods, including steel, aluminum and cement. In the coming years, the CBAM system will be extended to other product groups.

What is the way out of this situation? Perhaps both sides will use the practice of the London-New Delhi trade agreement, where this issue was not included in the agreement, and bilateral talks continue after the agreement is concluded.

Who stands to gain from the arrangement?

In addition to the geo-economic issues, both sides can address many specific challenges currently facing businesses from both countries through agreements. A key objective of the EU in trade relations with India is to create a stable, transparent and predictable regulatory and business environment for European companies trading or investing in India. According to the EC, India’s current trade regime and regulatory environment remain relatively restrictive. Technical barriers to trade, sanitary and phytosanitary restrictions, deviations from internationally agreed standards, as well as administrative discrimination by India affect many sectors in trade in goods, services, public procurement and investment.

The EU is seeking to introduce regulations to make it easier for EU investors to repay profits back to the EU, which could be important for Polish companies investing in the production of goods or creating IT solutions on the subcontinent. It should be recalled that Polish companies such as Billennium, Transition Technologies MS, Toruń-based TZMO, Canpack and MB Pneumatyka have already invested in India.

In the trade agreement and the investment agreement being negotiated in parallel, it will be important to speed up dispute resolution for European companies operating in India. India, however, insists that disputes should first be resolved by local courts and only then by international arbitration.

On the other hand, the authorities in New Delhi want the largest country on the subcontinent to be recognized as a safe state in terms of storing and processing data, which will facilitate digital trade. In the services sector, the EU is demanding in return the liberalization of accounting, architectural and legal services, which Indian industry organizations oppose.

New Delhi, facing a large labour surplus, is also seeking easier temporary access to work for its skilled workers in the EU, to the benefit of sectors such as IT. Migration, however, is a national competence, so can only be managed in a limited way by EU-level agreements.

What should Poland do regarding a trade deal with India?

Given the strategic rapprochement between India and the EU, a swift conclusion of a trade agreement seems more likely than ever before. This creates both opportunities and challenges for Poland. Let us recall that since August last year we have been connected with India by a strategic partnership.

The data on trade with Asian countries with which the EU has a free trade agreement shows a rather unfavourable picture for our country. Poland has a high trade deficit with Vietnam, South Korea and Japan.

This unfavourable effect is reduced by two factors. Firstly, Polish companies are integrated in the supply chains of Western European corporations and it is through them that products ultimately reaching Asian countries have a Polish contribution. Secondly, thanks to the investment component of these agreements, it is easier for Asian companies to invest in Poland, which is used by companies from South Korea or Japan, creating jobs in the Republic of Poland. Large Indian holdings may join them more and more willingly. On the other hand, the investment agreement will create better conditions for development on the Indian market, both for Polish companies already operating there and those that are just planning to enter the Indian market.

So how should Poland approach a real trade agreement with the world's currently fifth - and soon likely third - economy? It is worth focusing on several levels of preparation.

First and foremost, a broad information campaign about the ongoing negotiations and their rapidly approaching conclusion is essential. From recent reports in the Financial Times, we already know that the agreement will not include liberalization in trade in milk, dairy products and dairy products, which is bad news for the Polish dairy industry, which is successfully developing in East Asian countries.

Since the Polish economy has changed significantly since the negotiations began, the impact of the free trade agreement on individual sectors needs to be reassessed, both those that will be exposed to additional competition and those for which India may become a field of foreign expansion. Some sectors of agricultural production, high-emission industry and construction ceramics will be under additional competitive pressure .

The third step is to identify defensive interests and protect them by creating a system of import quotas or long transitional periods.

Real challenges should not, however, overshadow the equally real opportunities on the Indian market . There is a need for a broad information campaign for Polish businesses about the opportunities related to the Indian market and ways to enter it. It is worth using the experience of companies already present on the subcontinent and encouraging the exchange of good practices with those who want to take their first steps.

The condition for Polish companies to achieve success on the Indian market is to strengthen the staff of Polish diplomatic and consular missions and business support organizations in India. Of particular importance is the establishment of foreign offices of the Polish Investment and Trade Agency (PAIH) and their adequate staff support, in order to identify faster and more effective opportunities for mutually beneficial cooperation and market gaps opening up in India.

The example of the trade agreement with Mercosur shows that Polish public opinion is increasingly critical of free trade agreements . Opponents of FTA-type agreements are gaining a significant advantage in the information space. Showing the history of Polish success in India and development opportunities for Polish entrepreneurs will have a positive impact on the debate on the effects of the agreement being prepared. If we notice the opportunities in the agreement for Polish entrepreneurs early enough and effectively face the challenges resulting from this agreement for individual sectors, then deepening economic relations with the fifth largest economy in the world may be an interesting opportunity for Polish entrepreneurs to internationalize their business.