In a landmark diplomatic move, top European Union leaders visited India to attend the 77th Republic Day celebrations on January 26, 2026 as chief guests, and subsequently finalized a comprehensive Free Trade Agreement (FTA). As the United States continues to impose and signal tariff-based sanctions on Indian exports, the trade agreement was reached at a crucial time. Sanctions, export restrictions, and tariff threats are also present in the era of increased international trade, particularly with regard to the expanding economy. The increasingly tense trade relationship between India and the US is the best example of this change. In this context, the India-EU Free Trade Agreement (FTA) appears not as a victory of free trade but rather as a strategic regulatory partnership intended to protect against the unpredictability of US-led trade enforcement and coercive economic statecraft.

The United States has changed trade from a cooperative tool to a coercive one within the last ten years. Due to trade disagreements over market access, the United States withdrew India's Generalized System of Preference (GSP) privileges in June 2019, impacting around US$5.6 billion in exports. Last year, the United States government imposed tariffs of up to 50 per cent on certain Indian products, invoking Section 232 on national security grounds and Section 301 on allegations of unfair trade practices. These trade restrictions significantly impacted the operational conditions for Indian trade. The economic relationship between these two nations is still transactional, conditional, and susceptible to Washington's unilateral action, despite their growing strategic and security cooperation. Market access is now contingent upon political alignment and Washington-defined regulatory compliance. The India-EU Free Trade Agreement takes on strategic importance in this trade-insecure environment.

Asymmetry and unpredictability have become more prevalent in India's trading relations with the US. US economic policy with India has remained harsh and corrective while being presented as a "strategic partnership." The US favours leverage over negotiation, as evidenced by tariffs on steel and aluminium, threats against digital services, pressure on pharmaceutical prices, and limitations on the transfer of high-end technology. India is actively executing a strategy to diversify its export markets and reduce its high dependency on the United States, driven by recent trade tensions like increased US tariffs. Such alternative economic moves are not only going to offer more market opportunities but also let India make independent geopolitical decisions.

Selective Regulatory Convergence

In light of this evolving situation the India-EU agreement could be viewed as part of a recalibration. It is an intentional attempt to ground India's trading future in a regulatory framework that is rigorous but rule-bound rather than arbitrary. The European Union, in contrast to the US, uses regulations rather than coercions to impose power. The EU imposes sanctions primarily to support non-proliferation regimes, maintain post-crisis transitional arrangements, and advance democracy. This regulatory reach of the EU into non-EU countries, known as Brussels Effect, makes the EU much more reliable  to countries like India than any other western partner. It is anticipated that the agreement will improve the convenience, speed, and cost-effectiveness of bilateral commerce by lowering tariff barriers and regulatory frictions. At a time when US trade behaviour has become sporadic and politically motivated, it enables India to function inside a sizable, rules-based market ecosystem.

The India-EU FTA represents India’s evolving approach of selective regulatory convergence. Instead of embracing universal liberalization, India works with the EU in some regulatory areas while maintaining policy autonomy in delicate areas. Sectoral carve-outs, transition periods, and safeguards all point to a methodical but careful approach. The EU's regulatory structure is institutional rather than instrumental, in contrast to US trade pressure, where demands are frequently connected to extraterritorial compliance and geopolitical goals. In a world where trade politics are driven by sanctions, this distinction makes regulatory engagement with EU technology regulations one of the most significant aspects of the tense commercial relations between the United States and India. The degree to which trade and national security are inextricably intertwined has been highlighted by Washington's tightening of export restrictions on semiconductors, advanced computing, and dual-use technologies. Another regulatory route is made possible by the EU-India Free Trade Agreement. Although the EU regulates technology as well, its strategy places more emphasis on governance than denial. India is given a foundation for integration rather than isolation through collaboration on digital standards, data protection, and industrial technologies.

Redefining Strategic Autonomy

What the India-EU Free Trade Agreement implies about the future of international trade has wider ramifications. States are turning to regulatory coalitions as sanctions and tariffs increasingly supersede global rules. The deal with the EU is a form of strategic hedging for India.  It does not signal alignment against Washington. Rather, it shows recognition that diversification of markets and a regulatory framework is now necessary for economic security. 

The harsh reality of US-India commercial relations is essential to understanding the India-EU free commercial agreement. It results from insecurity rather than abundance. Regulation has arisen as a kind of protection in a global economy where trade has turned into an instrument of pressure. By choosing regulatory engagement with Europe at a moment of heightened US economic compulsion, India is not sacrificing autonomy; it is redefining it.

(The author is an assistant faculty member, Jawaharlal Nehru University, New Delhi specialising in policy studies of the region. Views expressed are personal. He can be reached at rajarshi.education@gmail.com )