India-EU Agree on Most Favoured Nation Status for 5 Years

India and the European Union have agreed to grant each other Most Favoured Nation (MFN) status for five years once their long-negotiated free trade agreement comes into force, according to a draft text released by the Union commerce ministry on Friday.

The India-EU trade deal, whose negotiations concluded on January 27, is being projected as a landmark pact that will significantly deepen economic ties. Under its terms, 93 per cent of Indian exports will gain duty-free access to the 27-member bloc, while imports of luxury cars and wines from the European Union are expected to become more affordable in India.

What It Means For Trade

The draft agreement specifies that both sides will extend Most Favoured Nation treatment to each other from the date the pact becomes operational. This provision bars either party from offering more favourable tariff terms to other trading partners for a period of five years.

In effect, it locks in equal tariff advantages between New Delhi and Brussels during this period, ensuring predictability for exporters and investors.

The text also commits both sides to refrain from imposing new import or export restrictions beyond those permitted under World Trade Organization norms. This clause is intended to prevent sudden trade disruptions once the agreement is in place.

Dispute Resolution, Customs Reforms

An annexure to the agreement introduces a mediation framework aimed at resolving disputes through a fast-track process. The mechanism allows for the appointment of a mutually agreed mediator, providing an alternative to prolonged litigation.

To streamline cross-border trade, India and the European Union will align food safety and plant health standards with World Trade Organization benchmarks. Certification and audit processes are to be simplified to cut procedural delays.

The draft further outlines closer customs cooperation and faster clearance of goods at ports of entry. These commitments will become binding after both sides complete their respective ratification procedures.

Both parties have also agreed to ensure fair and accessible appeal mechanisms for customs decisions related to imports, exports and goods in transit.

Digital Trade, Transparency Measures

On digital trade, the agreement commits India and the European Union to reducing unjustified barriers while supporting an open and secure online trading environment. The move signals a recognition of the growing role of digital commerce in bilateral trade flows.

To monitor implementation, the two sides will begin sharing annual import data one year after the agreement takes effect. This transparency measure is aimed at tracking the utilisation of tariff benefits and assessing how effectively the pact is being executed.

The European Union remains India’s largest trading partner. Bilateral goods trade reached USD 135 billion in FY 2023-24, underscoring the economic weight of the relationship.

With the MFN provision, dispute resolution framework and digital trade commitments embedded in the draft text, the India-EU free trade agreement is set to institutionalise a rules-based trade architecture between the two economies once ratified.