The texts of the India–EU Free Trade Agreement (FTA) chapters have been published, following the conclusion of negotiations on 27 January 2026. The agreement is expected to play a pivotal role in shaping trade relations between the two partners, which together account for nearly a quarter of global GDP.
While the long-awaited agreement arrives at a significant time, the inclusion of sustainability commitments – a rarity for India, who has typically avoided including environmental and labour commitments in FTAs[i] – also reflects the realities of the current global context.
The impacts of climate change in recent years – from heat stress to extreme weather events – have been severe. Reports estimate that climate-related extreme weather events may have cost the global economy over USD 2 trillion in the past decade alone.[ii] Weaknesses in the global reliance on fossil fuels have continue to become apparent, most recently amid geopolitical tensions. As India and EU advance their cooperation towards economic growth, the inclusion of sustainability in the dialogue feels necessary to ensure that growth remains both resilient and inclusive.
Advancing Sustainable Development
Sustainability finds its place in the agreement through a dedicated chapter on Trade and Sustainable Development (TSD), as is standard for the EU’s FTAs. The chapter builds on existing international commitments that both parties have already endorsed – such as the Paris Agreement or ILO (International Labour Organisation) conventions – and states that trade and investment should not come at the expense of environmental or social protections.
Across areas such as labour protection, gender equality, biodiversity, forests & marine resources, and climate change, the agreement reinforces the responsibility of both parties to advance their commitments and deepen cooperation.
While many of these references are not new in themselves, their inclusion within the trade agreement adds a layer of accountability, with an expectation that domestic policies will align with these commitments. Additionally, it obliges the parties to promote awareness on responsible business practices and sustainability standards.
Sustainable Trade Opportunities & Implications
As a result of sustainability commitments under the TSD chapter, companies may find that market access is tied not only to cost and quality, but also to how these considerations are integrated into production and supply chains. The sectors that are expected to benefit the most from FTA tariff reductions – including manufacturing and industrial exports, to consumer goods and agriculture-linked value chains – will need to align with environmental and labour standards, as they evolve alongside market opportunities.
The TSD chapter specifically promotes trade in environmental goods and services, as well as products that contribute to decent work and improved well-being. It mentions the adoption of policy frameworks to promote deployment of relevant technologies as well as the use of credible sustainability standards. In parallel, India and the EU signal their intent to address barriers to trade in areas such as renewable energy and energy-efficient technologies.
Since text of the chapter is largely a commitment to cooperate in these areas, details on its implementation are expected to be developed in a phased manner, following the expected entry into force of the agreement in early 2027.
Cooperative Approach to Implementation
Implementation of the TSD Chapter will be overseen by a dedicated Committee on Trade and Sustainable Development (TSD Committee), along with a three-tiered recourse structure in case any disagreements arise.
Disputes would be addressed progressively through consultations between the Parties, escalation to the TSD Committee, and, if necessary, FTA Joint Committee discussions and ultimately ministerial-level engagement. At each stage, the emphasis is on reaching a ‘mutually agreed solution’ through cooperation, exchange of information, and, where appropriate, recourse to external expertise (for instance from the ILO or agencies of multilateral environmental agreements).
Since 2011, all EU Free Trade Agreements have contained dedicated TSD chapters. These chapters traditionally follow a cooperative approach to enforcement, under which disputes move through a series of consultations and. If unresolved, to a Panel of Experts who can issue recommendations. However, these recommendations are not legally binding, and there is no recourse to sanctions for non-compliance.
This is in stark contrast to the general dispute settlement mechanisms in trade agreements, where panel rulings are binding and can ultimately lead to compensation or retaliation.
In recent years, the EU introduced a ‘hard approach’ for the enforcement of TSD Chapters with sanctions as a last resort. The stronger enforcement, as seen in the EU-New Zealand FTA, includes binding rulings, compliance review, and, in cases of recurrent non-compliance, trade retaliation or financial compensation.
However, the TSD chapter in the India-EU FTA suggests a continuation of the traditional cooperative model. Notably, there is no provision for panels issuing binding rulings, nor for sanctions or retaliation in the event of non-compliance.
Regulatory Predictability & Preparedness
EU regulations introduced in recent years – such as the Carbon Border Adjustment Mechanism (CBAM) and the Deforestation Regulation (EUDR) – have been criticised as trade protectionism, especially sparking concerns for countries who are simultaneously navigating development priorities and sustainability transitions.
A 2024 United Nations report on The Future of Sustainable Trade highlights the cause for this tension. It points to the growing complexity created by overlapping due diligence regulations and voluntary sustainability standards, as well as the cost and capacity challenges faced by companies in developing economies[iii]. The India-EU FTA, in many ways, attempts to respond to these concerns by embedding cooperation, capacity building, and dialogue into its framework.
A dedicated chapter on Good Regulatory Practices and Regulatory Cooperation introduces mechanisms aimed at improving transparency and predictability in how regulations are developed. Both parties would be expected to share information annually on regulations expected to be adopted within the year and publish their draft documents for public consultation. While this does not guarantee influence, it would create an avenue, at least in principle, for stakeholder engagement before regulations are finalised.
The chapter also calls for impact assessments that consider environmental, social, and economic effects, including implications for small and medium-sized enterprises, for proposed regulations. Additionally, it encourages periodic reviews of existing regulations.
CBAM and Climate Action
The Carbon Border Adjustment Mechanism (CBAM) – which imposes a carbon price on imports into the EU in sectors like iron & steel, aluminium, and cement – remains one of the most closely watched elements in the EU’s sustainability framework. The FTA does not provide exemptions or preferential treatment for Indian exports under CBAM. Instead, as an Annex to the chapter on Good Regulatory Practices, it acknowledges the mechanism as part of the broader regulatory environment and focuses on facilitating cooperation.
This includes technical dialogue on emissions calculation methodologies, data availability for default emission values, and the interaction between CBAM and India’s upcoming carbon market, the Carbon Credit Trading Scheme (CCTS). There may also be scope for cooperation on the accreditation process for CBAM report verification, on which further dialogue is also expected.
The Annex also mentions a forthcoming Memorandum of Understanding on climate action, expected to be launched in the first half of 2026, as well as a €500 million EU commitment to support India’s sustainable industrial transition. While this represents a positive step, it may be modest in comparison to the true scale of investment required. For instance, estimates suggest that the steel sector alone may require over USD 250 billion in climate finance between 2022 and 2030 to achieve decarbonisation targets[iv].
Nevertheless, with India and the EU being the 3rd and 4th largest GHG emitters globally[v], collaborative action is imperative – and well-aligned with India’s own decarbonisation goals.
Current Progress and the Road Ahead
Encouragingly, several policy signals point in the right direction towards for India. The recent draft National Electricity Policy (2026) outlines a roadmap to accelerate progress towards the energy transition. At the same time, its success hinges on adequate investment and private finance. The development of a national Climate Finance Taxonomy will be an important step in guiding investments and defining sustainability pathways.
Meanwhile, progress towards social topics may be slower. Recent labour reforms in India, aimed at simplification, have also prompted discussion about the adequacy of current worker protections.[vi]
In 2021, the EU successfully challenged South Korea’s labour laws under the TSD chapter of the EU-Korea FTA, with a Panel of Experts finding that domestic legislation failed to meet fundamental ILO principles[vii]. This marked a significant precedent: sustainability commitments in FTAs can be interpreted as obligations subject to international scrutiny, even where enforcement relies on non-binding recommendations rather than sanctions. Though the process was slow, this pressure may have contributed some legislative changes in South Korea – who introduced a bill to ratify of all but one of the remaining principles.
While the India-EU FTA sets out a broad and ambitious sustainability framework, both parties must ensure strong domestic alignment and sustained investment for these provisions to be implemented in practice.
The avenues to deepen cooperation – from dialogue and knowledge-exchange to financial support and collaborative capacity-building – have the potential to act as strong enablers. Success will ultimately depend on how effectively the dimensions of environmental and social protection are implemented in practice. Ensuring that economic growth can reinforce – rather than undermine – these aspects will be key to translating the agreement into meaningful and lasting outcomes.
[i] Seshadri, V.S. (2022). India’s approach towards inclusion of new areas in future FTAs. Delhi Policy Group. Available at: https://www.delhipolicygroup.org/storage/uploads/publications_file/indias-approach-towards-inclusion-of-new-areas-in-future-ftas-4118.pdf
[ii] Oxera & International Chamber of Commerce (2024). The economic cost of extreme weather events. Available at: https://iccwbo.org/news-publications/policies-reports/new-report-extreme-weather-events-cost-economy-2-trillion-over-the-last-decade/
[iii] de Cordoba, S.F. & Batistic, P.M. (2024). The future of sustainable trade: Due diligence initiatives, voluntary sustainability standards and developing countries. United Nations Conference on Trade and Development (UNCTAD). Available at: https://unctad.org/publication/future-sustainable-trade
[iv] Raj, J. & Mohan, R. (2025). India’s climate finance requirements: An assessment. The Task Force on Climate, Development and the International Monetary Fund. Available at: https://www.bu.edu/gdp/files/2025/08/TF-WP-017-FIN.pdf
[v] Publications Office of the European Union (2025). GHG emissions of all world countries. Available at: https://data.europa.eu/doi/10.2760/9816914
[vi] Inamdar, N. & Mukharji, A. (2026, November 28). Reform or rights rollback? India’s sweeping labour law overhaul sparks debate. BBC. Available at: https://www.bbc.com/news/articles/cpwk28d5yzxo
[vii] European Commission (2021). Panel of experts confirms the Republic of Korea is in breach of labour commitments under our trade agreement (Press release). Available at: https://ec.europa.eu/commission/presscorner/detail/en/ip_21_203
Further reading:
- Text of the India-EU Free Trade Agreement (via European Commission): https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/india/eu-india-agreements/text-agreements_en
- Factsheet on the India-EU Free Trade Agreement (via Ministry of Commerce and Industry, Govt. of India): https://www.commerce.gov.in/wp-content/uploads/2026/01/Factsheet-on-India-EU-trade-deal-27.1.2026.pdf
- India’s Draft National Electricity Policy (NEP) 2026: https://powermin.gov.in/sites/default/files/webform/notices/Seeking_comments_on_Draft_National_Electricity_Policy_2026.pdf
- 4-day work week, no AC: A look at countries hit by energy crisis amid West Asia war – Hindustan Times (2026): https://www.hindustantimes.com/world-news/countries-hit-by-fuel-crisis-amid-west-asia-war-us-iran-war-strait-of-hormuz-pakistan-sri-lanka-philippines-vietnam-101774457349368.html