Simulation: Modelling the potential trade effects of the EU–India Free Trade Agreement

A future free trade agreement between the EU and India could strengthen trade and economic integration between two of the world’s largest economies. In a new analysis, Lovi Nordgren, Trade Policy Adviser at the National Board of Trade Sweden, simulates how trade flows and global value chains could be affected by such an agreement. Here, she highlights some of the key findings.

What is this analysis about?

This analysis examines how a future EU–India trade agreement could affect trade flows, sectoral patterns, and economic integration between the EU, Sweden, and India. Although negotiations reached a political conclusion in January 2026, detailed tariff schedules and final legal provisions remain unavailable. The simulations should therefore be interpreted as plausible liberalisation scenarios rather than exact representations of the final agreement.

The simulations use the OECD’s global trade model METRO to estimate how trade could develop over a five- to seven-year period compared with a baseline without an agreement. Two scenarios are analysed: moderate and ambitious liberalisation. Both include tariff reductions on goods and lower trade costs in selected services sectors.

Why is this analysis important?

India is among the world’s largest and fastest-growing economies. While trade between India and the EU has expanded significantly over the past decade, it remains limited relative to the size of the two economies.

The analysis provides insights into how a future agreement could strengthen trade and economic integration between the EU and India. Beyond direct trade flows, it examines how liberalisation may affect production linkages between Sweden and India through global value chains, and includes services, which already play a significant role in EU–India economic relations.

What are the main findings?

Simulations show that trade between India and both the EU and Sweden increases compared with a baseline without the agreement, with larger effects under the ambitious liberalisation scenario.

EU export gains are distributed across a broad range of sectors, including food products, manufacturing, and intermediate goods such as metals, rubber, and plastics. For Sweden, the largest export gains are concentrated in manufacturing, particularly motor vehicles, metals, machinery, and electrical equipment. Imports from India increase notably in textiles and clothing, as well as in selected business and financial service sectors.

What stands out most?

One of the most notable findings is that effects extend beyond direct trade flows. Simulations suggest that a future agreement could strengthen production linkages between EU and Indian firms through global value chains, meaning firms may increasingly use goods and services from each other’s economies as inputs in their own export production. The analysis therefore suggests that the agreement could contribute not only to higher trade volumes but also to deeper economic integration and stronger cross-border production networks.

What will be analysed next?

As more detailed information on tariff schedules and legal provisions becomes available, a more refined assessment of the agreement will be possible. Future analysis may also examine how the agreement interacts with other developments in the global trading system and how these changes could affect European and international value chains.