Hence, the EU’s insistence to include sustainability issues such as carbon tax and deforestation in the proposed FTA may also impact the ongoing IPA and GIA negotiations, they added. “The three agreements are negotiated separately, even as they are part of a larger whole – enhanced India-EU economic cooperation as agreed by the leaders in May 2021,” one official said.

India and the EU had announced resumption of negotiations for a “comprehensive, balanced and mutually beneficial” FTA in the India-EU leaders meeting in Porto (Portugal) on May 8, 2021 in hybrid format. The EU was represented by the heads of government of its 27 members, European Council president Charles Michel and European Commission president Ursula von der Leyen. India was represented by Prime Minister Narendra Modi via video conference.

Post the leaders’ meeting, negotiations were formally relaunched in June 2022 after a gap of nine years. Since then nine rounds of FTA negotiations have been held. So far, five rounds of IPA negotiations have been concluded. While India’s commerce department is negotiating the FTA with the EU, IPA is negotiated by the department of economic affairs (DEA), an arm of the finance ministry.

“Several rounds of meetings took place between India and the EU on the proposed IPA. Recently, lPA negotiations were held on August 1-2 and August 6-7 through video-conferencing,” a second official said, adding that the final agreement on a permanent tribunal and an appellate body is still pending.

The EU is keen to have a strong mechanism like a permanent tribunal to protect investments made by entities incorporated in its member countries because many European firms look at India as an offshoring destination in the years to come, he said.

According to the first official, the IPA negotiations aim to provide a “predictable and secure” investment environment to investors from both sides. The objective is to have a pact that would promote non-discrimination among investors and provide protection against expropriation without compensation, he said. “The EU thinks that a permanent tribunal may put in place an effective and state-of-the-art dispute resolution mechanism to enforce the provisions of IPA in letter and spirit,” he added.

The IPA would be crucial for investments by corporate entities between India and the European Union as the EU is one of the largest sources of foreign direct investment (FDI) for India, he said. According to official data, FDI inflows from the EU to India were valued at $107.27 billion between April 2000 and December 2023. Overseas direct investment (ODI) outflows from India to the EU from April 2000 to March 2024 were to the tune of $40.04 billion. Over 6,000 European firms are present in India.