1. Mention, briefly, the history of trade talks between India and EU
2. Why is it important for the two
3. What challenges does it hold?
The EU is India’s largest trading partner, accounting for roughly 15 percent of total trade in goods and services and also the largest source of FDI inflows to India, accounting for over one- fourth of the total. However, Negotiations for a comprehensive Free Trade Agreement (FTA) between the EU and India were launched in 2007 and suspended in 2013 due to a gap in the level of ambition between the EU and India. Given the subdued sentiment around foreign investment and trade currently, restoring growth to its normal level remains at the top of the government’s agenda. This would require a fresh approach toward India’s commerce and trade.
Following are the reasons for India to hasten talks with the EU on a free trade agreement-
1. India risks being left behind amidst a collapsing global trade architecture, rising protectionism and a new emphasis on bilateral FTAs.
2. India is the only major power lacking an FTA with any of its top trade partners, including the EU, the U.S., China and Gulf economies. This situation is not tenable as most trade is now driven either by FTAs or global value chains. The EU’s revived focus on FTAs could only exacerbate this risk for India.
3. Stuck in a ‘grey zone’, without preferential FTA tariffs or GSP+ status, India will struggle to keep exports competitive for Europe, its largest trade partner where 20% of its exports land up.
4. The collapse of the Transatlantic Trade and Investment Partnership and concerns about excessive economic reliance on China have propelled the EU to become a little more pragmatic, which New Delhi should leverage before it’s too late.
5. The EU also offers India a unique regulatory model that balances growth, privacy and standards. India’s governance framework shares the European norms of democratic transparency and multi-stakeholder participation on a variety of new technological domains, from regulating artificial intelligence to 5G networks.
6. New Delhi must see this as a strategic premium that is not accounted for in a strict cost-benefit economic analysis.
Issues in India-EU Trade Relations
Intellectual property rights: There is disagreement over IP protection standards. The EU is keen that India should adopt stringent IP protection standards. For India, such a step could impact public health and seriously affect the Indian pharmaceutical sector. European pharmaceutical companies are wary of India’s patents law which prevents ever- greening, which allows companies to renew patents on old drugs by making incremental
India has reduced duties on parts and components but maintains 60 per cent import duties on fully-assembled cars. It is75 per cent in the case of cars with fob value above $40,000 and engine capacity 3000cc for petrol and 2500cc for diesel. This over-protectionism with respect to fully assembled cars remains the most contentious issue.
Services sector: India has demanded flexible regulations, greater access for Indian services and an easy visa requirement for Indian professionals. Europe is cautious about allowing this fearing an increased unemployment problem.
Agricultural trade is highly distorted in both the EU and India. Even though average MFN (most favoured nation) import duties on agricultural commodities in EU (13 per cent) are much lower than in India (33 per cent), EU’s peak tariff rates on certain products such as dairy (650 per cent), fruits and vegetables (156 per cent), and sugar and confectionary (133 per cent) are more than those in India.
Again, the fishery and dairy sectors in the EU are highly subsidised. There is fear of EU dairy products flooding Indian markets after the FTA. India wants the EU to cut its agricultural subsidies while the EU has interests in India reducing its duties on dairy products, poultry, farm and fisheries.
India also seeks data secure status from EU as the high cost of compliance with existing data protection laws and procedures renders many of its service providers uncompetitive.
European banks have been eyeing India’s relatively under tapped banking space. However, the surrender of banking licences by Goldman Sachs, Morgan Stanley and UBS shows that the burden of priority sector lending and financial inclusion has discouraged foreign banks.
India does not provide similar privileges to any other country. Subsequently, demands for the same would be raised by others.
Tax reduction on wines and spirits is not acceptable as these are regarded as ‘sin goods’ and the states which derive huge revenue from liquor sales would be reluctant to cut taxes.
1. Beyond mere economic cost-benefit analysis, India must also approach an EU FTA from a geo-strategic perspective. New Delhi must realise the long-term strategic benefits of a trade deal with Europe.
2. When New Delhi speaks of Europe as a strategic partner to uphold a multipolar order, it must go beyond security and begin with the business of trade and technology.
3. Need to establish a regular ministerial high-level dialogue to strengthen engagement with India at a strategic level and to identify shared interests on economic, trade and investment issues.
4. The EU-India need constructive engagement in addressing global trade challenges in the World Trade Organization (WTO) to fight protectionism.
A trade pact is about give and take. Failing to conclude the EU-India FTA will be a lost opportunity when trade pacts such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership (that together account for two-third of world GDP and one-third of world imports) are moving global trade away from MFN routes to bilateral/regional routes.