Foreign Policy Watch: India – EU

Recalibrating relations with EU

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 2- Deepening trade ties with the EU

With India about to lose preferential access to the EU, there is a need to deepen the trade and investment ties with the region. The article deals with this issue.

Export potential to the EU

  • India has an untapped export potential of $39.9 billion in the EU and Western Europe.
  • India benefits from tariff preferences under the EU’s Generalized System of Preferences (GSP) for several of these products.
  • In fact, India is among the major beneficiaries of the EU’s GSP, accounting for nearly 37% of India’s merchandise exports.

India losing EU-GSP benefits: Product graduadion

  • Product graduation applies when average imports of a product from a beneficiary country exceed 17.5% of EU-GSP imports of the same product from all beneficiary countries over three years.
  • There are several products where India has export potential in the EU, but these have “graduated” or are at the brink of “graduation” under EU GSP.
  • India’s exports of products such as textiles, inorganic and organic chemicals, gems and jewellery, iron, steel and their articles, base metals and automotives are already out of the ambit of EU-GSP benefits.
  •  In apparel, India’s exports to the EU were valued at $7 billion in 2019, of which nearly 94% was under EU-GSP, indicative of the impact that the graduation may have on apparel exports.
  • Bangladesh’s apparel exports would continue to receive tariff benefits in the EU under Everything but Arms Initiative.
  • Another competitor, Vietnam, concluded a free trade agreement (FTA) with the EU in 2019.

Need to deepen trade and investment ties

  • In light of the declining preferential access and the plausible erosion of competitiveness in the EU market, there is clearly a need to deepen trade and investment ties with the region.
  • Broad-based Trade and Investment Agreement, which commenced in 2007, is yet to materialise due to lack of concurrence in areas like automotives and dairy and marine products.
  • Therefore, a thorough assessment of the benefits from FTA for domestic producers is warranted, with due consideration to the impact on sensitive sectors, and possibility of inclusion of safeguards such as sunset clause on concessions for some items.
  • Further, there should also be provisions for aspects such as investment and non-tariff measures (NTMs).
  • India also needs to negotiate on investment-related aspects with the EU to foster stronger value chains, especially in technology-intensive sectors in which the EU has a comparative advantage.
  • As far as NTMs are concerned, India faces as many as 414 NTMs in the EU, in a wide array of sectors. FTAs have some institutional arrangements for NTMs.

Consider the question “Forging stronger ties with the EU could pave way for the greater cooperation and stronger trade ties. Elucidate.” 

Conclusion

Post-Brexit EU finds itself in the midst of a growing need for recalibrating ties with its partner countries. Forging stronger ties with the region through a mutually beneficial agreement could help strengthen Indian manufacturing and revitalise the flailing exports.

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