Negotiating FTA with the EU: India’s perspective

Arpita Mukherjee
Professor
Indian Council for Research on International Economic Relations (ICRIER)
India

Nida Rahman
Consultant
Indian Council for Research on International Economic Relations (ICRIER)
India

1. Introduction

India and the European Union (EU) have started renegotiations for a comprehensive trade agreement, which is expected to be signed by December 2023. Being key trade partners, the dividends from an EU-India FTA are immense. In 2021, while the EU was India’s third largest trading partner, with a share of 10.8% of India’s total trade, India was the tenth largest trading partner of the EU, accounting for 2.1% of the EU’s trade. With global supply chain resilience initiatives, India can be a much larger player in the supply chain of EU companies. India’s merchandise trade surplus with the EU increased in 2021. The EU has been a prime source of investment in India totalling around €87.3 billion in 2020, with presence of around 6000 European companies. India and the EU are cooperating at multiple regional forums such as the Indo-Pacific and, G20. A comprehensive trade agreement will further strengthen the economic gains on both sides and, Indian companies will have access to the EU market on equal footing as companies from other EU FTA partner countries like Vietnam.

The India-EU partnership was renewed with the initiation of the India-EU Strategic Partnership: Roadmap to 2025, the establishment of a high-level dialogue on Trade and Investment in 2020 and High-Level Trade and Technology Commission on 25 April 2021. After a pause of nearly a decade, the bilateral trade discussions gained momentum in 2021, following the conclusion and issue of the joint statement of the India-EU Leader’s Meeting on 08 May 2021. At present, India and the EU are negotiating a stand-alone investment agreement, a geographical indication (GI) agreement, along with the FTA. The first round of FTA negotiations concluded during 27 June-01 July 2022. The second round of negotiations is scheduled for October, in Brussels.

2. Some roadblocks

While both sides understand the importance of the FTA, there are wide differences between India and the EU on the scope and coverage of the agreement. The EU wants trade agreements to deliver significant tariff liberalisation, add regulatory issues and cover areas like digital trade, government procurement, and trade and sustainable development, many of which have not been covered or partially covered under India’s existing trade deals. In tariff negotiations, India and the EU, have hit several bumps in sensitive sectors like wines, automobiles and auto-components and dairy, where  tariffs are high, sometimes above 100% in India. On the other hand, Indian exporters, especially the SME sector, sometimes find high EU standards as non-tariff barriers. As India is a services-driven economy, it wants the EU to relax norms concerning visas and work permits for Indian professionals, which is in the domain of the member states and not the EU. The EU is ambitious in negotiating Mode 3 (commercial presence) and seeks liberalization of FDI policy for sectors such as retail, insurance and banking and non-discriminatory treatment for  EU businesses in India. There is hardly any study in India on how to address issues like GI and sustainable development under trade agreements. In digital trade, India wants the EU to give a Safe Harbour status, while the EU looks forward to a digital trade chapter where data sharing can be with trust.

3. Way forward

Several Indian companies in sectors like textiles and apparel and many agriculture products have shown enthusiasm for a trade deal with the EU, which is looked upon as one of the most beneficial trade agreements by many export promotion councils in India. In any trade agreement, there will be some gains and some losses. If both sides see beyond the differences and resolve the long-pending issues, this agreement will be mutually beneficial. The large Indian market and the democratic setup offer immense opportunities to EU companies. There can be collaborations between government, regulators, business councils, SMEs, start-ups and large companies. Jointly companies can explore third-country markets.

As India and the EU celebrate 60 years of relations this year, the FTA would serve as a sturdy ground to achieve the ambitions of ‘Make in India’, making India a manufacturing and export hub and integrating with the global value chains. As the economic landscape is thronged with protectionist regimes, the opening of India and the EU markets would set a great example. To move forward with the FTA and strike a comprehensive deal, it is important that the two sides are willing to open up and the businesses are well prepared for it. The national interest must be put ahead of the interests of select sensitive sectors. As the India-EU FTA received a new lease of life, it is important for both sides to ensure that the negotiations should not halt this time.

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