Background
There are reports coming up suggesting resumption of the talks on trade deal between India and EU by the end of 2021. If successful, this will be another historic milestone for the India as EU is India’s largest trading partner with around 11% of India’s overall trade and India reciprocate the trade with roughly 1.8% of the EU’s overall trade as a 10th largest trading partner. Despite of sharing massive trade while almost all products imported by India from the EU are subject to tariffs, on the EU side the picture is more varied, and there is substantial heterogeneity across sectors. From the EU side, India appears as the third country in the ranking by number of barriers to trade, with 25 barriers, as reported in the European Commission’s Annual report on trade and investment barriers, behind China and Russia.
India established diplomatic relationships with the European Economic Community in 1962, and in 1983 a Delegation of the European Commission was established in its territory. In 2004 India became an EU strategic partner followed by two action plans in 2005 and 2008, focusing on FTA negotiations, maritime transport negotiations and the climate change. Since 1971, EU-India trade relations have been shaped by the generalised system of preferences (GSP) and In 2007, the two parties commenced negotiations on a broad-based trade and investment agreement (BTIA) which reached a deadlock in 2013 around a number of unresolved issues and different perspectives. Since then, both the sides are trying to engage in a talk to improve cross border trade and to arrive at a common rule in order to flourish the trade relationships.
The earlier trade negotiations to arrive at the conclusion for FTA in 2013 has failed because of numerous challenges right from trade liberalisation to protection of intellectual property. As for tariffs, despite the substantial trade liberalisation that India has undertaken in recent decades, it nevertheless applies higher tariffs than the EU on average specially for the auto industry. The Indian position has been not to guarantee greater protection than the one guaranteed by the Trade-Related Aspects of Intellectual Property Rights (TRIPS) has also caused serious trouble in the trade talks.
As India and the European Union (EU) prepare to resume formal negotiations for a proposed free trade agreement (FTA) after a gap of eight years, both the parties could focus on “low-hanging fruit” first, before switching to contentious matters that had hampered talks earlier. Some of the key areas which will play a pivotal role in negotiations and development of the final FTA will be as under:-
Trade liberalisation specially for services and reduction in tariffs – Higher tariffs from both sides remain the key point of discussion for the FTA. India has remained aggressive in applying tariffs especially to safeguard its growing economy however, EU has equally applied tariffs historically. In order to improve trade, it is crucial to see how India will reduce the tariffs on the automotive sector which contributes one of the highest share in trade from EU.
Access to Public Procurement – This has remain one of the major issue for EU as India has not signed the WTO Agreement on Public Procurement and does not have a public procurement law thereby debarring the cross border trade. Further, the recent changes in the public procurement policies in India aims to strengthen “Make in India” initiative of the government also put a threat for the bilateral agreement on this issue.
Intellectual Property Rights – IPR has remain one of the very sensitive issue specially for the world when they deal with a developing country like India which still have unending litigations pending at various level of the justice system. It will be worthwhile to watch how the bottlenecks in IPR protection and royalty payments will be resolved by both jurisdictions.
Sustainable Development – Waste dumping by various developed countries remained one of the key issue in the global trade wherein the countries are exploiting the developing nations for achieving their climate change ambitions. Post introduction of Basel Convention Plastic Waste Amendments and consequential ban by China on imports of solid waste, EU has an eye on India to dump waste. Thus, it is critical for both the parties to take steps for ensuring that the FTA is not just tariff effective but ensures sustainable development.
CONCLUSION
Free trade agreements when entered between developed economies and developing economies generally work to the advantage of the former. The EU India FTA is expected to start a historic milestone in strengthening India’s ties with EU which can aid India in recover from the shock of the COVID-19 pandemic as well as to come back on track to become the developed economy by 2025.
