India’s trade talks with South American trade bloc on the back burner

Talks between India and South American trade bloc Mercosur have been put on the back burner with both sides focused on concluding their long-pending free-trade agreements with other regions, a person with direct knowledge of the matter told Mint.

The talks were meant to expand the number of products enjoying low- or no-tariff benefits under a preferential trade agreement from about 450 to 1,500-2,000.

The trade bloc comprises Argentina, Brazil, Paraguay, and Uruguay, apart from associate member nations such as Ecuador, Colombia and Peru.

While Mercosur’s current focus is on concluding its much-delayed free trade agreement with the European Union, India, which is heading into a general election, aims to conclude similar trade agreements with the UK and Oman, while also starting the eighth round of FTA negotiations with the EU next month.

"As far as Mercosur is concerned, the priority is to sign the FTA with the EU. However, talks between both regions on the FTA, which was close to conclusion, have been delayed due to various factors including the economic slowdown in Europe," the person mentioned above said, requesting anonymity. 

"Expanding the (South American) bloc's existing preferential trade agreement with India is currently not a priority for now, though this could be worked on in the future," this person said. "While Mercosur members are having individual national discussions on the topic of expanding the PTA with India, the bloc’s long-delayed FTA with the EU has taken precedence."

Expanding the preferential trade agreement with Mercosur nations is key for India to increase its trade in the South American region. 

While India’s trade with Latin America and the Caribbean (LAC) region has grown strongly since 2000, New Delhi has maintained a relatively narrow trading agreement with Mercosur nations. 

At present, India and the Mercosur bloc have agreed on tariff concessions ranging from 10% to 100% on 450 and 452 tariff lines, respectively, under the preferential trade agreement, which has been operational since 2009. 

Spokespersons of the ministry of external affairs, ministry of commerce and industries and the embassies of Mercosur member countries in New Delhi didn't respond to emailed queries. 

In 2022, total trade between India and LAC region stood at about $49 billion, largely attributable to India’s trade with only a handful of countries from the region—Brazil (30% imports, 56% exports), Colombia (12% imports, 8% exports), and Argentina (18% imports, 5% exports), according to the Confederation of Indian Industry.

As things stand, India’s external affairs minister S. Jaishankar has proposed increasing trade between India and the LAC region to $100 billion. 

While exports from the LAC region to India largely comprise extractive and agricultural products such as petroleum oils, pearls and precious stones, and vegetable oils, India majorly exports manufactured commodities such as motor vehicles, organic chemicals, and chemical products to those nations.

According to the Indian embassies in Paraguay and Argentina, the Mercosur bloc has become a successful regional market of more than 290 million people with a GDP of more than $2 trillion.

"(Mercosur) is the fourth-largest integrated market after the EU, Nafta (North American Free Trade Agreement), and Asean (Association of Southeast Asian Nations. Its biggest trading partner is the European Union," the Indian Embassy in Paraguay said on its official website while commenting on the bilateral trade between the regions.

Mercosur nations and the EU began talks on an FTA in 1999. Both sides restarted negotiations in 2010 following a suspension in talks soon after. In 2019, the two regions reached a political agreement for an “ambitious, balanced and comprehensive trade agreement”.

However, the agreement has been stuck in limbo over several issues, including agricultural trade and environmental standards.