Economy
How a trade deal with the EU could shape up
Summary
After signing comprehensive economic and trade agreements with the United Arab Emirates (UAE) and Australia, India has stepped up efforts to negotiate a free trade agreement (FTA) with the European Union (EU). Mint takes a look at the potential roadblocks:
After signing comprehensive economic and trade agreements with the United Arab Emirates (UAE) and Australia, India has stepped up efforts to negotiate a free trade agreement (FTA) with the European Union (EU). Mint takes a look at the potential roadblocks:
What is the trade relationship like?
The EU is India’s third largest trading partner, accounting for 11.8% of India’s total trade in 2020-21, after the US (12.61%) and China (12.59%). It is India’s second largest export destination after the US. India is the EU’s tenth largest trading partner, accounting for 1.8% of the EU’s total trade in goods in 2020. Trade in goods between India and the EU increased by around 12.5% in the last decade, but the EU’s in India’s overall exports witnessed a decline. The EU is also a major source of foreign direct investment (FDI) in India. Between April 2000-March 2021, FDI flows from the EU to India totalled $88.32 billion.
How would the FTA help India?
It will help Indian exporters gain competitive advantage in the EU markets while helping domestic manufacturers get cheaper access to imports from the EU. India’s major exports to the EU include mineral fuels, mechanical appliances, electrical and electronic machineries, organic chemicals, automobiles and auto components, pharmaceuticals, precious stones, and iron and steel products. The untapped export potential for India in the seven major markets of the EU—Germany, France, Italy, the Netherlands, Spain, Belgium, and Switzerland—is around $26.8 billion, according to the International Trade Centre.
Why is the FTA important for the EU?
After Brexit, the EU is trying to clinch trade deals to diversify supply chains and find profitable exporting destinations for European companies. The EU is looking for a large market as intra-EU trade remains stagnant and trade with the UK shrinks because of new institutional trade barriers. The FTA with India will also help the EU reduce trade ties with Russia.
What are the key stumbling blocks?
A major point of contention has been the EU’s demand for reduction in India’s tariff rate. Earlier talks did not resolve issues involving trade in agriculture and services, digital trade, intellectual property rights, and commitments on sustainable development issues such as environmental, social, and labour rights. Visa requirements and work permits for Indian workers to the EU have been a major bone of contention. Restrictions on transfer of personal data from the EU to other countries is a barrier for trade in digital services.
What is the likelihood of an agreement?
The two sides have set the ball rolling on the FTA. The president of the European Commission recently met key stakeholders in India and agreed to establish a trade and technology council to deliberate on data protection regulations and strengthening digital trade between India and the EU. Prime Minister Narendra Modi’s recent visit to three key EU member countries is expected to further reinvigorate the FTA talks.
Jaydeep Mukherjee and Puneet Kumar Arora are faculty members at IIFT and DTU, respectively.
