India – EU Free Trade Agreement

In News

• Recently, India and EU re-launched Free Trade Agreement negotiations after 9-years in a joint event held at the EU headquarters in Brussels.

About the recent event at Brussels

• Negotiations were also launched for a stand-alone Investment Protection Agreement (IPA) and a Geographical Indicators (GIs) Agreement.
  • IPA would provide a legal framework for cross-border investments to enhance the confidence of investors.
  • GI pact is expected to establish a transparent and predictable regulatory environment, to facilitate trade of GI products including handicrafts and agri-commodities.  

Challenges/ Issues in India-EU FTA

• India will be a net loser from the FTA in terms of the trade in goods: primarily as a result of the loss of revenues from lower or zero tariffs, although gains are expected from liberalisation of the services sector.
• Welfare effects: liberalisation of trade in goods would yield only ambiguous welfare effects.
• Coverage: It is not clear whether it will cover only trade in goods, or cover deeper forms of integration such as investment and competition policy.
• Divergence: European and Indian expectations diverge on issues such as tariffs on cars, wines, and dairy products imported from the EU, and on the liberalisation of the visa regime for Indian professionals entering the EU.
• Trade disputes at WTO: The EU and India have even had trade disputes at the World Trade Organisation (WTO) on wine and spirits and on pharmaceuticals.
• Restrictions on foreign direct investment (FDI): Rules on FDI in insurance and wholesale trade and on single-brand retail have since been changed, but tariffs on goods such as wines and cars remain at between 60 and 100 percent.
• Restrictive measures: EU has expressed the issue over the Indian requirement that 15 categories of IT and consumer electronic products must be registered in the country.
  • A similar issue is mandatory in-country testing and certification of telecom network elements.
• EU regulations and standards: India has also been affected by EU regulations and standards, especially on agricultural exports.
• Data-secure country: At present, India is not considered data-secure under EU legislation, despite India amending its Information Technology Act in 2000 and issuing new Information Technology Rules in 2011, in line with the “safe harbour” principles adopted by the United States.
• Skilled Indian professionals: Indian objective is reform to allow skilled Indian professionals to temporarily reside and work in EU member states. If rules on movement of professionals were liberalised, Indian businesses would benefit significantly from increased access to the EU services market.

Significance of the India-EU FTA

• Principle of fairness: Both sides are aiming for the trade negotiations to be broad-based, balanced and comprehensive, based on the principles of fairness and reciprocity.
• Immense benefits: Considering that both partners have similar fundamental values and common interests and are two of the largest open market economies, the trade deal will help to diversify and secure the supply chains, boost economic opportunities for our businesses, and bring significant benefits to the people.
• Political terms
  • From the EU’s perspective the free trade agreement (FTA) with India will support the EU’s aim of employing FTAs to foster partner countries’ integration into the world economy, and will strengthen its role in global trade governance.
  • From India’s perspective, it will boost the “Make in India” campaign and the ambition to establish India as a regional leader and global manufacturing centre.
• Global economic power: FTA will strengthen India’s attempts to harness its growing domestic economy and middle class to support its rise as a global economic power.
• Economic terms: a well-negotiated agreement will boost trade and investment flows between the two regions. The EU is India’s main source of technology transfer.
• Smart cities: The EU’s assistance would enable European companies to help India in its plan to develop 100 smart cities in the near future, as well as helping other Indian initiatives.

Way forward

• Australia and the UAE: India earlier this year has concluded FTAs with Australia and the UAE.
• Canada and the UK: The FTA talks with Canada and the UK are also underway.
• The FTA negotiations are part of India’s broader strategy to forge balanced trade agreements with key economies and revamp existing trade pacts to improve trade and investment.
• Three mega-initiatives will eventually dominate the global trade landscape: the Transatlantic Trade and Investment Partnership (TTIP), the Trans-Pacific Partnership (TPP), and the Regional Comprehensive Economic Partnership (RCEP).

Source: PIB