India-EU: global dynamics

In  News 

India and the European Union concluded the first round of talks for the proposed free trade agreement (FTA) and the next round of talks is scheduled at Brussels in September.

About India and the EU 

• India-EU bilateral relations date back to the early 1960s with India being amongst the first countries to establish diplomatic relations with the European Economic Community in 1962.
• The first India-EU Summit took place in Lisbon in June 2000 and marked a watershed in the evolution of the relationship.
• In 2007 India and the EU began negotiations on a broad-based Bilateral Trade and Investment Agreement (BTIA) in Brussels, Belgium.

Current Status 

• India and the EU share a healthy trade relationship. 
• The EU is India’s third largest trading partner, while India is EU’s 11th largest trading partner.
•  In 2019-20, India-EU trade accounted for ?63.8 billion (11.1% of total Indian trade) in goods, while a total of 1.9% of EU’s total trade in goods in 2020 came to India. India exports almost 14% of its global exports to the EU.

Progressive steps

• Recently, there has been increasing initiative from both sides to deepen engagement with each other. 
• India and the European Union concluded the first round of negotiations for India-EU Trade and Investment Agreements, including the Geographical Indicators (GI),
  • The target to finalise the Free Trade Agreement has been set for 2023-24.
  •  The trade agreement with the EU would help India in further expanding and diversifying its exports of goods and services, including securing the value chains. 
  • Both sides are aiming for the trade negotiations to be broad-based, balanced, and comprehensive, based on the principles of fairness and reciprocity.
• Climate change
  • Both India and the EU are committed to climate change, and the recent progress in India-EU alliance opens prospects of a customised partnership and mutual growth. 
    • Such a partnership will ensure that both India and the EU have their agendas of economic growth and sustainability fulfilled, a win-win situation for both entities.
• Other Initiatives of EU
  •  The European Union wants to be the first carbon-neutral region in the world by 2050.
    • It brought out the ‘European Union Green Deal’ in July 2021 to focus on a new growth strategy that aims to transform the EU society into a fair and wealthy one with a modern, resource-efficient and competitive economy.
  • CBAM: carbon-pricing system
    • To attain carbon neutrality, the EU has set forth immediate targets and has brought out the ‘Fit-for-55’ package, a communication of its 2030 climate targets. 
    • A provision in the policy plan is the introduction of Carbon Border Adjustment Mechanism (CBAM), a carbon-pricing system proposed for imports into the EU. 
      • The CBAM suggests taxing the imported goods-based difference between carbon used in the production of domestic and imported goods.

Challenges /Issues 

• A major challenge lies in translating government exchanges and agreements into a substantial partnership, enhancing trade and investment flows. 
• The EU is seeking to expand the bilateral trade volumes. 
  • India, however, suffers from excessive bureaucratic rigidity, and more needs to be done to exploit its full business potential.
• Despite its economic growth and potential, however, the fact cannot be overlooked that India faces numerous domestic development challenges and reciprocity could have detrimental effects on its agricultural sector. 
• The EU asserts that India’s high tariff barriers are not transparent enough and thus not conducive to creating a trade-enabling structure. 
• Developing countries have raised their concern on the legality of CBAM pointing out its conflict with World Trade Organisation (WTO) and the United Nations Framework Convention on Climate Change (UNFCCC) norms, and are afraid that it encourages protectionism.

Way Forward

• In a complex international environment, the Republic of India and the European Union, both “unions of diversity”, sharing values of democracy, rule of law and human rights, are equally convinced of the necessity to preserve the rules-based international order and effective multilateralism.
• India-EU endeavours to develop further their Strategic Partnership, based on this Roadmap. 
  • They can contribute jointly to a safer, cleaner and more stable world.
• Recent progress in the alliance opens up prospects of a customised partnership and mutual growth
• Rather than tax on exports to EU as proposed in CBAM, India and EU can cooperate better by investing in cleaner and greener technologies in India and helping in cleaning up production in India.

[Q] Recent progress in the India-EU bilateral relations opens up prospects of a customised partnership and mutual growth ,Elucidate