Editorial Notes

[Editorial Notes] Talking trade with the EU

Moving beyond the U.S. and China, this is the right time for India to engage the EU as an indispensable democratic partner to craft a favourable geo-economic order. A series of economic and geo-strategic factors make the need for an economic deal with the EU more urgent.
By IASToppers
August 31, 2019

Content

  • Introduction
  • Why it is important for India to hasten talks with the EU on a free trade agreement (FTA)?
  • Suggestion
  • Democratic regulations
  • Conclusion
  • IT’s Input
    • What are EU’s Trade Agreements?
    • Background

Talking trade with the EU

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Introduction

  • As the economy begins to suffer from the U.S.-China trade war, it is imperative for India to pursue a free trade agreement (FTA) with the European Union (EU).

us-china war

Why it is important for India to hasten talks with the EU on a free trade agreement (FTA)?

  • India risks being left behind amidst a collapsing global trade, rising protectionism and a new emphasis on bilateral FTAs.
  • Moreover, India is the only major power lacking an FTA with any of its top trade partners, including the EU, the U.S., China and Gulf economies.
  • This situation is not viable as most trade is now driven either by FTAs or global value chains.
  • While Brussels recently concluded a trade deal with Vietnam and a historic FTA with the Mercorsur countries (Argentina, Brazil, Paraguay, Uruguay, and Venezuela), India relies on Most Favoured Nation (MFN) status.
  • Moreover, India’s status under the EU’s Generalised Scheme of Preferences (GSP) will face rising competition from Pakistan or Sri Lanka, who enjoy GSP+ benefits.
  • Without preferential FTA tariffs or GSP+ status, India will struggle to keep exports competitive for Europe, its largest trade partner where 20% of its exports land up.

Suggestion

eu-iastoppers

  • From agriculture to intellectual property, the EU and India have been exchanging and aligning views. New areas like e-commerce have registered significant convergence because India’s position on data privacy is not that different from the EU’s.
  • However, India could delay discussions about free flow of data for a few years and freeze differences on the tax moratorium issue, while committing to liberalize trade sector.
  • Moreover, beyond mere economic cost-benefit analysis, India must also approach an EU FTA from a geo-strategic perspective.

Democratic regulations

  • EU negotiators are now more willing to make concessions on labour or environmental regulations, which used to be huge obstacles.
  • The collapse of the Transatlantic Trade and Investment Partnership (TTIP) and concerns about excessive economic reliance on China have prompt EU to negotiate on the conflicting issues.
  • The EU also offers India a unique regulatory model that balances growth, privacy and standards.
  • India’s governance framework shares the European norms of democratic transparency and multi-stakeholder participation on a variety of technology, from regulating artificial intelligence to 5G networks.

Conclusion

  • India’s talks with the EU have been advancing slowly but steadily.
  • In the wake of US’s hostile approach on India and concerns about the Regional Comprehensive Economic Partnership, India must realise the long-term strategic benefits of a trade deal with Europe.

IT’s Input

What are EU’s Trade Agreements?

  • The EU manages trade relations with third countries in the form of trade agreements. They are designed to create better trading opportunities and overcome related barriers.

Trade agreements differ depending on their content:

EU’s-Trade-Agreements

  • Economic Partnership Agreements (EPAs) – support development of trade partners from African, Caribbean and Pacific countries
  • Free Trade Agreements (FTAs) – enable reciprocal market opening with developed countries and emerging economies by granting preferential access to markets
  • Association Agreements (AAs) – bolster broader political agreements
  • The EU also enters into non-preferential trade agreements, as part of broader deals such as Partnership and Cooperation Agreements (PCAs).

Background

  • The European Union (EU) is India’s largest trading partner, accounting for nearly 13% of total Indian trade in 2018 ahead of China (10.9%) and the USA (10.1%). On the other hand, India is the EU’s 9th largest trading partner.
  • However, expectations of EU and India diverges on issues such as tariffs on cars, wines, and dairy products.
  • India and the EU began negotiations on a broad-based Bilateral Trade and Investment Agreement (BTIA) in Brussels, Belgium pursuant to the commitment made by both parties at the 7th India-EU Summit held in Helsinki in 2006.
  • Since then, there have been talks concerning the BTIA between India and the European Union since 2007, but a deadlock has been in place since 2013.
  • When FTA negotiations began with EU, India had high tariffs in areas of interest to the EU and restrictions on foreign direct investment (FDI) in several sectors, including insurance and trade.
  • 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.
  • The EU wants India to reduce taxes on liquor and automobiles. Overall, the EU wants more market access with less duty interference.
  • In 2013, India offered the EU lowered duties on imports of European cars, but imposed a quota restriction-which was then rejected by the EU-demanding a zero duty access to the Indian auto market.
  • Both sides have explored restarting negotiations after the new government assumed power in 2014, but uncertainties over Brexit and inflexibility on both sides have prevented a formal resumption.
  • In 2016, India implemented the Bilateral Investment Treaty (BITs) in place of BTIA. Under the BITs, there is a provision of Investor-State Dispute Settlement (ISDS) which seek a foreign company to go through the domestic jurisdiction process for at least five years before going to international arbitration in case of any dispute, however, the EU is against this provision.
  • The EU’s insistent of including BIT in BTIA, with removal of ISDS, made the matter more complicated. The EU is of the opinion that there are too many provisions in India’s model BIT which protect the government and go against the interest of the investor.
  • The EU also expressed discomfort with India’s reluctance to open up to imports and its strong reliance on exports and inward investment.

 

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