Can Indo-EU Free Trade Agreement Open Pandora’s Box?

India and the European Union (EU) concluded the first round of negotiations for India-EU Trade and Investment Agreements, including the Geographical Indicators (GI) in New Delhi on July 1.

The Ministry of Commerce and Industry in a press statement said that the week-long negotiations were held in a hybrid fashion – with some of the teams meeting in Delhi and the majority of officials joining virtually hybrid fashion. 

The ministry added that both sides are aiming for the trade negotiations to be broad-based, balanced, and comprehensive, based on the principles of fairness and reciprocity.

“Well, better late than never. This FTA agreement was long pending and will surely take India’s trade relations with EU members to the next level, especially unrealized trade. Many of our domestic industries can benefit from improved access to EU markets. Further, this will bring a multitude of investment opportunities for both the regions and hence faster growth and more opportunities to their people,” said Sandip Chhettri, CEO, TradeIndia

Chhettri, however, said that what is more important is to ensure that this agreement is underpinned by sustainable development. After the United States (US), the EU is India’s second-largest export market. India’s merchandise exports to EU members were around USD 65 billion, while its total imports were USD 51.4 billion. 

During this round, 52 technical sessions covering 18 policy areas of FTA and 7 Sessions on investment protection and GIs were held. The second round of negotiations is scheduled to take place in September 2022 in Brussels. 

“The dynamics of the free-trading EU and cautious India made it tricky to find common grounds when trade talks started in 2007 and then again in 2013. Back then,  the goals for the two regions looked poles apart in many cases. For the deal to work today, the reduction of tariffs and regulatory cooperation are equally essential along with mutual recognition of standards,” said Adarsh Sharma, Managing Director, Primus Partners. 

Notably, India and the EU resumed negotiations after a gap of eight years. The negotiations were launched by Union Minister Piyush Goyal Minister and European Commission’s Executive Vice President Valdis Dombrovskis in Brussels last month.

“India and the European Union have emerged as key players in the multilateral global order. Economic cooperation between the two sides has grown despite the stalled FTA negotiations.  At this point in time, India and the EU have not been able to tap into each other’s strengths, although there is tremendous opportunity to overcome long-standing differences in trade relations,” said Pradeep Multani, President, PHDCCI.

Experts have pointed out that if targets are achieved it will impact businesses across industries and will help India strengthen its economic ties and establish itself as a global manufacturing centre. 

“For a country with a population of 1.4 billion, the EU sees a huge potential market whereas, for India, the ability to export IT services and agricultural goods whilst securing access for its industrial products is important. Public procurement contracts, rules on intellectual property as well as commitments on sustainable development issues such as environmental, social, and labour rights are key areas of EU’s interest,” said Sharma.

Also Read: India’s Growing Enthusiasm For Free Trade Agreements

Interestingly, the first round of negotiations between India and the EU started in 2007, however, the talks stalled in 2013 as both sides failed to reach an agreement on key issues, including customs duties on automobiles and spirits and the movement of professionals. 

“The best part about India and the EU negotiations is that the two sides are sitting at the same table. Though precious little is expected from this round of negotiations given the deep differences, the fact that the two sides are willing to talk with each other after years of back-channel negotiations is a positive sign,” said Vijay Singhania, Chairman, TradeSmart. 

Singhania added that the two parties have come to the table hoping to reach an agreement on trade in goods and services, investments, and geographical indication. The differences in the opinion of the two sides are too wide to cover, especially those relating to the environment and labour.

It has been said that with geopolitical circumstances changing and the multilateral global trade order withering, the interests of both regions seem more aligned than ever.

“The EU’s partnership with India is an important relationship because otherwise, India has to renegotiate individually with a few major trading partner countries. Negotiation with the EU countries (a 25-plus nations block) would take a few years plus the missed opportunity of trade,” said Sharad Chandra Shukla, Director, Mehta Equities. 

Starting Q3CY22 an ambitious timeline has been set by both sides targeting to conclude negotiation by Q4CY23. Both sides intend and aim to boost economic growth which may, in turn, lead to job creation. Big untapped trade and investment opportunities exist between the two entities, Shukla added. 

For India, the EU is one of the major trading partners with almost 10 per cent of Indian foreign trade in CY2021. On the other hand, India is the EU’s important trading partner covering 2 per cent of EU trade in CY2021. 

Experts believe that the FTA agreement should significantly increase investor confidence and increase foreign direct investment (FDI). The aim of both entities is to increase direct or portfolio investment. Greater opportunities for skilled employment in both countries will automatically follow. 

“The FTA agreement will also encourage investments between these two countries. Other than this, industries in both countries can identify new markets and local businesses can think of benefiting from the cutting-edge technology through their multinational partners. This will bring technological improvements and promote growth, leading to a more dynamic business market. Further, it will slash the government’s spending,” said Chhettri. 

Meanwhile, India’s bilateral trade with the EU amounted to USD 116.36 billion in 2021-22. Despite the global disruptions, bilateral trade achieved impressive annual growth of 43.5 per cent in 2021-22. The government is hopeful that the trade agreement with the EU will help India in further expanding and diversifying its exports of goods and services, including securing the value chains. 

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