India-EU FTA: Re-launch of the Negotiations

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After nearly a decade-long gap, India and the European Union resumed negotiations for an FTA. The Free Trade Agreement’s (FTA) first-round talks took place in New Delhi from 27 June to 1 July 2022.

Over the century, India and the European Union have developed strong bilateral ties. India is the EU’s tenth largest trading partner, while the EU is India’s fourth largest trading partner after the United States and China. India has maintained distinctive trade policies with the EU. The second round of negotiations will take place in Brussels in September 2022.

Indian Prime Minister Narendra Modi with European Commission President Ursula von der Leyen in New Delhi, April 25, 2022.

European Union and its market

European Union was formed in the year 1993 in the Netherlands. It currently has 27 member states. Each member state contributes its maximum by keeping up the standards of the policies drafted by the organisation.

Unlike other regional organisations worldwide, the European Union is likely to succeed due to its significant trade, security, and defence policies for member and non-member states. It is also regarded as a credible international actor contributing significantly to the global economy. The EU also headquarter some of the world’s largest venture capitalists, the primary beneficiary of foreign direct investment (FDI). Moreover, it operates as a single market which allows free movement of goods, capital, services and people between member states. 

The top trading partners of the EU in 2021
Image courtesy-eurostat

The European Union market aims to build a legislative framework that will help strengthen the movement of goods with minimum tariffs within the member and non-member states. It also ensures that the EU member states pay no customs duties for legally imported goods within the Union.

The Indian market

India opened its economy by introducing new economic reforms, Liberalisation, Privatisation and Globalisation (LPG) in 1991. After the initiation of the reforms, India’s GDP growth increased, Foreign Direct Investment inflow took rise, employment rate improved along with many other changes.

FDI played an essential role in India’s economy. It not only increased the movement of goods but also increased the country’s per capita income. FDI inflows in India in 2019-2020 are estimated at around $19.33 billion. 

What is an FTA?

An FTA or Free Trade Agreement aims to reduce trade barriers between the countries. It allows the supply of goods and services without restrictions within the member and non-member states. FTA, in a way, promotes economic cooperation and social integration among the countries. Some examples of free trade agreements are European Free Trade Association (EFTA), the North American Free Trade Agreement (NAFTA), the South Asian Free Trade Area (SAFTA), Pacific Alliance and the bilateral free trade agreements between two countries. 

FTA – The path to barrier-free trade among nations

As a single market, the EU is a major proponent of free trade agreements. The EU ensures not only the free movement of goods and services but also the free movement of labour and capital. Free trade allows for the free movement of goods and services with lower tariffs.

EU-India bilateral relations

India and European Union are celebrating their 60 years of friendship in 2022. The bilateral relations between both entities started in 1962. Initially, both had worked on developmental projects, and after the liberalisation policies, India and the EU’s bilateral ties began to strengthen. 

The Lucknow metro
The EU, through the European Investment Bank (EIB), loaned 450 million Euros for the metro’s Phase-1A project

Compared to the 20th century, the trade relations between both countries have increased to €65.30 billion as of 2021. The following are some of the remarkable events that took between the two entities,

  • 1973 – India and European Union signed EEC Commercial Cooperation Agreement
  • 1981 – New Economic and Commercial Cooperation Agreement
  • 2004 – Both parties upgraded the relation to a ‘Strategic Partnership’ at the 5th India-EU Summit at the Hague
  • 2012 – the EU and India signed the Joint Declaration on Enhanced Cooperation in Energy
  • 2013 – both parties halted the talks for a free trade agreement.  
  • 2020 – India–EU Strategic Partnership on Road map to 2025
  • 2021 – the recommencement of the Free Trade Agreement negotiations

Resumption of the FTA talks

EU and India are looking forward to deepening their partnership by resuming their long-lost agreement, which has been halted for over a decade. The entities have decided to make this agreement beneficial for both on common grounds. 

The trade negotiations aim to eliminate hurdles and focus on helping European companies, precisely the small-scale industries, by exporting more into other countries, it ensures agreement on investment protection and geographical indications. The talk strives to go after aspiring commitments on trade and other sustainable vital regional developments. Moreover, both parties would also make sure to enforce the required directives.

Commerce Minister of India Piyush Goyal with Valdis Dombrovskis, Executive Vice-President of the European Commission in Brussels, June 17, 2022. The meeting officially re-launched the India-EU FTA negotiations.
Image courtesy-Twitter@VDombrovskis

The investment protection negotiations aim to provide capitalists from both sides with a specific and secure expenditure through liabilities based on non-discrimination irrespective of their investments and turnovers. 

The EU and India are laterally working together to abode respective market access issues. However, the EU is awaiting to carry on with India in mutual affairs. During the first round, fifty-two technical sessions were added. These covered 18 FTA policy areas and seven sessions on investment protection and Geographical indications. As per estimates, India’s bilateral trade with the European Union is at $116.36 billion in 2021-2022.

What are the mutual benefits of the FTA?

Besides being India’s second-largest trading partner, the EU can attain good welfare through this agreement. Both parties can have open access to the market with low tariffs, fewer restrictions on the flow of goods and services, a clean supply chain, and beneficiary labour supply and capital inflow. Since the EU is composed of 27 trading blocs, India should endeavour its domestic reforms concerning the economy to have a better progression in the agreement. 

In FY 2020, India exported 15.7% of pharmaceutical products to the European Union.

Regarding capital inflows and technology transfer, the FTA is crucial for India. With the help of the EU, European businesses would indeed be adequate to assist other Indian initiatives and India’s plan to establish 100 “smart city initiatives” shortly. Both parties’ political and economic futures depend on the proposed deal.

The EU’s FTA with India will be it’s first for a growing economy from a political point of view. It will also promote the EU’s objective of using FTAs to promote partner nations’ integration into the global economy and bolster its position in international trade regulation. From India’s stance, it will support Prime Minister Narendra Modi’s “Make in India” campaign and his attempt to expand India into a regional manufacturing powerhouse and global gateway.

India has the potential to be a regional manufacturing powerhouse if its massive human resources are used wisely.

The FTA will also boost India’s efforts to use its expanding middle class and home economy to aid its growth as a significant economic factor.

Conclusion

The EU and India aim to strike a deal by the end of 2023. However, there are numerous complications and barriers in the trade, and one party must compromise in certain areas before the other. Thus, mutual compromise is the only way for the agreement to be successful.

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About the Author

Shamini V

In addition to international news, cupcakes, and coffee lift Shamini’s spirits. She holds a master’s degree in international relations from Women’s Christian College, Chennai, and she has a knack for understanding what is going on in the overseas market and never fails to stay up to date on current events. Her primary research area is the Indo-Pacific region, but she also studies maritime security challenges in the Indian Ocean, Middle Eastern culture, global governance, and foreign relations. Shamini is a driven professional who chose ‘The International Prism’ as a career launching pad.

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