The long road to India’s free trade deal with the EU | Mint – Mint
Trade ministers from the European Union will meet Indian officials next week for talks on a free trade agreement (FTA). While the geo-political environment is favourable for the deal, dubbed as the mother of all FTAs that India is negotiating, it will be a difficult trick to pull off.
Trade ministers from the European Union will meet Indian officials next week for talks on a free trade agreement (FTA). While the geo-political environment is favourable for the deal, dubbed as the mother of all FTAs that India is negotiating, it will be a difficult trick to pull off.
Why is the free trade deal crucial for India?
The EU is India’s second-largest export market after the US, but the share of the continent in India’s overall goods exports has been declining in the past two decades. This has happened largely on account of a slew of non-tariff barriers imposed by the 27-member bloc. A free trade pact would not only reduce duty on goods, but also act as a channel to bring down non-tariff barriers hurting Indian agri exports. The FTA’s benefits, along with India’s production-linked incentive push, can boost textile, pharma and mechanical appliances exports—all significant imports by the union.
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Why is the free trade deal crucial for India?
The EU is India’s second-largest export market after the US, but the share of the continent in India’s overall goods exports has been declining in the past two decades. This has happened largely on account of a slew of non-tariff barriers imposed by the 27-member bloc. A free trade pact would not only reduce duty on goods, but also act as a channel to bring down non-tariff barriers hurting Indian agri exports. The FTA’s benefits, along with India’s production-linked incentive push, can boost textile, pharma and mechanical appliances exports—all significant imports by the union.
What brought India and the EU to the negotiating table?
In short, geopolitics. Two major factors are Brexit and worldwide sentiments against China, particularly around the country’s handling of the covid-19 pandemic. Both India and the EU consider China a non-transparent economy and are looking to cut Chinese imports which have surged after the pandemic outbreak. At the same time, exports from EU and India to China have remained stagnant. Moreover, India is pursuing closer integration with the western economies after quitting the China-dominated Regional Comprehensive Economic Partnership negotiations.
What is the role of Brexit in driving India-EU trade talks?
The EU relied heavily on the UK for its exports to India until Brexit—the UK was EU’s second-largest exporter to India. Brexit also eroded FDI inflow from India to the EU, which it is looking to compensate through an investment treaty with India. With the UK pursuing a separate trade deal, the EU may seek a higher level of commitment leveraging its market size.
What is complicating these negotiations?
A barrage of EU climate-related regulations, such as the Carbon Border Adjustment Mechanism, Deforestation Regulation and Corporate Sustainability Due Diligence Directive, will restrict trade further. While the carbon tax is expected to hit Indian exports worth over $8 billion, the deforestation regulations could impact exports worth $2 billion. In the absence of a functional WTO appellate tribunal, trade tensions are also expected to flare up as India is working on its own retaliatory carbon tax.
Is lack of standards a roadblock for trade?
Substantial differences exist in the standards followed by the EU and India, particularly in major trade items such as drugs, electrical equipment and motor vehicles. Ironing them out would be crucial. Various Indian standards on food and pharma are different from international standards. This poses a problem while signing an FTA with a developed bloc, which usually has stricter controls than internationally prevalent. Harmonizing compliance standards is crucial to boost exports.
Source: News
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