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India: the busy trade agenda in Europe

The free trade agreement with the EU is complicated, but the creation of the TTC and the New Delhi-EFTA understanding demonstrate the wide scope for deepening relations between the two areas.

By Andrea Noris

India, a country that went through a process of economic reforms in the 1990s with a gradual opening to foreign markets, has been one of the world’s fastest growing economies since the 2000s. India’s economic development, previously concentrated in the advanced tertiary sector, has gradually involved the industrial sector as well, where, however, Chinese competition remains very strong.

The country’s outlook is positive. According to the World Bank, GDP is expected to grow by 7.5 percent in fiscal year 2024, while for the next two years growth is expected to be about 6.6 percent per year. In the medium term, one factor in the country’s competitiveness with China is its generous demographic dividend in the face of China’s aging population.

India-EU relations have seen a 30 percent increase in the interchange of goods over the past decade. While India has become the EU’s tenth largest trading partner, the EU bloc is the second largest destination for Indian exports after the United States. Also notable is the value of trade in the services sector, which reached 30 billion euros in 2020. Not only that. The importance of the EU to the Indian economy is represented by its role as the largest foreign investor in the country, with a stock of foreign direct investment (FDI) of about 60 billion euros. However, European FDI in India is still at a low level, especially when compared with the stock of EU investment in China (€201 billion) or Brazil (€263 billion).

India-EU negotiations: a long and seesaw history

Negotiations on a possible trade and investment agreement between India and the EU began on June 28, 2007, and covered a number of elements: trade in goods, trade in services, investment, sanitary and phytosanitary measures, technical barriers to trade, trade remedies, rules of origin, customs and trade facilitation, competition, government procurement, dispute settlement, intellectual property rights, geographical indications, and sustainable development. However, after 15 rounds of negotiations in Brussels and New Delhi, talks between the parties stopped in 2013.

Currently, the World Trade Organization’s most-favored-nation principle is applied to trade in goods and services between the EU and India. The EU also grants tariff preferences to India under the Generalized System of Preferences. However, these were temporarily suspended in early 2023 because increasing Indian imports into the EU bloc exceeded the defined safeguard thresholds.

On June 17, 2022, it was announced that European Commission Executive Vice President Valdis Dombrovskis and Indian Trade Minister Piush Goyal formally relaunched negotiations on a balanced, ambitious, comprehensive and mutually beneficial free trade agreement. At the same time, negotiations were launched regarding an agreement on investment protection and an agreement on geographical indications. The two sides agreed to accelerate the talks with the goal of concluding them by the end of 2023. However, several rounds of negotiations have not yet resulted in the conclusion of a free trade agreement (FTA).

Last February 2024, a statement by Stefano Sannino, European External Action Service Secretary General, appeared in the Indian press, saying, “As we speak, the seventh round of negotiations is underway in New Delhi. This is an ambitious agreement and the FTA includes several elements. While it is not possible to set a deadline regarding the announcement of the FTA, I can say that there is political will to conclude it.” In addition to the FTA talks, India and the EU would also discuss an agreement on investment protection and a pact on geographical indications. The next round of negotiations is expected to take place following the conclusion of India’s election process, which began in late April.

The agreement finally sealed between New Delhi and EFTA.

On March 10, 2024, EFTA (European Free Trade Association consisting of Iceland, Liechtenstein, Norway and Switzerland) signed a comprehensive trade and economic partnership agreement (TEPA) with India. Negotiations were started in 2008, and the TEPA was signed at the conclusion of the 21st round of negotiations.

As stated by Swiss Federal Councillor Guy Parmelin, who signed on behalf of EFTA, “EFTA countries gain access to an important growth market. Our companies strive to diversify their supply chains while making them more resilient. India, in return, will attract more foreign investment from EFTA, which will ultimately result in more good jobs.”

A major element of this agreement is the commitment of the member states of the association to invest $100 billion in India and create jobs. On the basis of the agreement, India will realize an across-the-board reduction in import duties on many industrial goods, while almost all of India’s industrial goods would gain duty-free treatment in EFTA countries, in addition to the reduction of relative duties on processed agricultural products. Switzerland, India’s main trading partner in the bloc, has already eliminated duties from January 2024 on almost all industrial goods.

The successful establishment of the Trade and Technology Council.

Economic relations between the EU and India continue to strengthen, and New Delhi is a strategic market for European companies. Although the country is still at a lower stage of development than China and faces numerous issues such as lack of infrastructure and low labor force participation rates (especially for women), India represents a market that has growth prospects in the medium to long term, thanks in part to a population that will not suffer from aging for some time to come.

The goal of signing a free trade agreement by 2023 has not been achieved, and it seems unlikely that there will be an agreement before the conclusion of the Indian and European Parliament elections. However, cooperation between the parties is moving forward in other areas such as in the case of the Trade and Technology Council (TTC), which was created on February 6, 2023 and will focus specifically on three areas:

  • Strategic technologies, digital governance, and digital connectivity;
  • Green and clean energy technologies;
  • Resilient trade, investment, and value chains.

For example, a memorandum of understanding on semiconductors was signed last November 24, 2023 through the work of the TTC. Under this memorandum, the EU and India intend to:

  • Share experiences, best practices and information on our respective semiconductor ecosystems;
  • Identify areas of collaboration in research, development and innovation between universities, research institutions and businesses;
  • Promote skills, talents and workforce development for the semiconductor industry and facilitate collaboration by organizing workshops, partnerships and promoting direct investment;
  • Ensure a level playing field in the industry, including sharing information on public subsidies granted.

Both partners will continue to meet regularly and report within the TTC.

Uphill game but not yet over

For the signing of the free trade agreement, multiple difficulties persist. In particular, one of the items receiving the most attention from various Indian industrial and agricultural circles is the so-called non-tariff barriers applied by the EU. Indeed, the imposition of quality requirements such as “maximum residue levels” for certain food products (rice and tea in particular), registration requirements for chemicals and pharmaceuticals, and the Carbon Border Adjustment Mechanism (CBAM) seem to be particularly complex issues for Indian companies.

However, there also seems to be political will to strengthen cooperation between New Delhi and Brussels. The activities of the TTC, which has already resulted in the signing of the memorandum of understanding on semiconductors, demonstrate this. In addition, India, including through the signing of the TEPA with EFTA, shows a willingness to continue the process of opening up to international trade. Therefore, it is foreseeable that in the not too distant future, following elections in the two contracting areas, an agreement will be signed between the EU and India that will allow for faster trade growth and more opportunities for European and Indian companies.

For the article published on ISPI, please visit this website

Image Credits: European Union, Dati Bendo

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