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India-EU trade relations

Synopsis – After Brexit, India can strengthen bilateral trade and investment relations with the EU by signing a Free Trade Agreement(FTA). This will mutually benefit India and the EU.

Introduction

  • The EU is India’s largest trading partner. It accounts for 11 per cent of total Indian trade in 2019, making it more important than China.
  • India has an export potential of $39.9 billion to the EU and Western Europe.  Apparel, gems and jewellery, chemicals, pharmaceuticals, and plastic have high export potential.
  • So, making stronger ties with the EU will help India to achieve Atmanirbhar Bharat.
  • Further, the Generalized Scheme of Preferences in the EU also helps India to improve exports.

What is the EU’s Generalized Scheme of Preferences?

The EU’s Generalized Scheme of Preferences (GSP) helps developing countries by reducing the tariffs. This makes it easier for countries to export their products to the region.

Benefits EU’s GSP for India:

  • Reduction in tariffs– The scheme removes import tariffs from the products coming into the EU market.
  • Economic growth- The lower tariffs will increase exports. This export revenue encourages growth in income, economic growth, and job creation for India.

What is the meaning of graduation under the EU’s GSP?

  • A developing country can export its products and gain an advantage from the GSP. But there is a limit provided for attaining maximum benefits. Once this limit is reached then that particular product will lose the benefits of GSP. That is called Graduation.
  • So, Graduation means that imports of certain particular groups of products in a given GSP will lose the preferences of GSP.
  • Graduation applies when the average imports from a country exceed 17.5% of GSP imports of the same products from all GSP beneficiary countries during three years (For textiles and clothing this limit is 14.5%).

Challenges for India in FTA:

  1. Many products of India have already graduated or about to graduate under the EU’s GSP.
    • Graduated Indian products- textiles products, inorganic and organic chemicals, gems and jewelry, iron, steel and their articles, base metals, and automotive.
    • Products that about to graduate – Apparel, rubber, electronic items, sports goods and toys.
  1. Lack of agreeing to the terms in fields such as automotive, dairy, and marine goods by both the EU and India. So, the Broad-based Trade and Investment Agreement [BTIA] commenced in 2007 is yet to take final shape.
  2. After 2013, the Free Trade Agreement(FTA) negotiations were suspended between India and the EU. Both India and the EU were not ready to lose some privileges to gain more.
  3. Agreement on investment: China has negotiated a comprehensive agreement on Investment with the EU. But India didn’t. So, there is a huge possibility that the EU companies will start investing in China. The delaying of investment provisions will affect India.
  4. Non-tariff measures (NTMs): India faces 414 cases against NTMs in the EU. This is covering a wide spectrum of industries. This will also hamper India and EU FTA.

Suggestions to fast pace India-EU FTA:

  • India needs to negotiate with the EU on investment-related issues. Further India also has to negotiate the provisions to improve value chains, especially in technology-intensive sectors.
  • FTAs often have several institutional arrangements for Non-Tariff Measures(NTMs). India should explore such arrangements to remove the NTMs. This will increase bilateral trade.

In the post-Covid recovery, India needs to increase its exports and increase its manufacturing capability. Signing an FTA with the EU will help India to achieve this objective.

[Answered]“Free Trade Agreements with other countries do not guarantee economic growth or boost exports to other countries.” Critically examine.

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