India and the European Union are gearing up for the next round of negotiations on the proposed free trade agreement, scheduled to begin on September 23, 2024. This agreement aims to boost trade and investments between the two regions and enhance economic cooperation on multiple fronts. The talks will cover a wide range of topics, including a free trade agreement, an investment protection agreement, and an agreement on geographical indications (GIs).
Negotiations are set to take place over a five-day period and will mark the ninth round of talks between India and the EU. Key issues to be discussed include concerns raised by Indian stakeholders regarding the EU’s sustainability measures, such as the Carbon Border Adjustment Mechanism (CBAM) and deforestation regulations. These discussions are crucial as they will shape the future trade relationship between the two regions.
One of the major concerns for India is the impact of the CBAM, a carbon tax imposed on seven carbon-intensive sectors, which is set to come into effect on January 1, 2026. Indian officials have expressed worries about the potential consequences of this regulation on their exports to the EU. Additionally, the EU’s Deforestation Regulation, which is expected to affect India’s agricultural exports worth US$1.3 billion starting in December 2024, has raised further apprehensions among Indian businesses.
The General Trade and Tariff Research Institute (GTRI) has highlighted the concerns of Indian stakeholders regarding the adverse effects of the CBAM and other regulations. There is a fear that these measures could lead to a situation where EU products continue to enter India at zero duties while Indian products face tariffs ranging from 20-35% due to CBAM charges. This disparity in duty rates could significantly impact the competitiveness of Indian products in the European market.
Negotiations for the free trade agreement were resumed in June 2022 after being stalled for over eight years due to disagreements on various issues. The talks, which initially began between 2007 and 2013, faced obstacles related to market access, intellectual property rights, labor standards, and sustainable development. The current round of negotiations presents an opportunity for both parties to address these lingering issues and move towards a mutually beneficial agreement.
GTRI’s findings have indicated that while the EU is seeking tariff elimination on over 95% of its exports, including sensitive agricultural products and automobiles, India is only willing to open about 90% of its market and remains hesitant to reduce tariffs on bulk agricultural products. This difference in approach underscores the complexities involved in reaching a consensus on trade agreements and highlights the need for both sides to find common ground for a successful outcome.
Ajay Srivastava, founder of GTRI, emphasized the potential benefits of the agreement for major Indian exports such as ready-made garments, pharmaceuticals, and steel. He suggested that if the agreement is successfully concluded, these sectors could become more competitive in the EU market. Furthermore, the services sector is expected to witness significant growth, particularly in areas like telecommunications and business services, which could open up new opportunities for Indian businesses.
In 2023, total trade between India and the EU exceeded US$200 billion, with India exporting US$75.18 billion in goods and US$31.13 billion in services, while the EU exported US$63.44 billion in goods and US$31.35 billion in services to India. These figures underscore the importance of the economic relationship between the two regions and the potential for further expansion through enhanced trade agreements and cooperation.
As the negotiations for the India-EU free trade agreement progress, it is essential for both parties to address the concerns and interests of all stakeholders involved. Finding common ground on key issues such as the CBAM, deforestation regulations, and market access will be crucial in ensuring a balanced and mutually beneficial agreement that promotes economic growth and cooperation between India and the EU.