Recalibrating Relations With EU

Context: Post Brexit and post-pandemic global scenario calls for stronger ties and mutually beneficial agreements between India and the EU.

Scope for stronger India-EU ties

• Export potential for India: untapped export potential of $39.9 billion in EU.
  • Top products: Apparel, gems, jewellery, chemicals, machinery, automobile, pharmaceuticals, plastic.
  • Generalized System of Preferences (GSP): A preferential access channel facilitates Indian exports valued at $19.4 billion in 2019, accounting for 37% of India’s merchandise exports to the EU.
• To bolster supply chains and achieve self-reliant India: Localizing value-added along supply chains through investments and phase-wise reduction of import tariffs with strategic partners such as EU.

Bottlenecks in India-EU ties

• Product Graduation: has led to declining preferential access
  • Product graduation applies when average imports of a product from a beneficiary country > 17.5% of EU(GSP) im­ports of the same product from all beneficiary countries over three years.
  • Export of textiles, inorganic and organic chemicals, gems, jewellery, iron, steel, base metals and automotive are out of the ambit of EU-GSP benefits.
  • E.g. In apparel, 94% of Indian exports were under EU-GSP, indicative of the huge impacts product graduation can have on exports.
• Stiff Competition: While Bangladesh would continue to receive tariff benefits, Vietnam has concluded a free trade agreement (FTA) with the EU in 2019.
• India’s cautious approach to FTA: Derived from India’s past experience of unequal exchange of benefits in several FTAs. E.g. -
  • Broad-based Trade and Investment Agreement yet to materialize due to lack of concurrence in areas like automotive, dairy and marine products.

Way Forward

• Relook approach to FTAs: Special consideration to sensitive sectors with the inclusion of safeguards such as sunset clause on concessions for some items.
• Provisions for Investment and Non-Tariff Measures (NTMs):
  • Negotiate Investment in which the EU has a comparative advantage: like technology.
  • Critically review the availability of NTM arrangements in negotiations, as also their operationalization and effectiveness.