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.