India-European Union FTA: Talks to restart soon on realistic note

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June 14, 2021 4:30 AM

Experts, too, suggest that both the sides need to work on less controversial issues first; the more difficult ones can be taken up later, as any deal there will take time to materialise.

There is an "urgent" need for the WTO members to take action, to use existing tools for improving access, the statement said.RoDTEP seeks to neutralise the cost impact of duties and taxes in the supply chain, not otherwise offset through duty drawbacks, tax credits/refunds, or similar mechanisms.

As India and the European Union (EU) prepare to resume formal negotiations for a proposed free trade agreement (FTA) after a gap of eight years, both the parties could focus on “low-hanging fruit” first, before switching to contentious matters that had hampered talks earlier, a source told FE.

“The idea is to first try and forge consensus where it’s easy to achieve this. Even if both the sides can hammer out an early-harvest deal before a full-fledged FTA, that would be an encouraging sign. Otherwise, it would be like back to square one,” he said.

Government officials are also studying the EU’s recent investment agreement with China and its FTA with Vietnam for meaningful negotiations. Preparatory work for the next round of negotiations is in full swing, said a senior official.

After 16 rounds of talks between 2007 and 2013, formal negotiations for the FTA were stuck over stark differences, as the EU insisted that India scrap or slash hefty import duties on sensitive products such as automobiles, alcoholic beverages and cheese, among others. India’s demand included greater access to the EU market for its skilled professionals, which the bloc was reluctant to accede to.

Since its pull-out of the Beijing-dominated RCEP trade negotiations in November 2019, India has been seeking to expedite talks with key economies. But it has made it clear that any such agreement will have to be “fair” and “balanced”.

Since 2013, though, the situation has changed dramatically with Brexit, and the attractiveness of the EU as a large market has somewhat eroded. Nevertheless, it still remains an important export destination for India. Of course, New Delhi and London are separately exploring the feasibility of an FTA, formal negotiations for which may start later this year.

The EU, including the UK, was India’s largest destination (as a bloc) in FY20, with a 17% share in the country’s overall exports. Importantly, the UK accounted for 16% of India’s $53.7-billion exports to the EU in FY20.

Experts, too, suggest that both the sides need to work on less controversial issues first; the more difficult ones can be taken up later, as any deal there will take time to materialise.

At a virtual interaction organised by the Trade Promotion Council of India last week, Arpita Mukherjee, professor at ICRIER who specalises in trade and investment, highlighted the need for innovative solutions to break any potential logjam on critical issues. For instance, in case of alcohol, Mukherjee proposed a threshold price for such products for tariff liberalisation, as was done by Japan for Australian wines under the RCEP.

Dairy, Mukherjee thinks, is a complex issue since both the EU and India are already large producers. Automobiles present an altogether different challenge, as India’s existing FTA partners, such as Japan and South Korea, are already large producers, and they may seek a level-playing field if New Delhi extends greater market access to the EU.

According to Pralok Gupta, associate professor (services and investment) at the Centre for WTO Studies, said India’s demand for freer movement of skilled professionals (under Mode 4 of services) may face stiff resistance during negotiations; instead, Mode 3 is easier to access. According to the WTO, Mode 3 occurs when a service provider of one of its members offers a service through some form of commercial presence in the territory of another member. Gupta said getting physical presence (under Mode 3) can ultimately simplify India’s goal of getting access to other modes of services.

The India-EU negotiations will also feature talks on geographical indications (GIs). RV Anuradha, partner at Clarus Law Associates, said the EU was seeking automatic recognition for a wide range of products, including wines, spirits, dairy and farm commodities. But any automatic recognition for its goods under the Indian GI Act will require a legislative amendment by New Delhi.

“While this may be considered, the problem for India is that in the EU, GI protection is linked to farm products, food stuffs and wine. However, out of 330-odd GIs in India, more than 210 are handicrafts (non-agricultural products),” Anuradha said. Also, India needs to ensure if its automatic recognition of the GI products from the EU will affect domestic industries, such as cheese, where it has its own production capacities. For instance, Amul has been manufacturing the Gouda and Emmental cheese for the past decade, having set up units set up with Swiss collaboration.

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