EU-India conclude ninth round of free trade agreement talks, core issues remain

The European Union and India have concluded the ninth round of talks on a proposed free trade agreement (FTA). Although divergences on key issues remain, an FTA is in the interest of both sides.

“Trade is one of the core elements of our relations. It is not by chance that we are the strongest trade partner for India,” European Commissioner for Budget and Administration Johannes Hahn told the media during his recent visit to India.

“This is why the next step should be done, and it should be a comprehensive FTA, which will be in the interest of both India and Europe,” the Commissioner added, “there is always room for improvement.”

Negotiations on an India-EU FTA were formally relaunched in June 2022, and rapprochement has mainly focused on reaching this deal. Last year, the EU overtook the United States, becoming India’s largest trading partner.

These discussions have taken place in the context of the EU-India Trade and Technology Council (TTC), launched in February 2023, aiming to increase bilateral cooperation and boost trade and investment to ensure the parties’ technological and industrial leadership.

In a recent interview with Euractiv, the Indian Ambassador to the EU, Saurabh Kumar, described the TTC as an important mechanism of the partnership, with both sides working in areas such as digital transformation, green technologies and trade.

FTA, the final goal or the starting point?

Despite the strategic partnership gaining momentum and both sides moving towards stronger economic ties, driven by their shared interest (reducing dependency on China), significant challenges remain to be addressed.

An analysis published by the Centre for Research on Strategic and Security Issues (NatStrat) identifies the following differences: India’s relatively small share of global manufacturing and trade with the EU, high tariffs in India, European environmental regulations such as the Carbon Border Adjustment Mechanism (CBAM).

These core trade issues, coupled with concerns over sustainability measures, have been on the negotiating table between parties, with the Indian side raising concerns about the EU’s move to impose inequitable sustainability regulations, labour standards, deforestation rules and carbon tax.

In this respect, the NatStrat analysis highlights the importance of clarifying whether reaching a free trade agreement would be the final goal or the starting point of the new geo-economic relationship between the EU and India.

While a fully-fledged deal is farfetched, the analysis concludes that India and Europe must focus on smaller sectoral agreements before pursuing a comprehensive free trade agreement.

It also suggests more open diplomatic channels, understanding each other’s political landscapes, and addressing differences, such as India’s ties with Russia, as crucial steps to solidify the partnership.

What do the EU and India want?

A report of the Global Trade Research Initiative (GTRI) think tank ahead of the ninth round of talks recommends a political push and a pragmatic approach to bridge gaps and ensure that an FTA becomes a cornerstone of the strategic economic partnership.

According to the report, a successful FTA would boost trade and investment, create new opportunities for businesses and contribute to economic growth for both sides, especially through tariff reduction and enhanced commitments in services.

It would also boost exports from both sides. Major Indian goods exported to the EU, such as ready-made garments, steel, petroleum products, electrical machinery and pharmaceuticals, would become more competitive. Services exports such as telecommunications, business and transportation services would also see substantial growth.

On its side, the EU would benefit from the increased export of essential goods from India, such as aircraft and parts, electrical machinery, chemicals, and diamonds. The services sector would also benefit, with enhanced trade in other business services, intellectual property services, and telecommunications and IT services.

The EU seeks to eliminate tariffs on over 95 per cent of its exports, including sensitive agricultural products and automobiles. India wants to open only around 90 per cent of its market, hesitating to lower tariffs on bulk agricultural products.

Although India is committed to sustainability and environmental protection, it is against instruments such as the deforestation regulation (EUDR) and CBAM becoming part of trade commitments. These are perceived as instruments of protectionism and act as non-tariff barriers.

[Edited By Brian Maguire | Euractiv's Advocacy Lab ]