India-European Union (EU) trade relations are crucial for the economic growth of both regions. Read here to know more about the recent developments.
India and the European Union concluded the first round of negotiations for India-EU Trade and Investment Agreements in New Delhi.
- 52 technical sessions covering 18 policy areas of the free trade agreement and 7 sessions on Investment Protection and Geographical Indicators were held.
- The second round of negotiations is scheduled to take place in September 2022 in Brussels.
The European Union (EU) is a political and economic union of 27 member states that are located mostly in Europe formed in 1993.
Most of the member countries (19 of them) use Euro as their official currency, while 8 of them do not.
- Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden are not part of the Euro-zone.
The culmination of World War II integrated the notion of uniting the European countries into a single market through a standardized system of laws.
The post-war cooperation in Europe led to the creation of the European Coal and Steel Community, the signing of the Treaties of Rome, and the birth of the European Parliament. These were the treaties that laid the foundation of the EU:
- European Coal and Steel Community (ECSC) through the Treaty of Paris 1951
- European Economic Community (EEC) through the Treaty of Rome 1957
The European Union finally came into existence with the signing of the Maastricht Treaty or the Treaty of the European Union. The treaty was amended thrice:
- Treaty of Amsterdam (1997)
- Treaty of Nice (2001)
- Treaty of Lisbon (2007)
The objectives of forming the European Union are:
- To increase political cooperation
- To enhance economic integration by creating a single currency the EURO.
- Unified security and foreign policy
- Common citizenship Rights
- Enhanced cooperation in the areas of judiciary, immigration, and asylum.
European Union was awarded the Nobel Prize for Peace in 2012.
The 7 important decision-making bodies of the European Union are:
- European Parliament
- European Council
- European Commission
- Council of the European Union
- Court of Justice of the European Union
- European Central Bank
- European Court of Auditors.
European Union and Brexit
On January 31, 2020, the United Kingdom formally left the European Union becoming the first to leave the EU which was called Brexit. The exit was by Article 50 of the Treaty of the European Union.
India-European Union trade relations
India is already important trade and investment partner for the EU and could hold significant further potential. It represents a sizable and dynamic market, with an annual projected GDP growth rate of over 8% according to the IMF, which would make it the fastest-growing emerging economy.
- The EU is India’s third-largest trading partner, accounting for €88 billion worth of trade in goods in 2021, or 10.8% of total Indian trade, after the USA (11.6%) and China (11.4%).
- The EU is the second-largest destination for Indian exports (14.9% of the total) after the USA (18.1%), while China only ranks fourth (5.8%).
- India is the EU’s 10th largest trading partner, accounting for 2.1% of EU total trade in goods in 2021, well behind China (16.2%), the USA (14.7%), and the UK (10%).
- Trade-in goods between the EU and India increased by about 30% in the last decade.
- Trade-in services between the EU and India reached €30.4 billion in 2020.
- The EU’s share in foreign investment stock in India reached €87.3 billion in 2020, up from €63.7 billion in 2017, making the EU a leading foreign investor in India. This is significant but way below EU foreign investment stocks in China or Brazil.
- Some 6,000 European companies are present in India, providing directly 1.7 million jobs and indirectly 5 million jobs in a broad range of sectors.
On 28th June 2007, India and the EU began negotiations on a broad-based Bilateral Trade and Investment Agreement (BTIA) in Brussels, Belgium.
- These negotiations are under the commitment made by political leaders at the 7th India-EU Summit held in Helsinki on 13th October 2006 to move towards negotiations for a broad-based trade and investment agreement based on the report of the India-EU High-Level Technical Group.
- The negotiations cover Trade in Goods, Trade in Services, Investment, Sanitary, and Phytosanitary Measures, Technical Barriers to Trade, Trade Remedies, Rules of Origin, Customs and Trade Facilitation, Competition, Trade Defence, Government Procurement, Dispute Settlement, Intellectual Property Rights & Geographical Indications, Sustainable Development.
Significance of India-European Union Trade agreement
- India’s bilateral trade with the EU amounted to USD 116.36 billion in 2021-22.
- Despite the global disruptions, bilateral trade achieved impressive annual growth of 43.5% in 2021-22.
- Currently, the EU is India’s second-largest trading partner after the US and the second-largest destination for Indian exports.
- The trade agreement with the EU would help India in further expanding and diversifying its exports of goods and services, including securing the value chains.
- Both sides aim for the trade negotiations to be broad-based, balanced, and comprehensive, based on the principles of fairness and reciprocity.
- India and the EU expect to promote bilateral trade by removing barriers to trade in goods and services and investment across all sectors of the economy.
- Both parties believe that a comprehensive and ambitious agreement that is consistent with WTO rules and principles would open new markets and would expand opportunities for Indian and EU businesses.
Challenges to India-European Union FTA
EU investment treaty practice illustrates its keenness to include the Most Favored Nation (MFN) provision in its investment treaties.
- India is averse to including the MFN provision in investment treaties.
EU’s practice is to include in its investment treaties the Fair and Equitable Treatment (FET) provision.
- FET is an important substantive protection feature that enables foreign investors to hold States accountable for arbitrary behavior.
- The FET provision is missing in India’s Model Bilateral Investment Treaty and the recent investment treaties that India has signed.
EU has been batting for a Multilateral Investment Court (MIC) to reform the existing arbitration-based Investor-State Dispute Settlement (ISDS) system.
- Yet, India’s official position on MIC is unknown. India hasn’t contributed to the ongoing negotiations towards establishing a MIC, which is perplexing for a country that champions a rules-based global order.
The presence of non-tariff barriers on Indian agricultural products in the form of sanitary and phytosanitary (SPS) measures are too stringent and enable the EU to bar many Indian agrarian products from entering its markets.
- The non-tariff barriers in pharmaceuticals that the EU has imposed include requirements of World Trade Organisation- Good Manufacturing Practice certification, import bans, antidumping measures, and pre-shipment inspection among others.
The India-European Union Free Trade Agreement is critical for both the EU and India. On a global level both are major and dynamic markets and FTA between them will be highly impactful.
The three mega-initiatives will eventually dominate the global trade landscape: the Transatlantic Trade and Investment Partnership (TTIP), the Trans-Pacific Partnership (TPP), and the Regional Comprehensive Economic Partnership (RCEP).
Reaching an agreement that will bring mutual benefit to both the EU and India will be a long journey, but, despite several missed deadlines, it is not out of reach.