Labour Standards, Tariff Asymmetries: Understanding Challenges In India-EU Trade Talks

As India and the EU continue free trade agreement (FTA) negotiations, key challenges such as sustainability regulations, labour standards and tariff asymmetries remain, think tank Global Trade Research Initiative (GTRI) in a report has said.

The report mentioned that reaching a comprehensive agreement holds significant promise for boosting trade and investment between the two economies. With the potential to eliminate tariffs on a wide range of goods and services, the Bilateral Trade and Investment Agreement (BTIA) could open up new opportunities for Indian and European businesses. 

“A political push and pragmatic approach will be necessary to bridge these gaps and ensure that the India-EU BTIA becomes a cornerstone of their strategic economic partnership,” according to the report. 

Notably, bilateral trade is a cornerstone of the India-EU relationship, with total trade surpassing US$ 200 billion in 2023. India exported USD 75.18 billion in goods and USD 31.13 billion in services to the EU, while the EU exported USD 63.44 billion in goods and USD 31.35 billion in services to India. 

“The implementation of the FTA is expected to further increase these trade values,” the report mentioned.               

Why So Late?
The ninth round of negotiations for the India-European Union BTIA started on 23 September and will end on 27 September  2024, in New Delhi. These discussions are focused on key negotiation areas, including tariff reductions, market access, intellectual property, and the EU's recently introduced Carbon Border Adjustment Mechanism (CBAM). 

Although negotiations first began in 2007, progress has been slow due to significant differences on issues like market access and regulatory standards. However, both sides have renewed their commitment to finalising a comprehensive trade agreement.

The India-EU FTA negotiations, which began in 2007, have faced delays due to significant differences between the two sides on several key issues. Initially, from 2007 to 2013, multiple rounds of negotiations took place but were hindered by disagreements over market access, intellectual property rights, labour standards, and sustainable development.

By 2013, the talks hit a standstill, particularly due to differences on tariffs for automobiles, wine, spirits, data security for Indian IT firms, and public procurement. Despite efforts to revive negotiations between 2016 and 2020, substantial progress remained elusive, the GTRI report stated. However, post-2020, both India and the EU showed renewed interest in resuming talks.

The negotiations resumed in 2021 with a focus on overcoming previous sticking points, but challenges remained. In June 2022, the negotiations were re-launched for an FTA and an investment protection agreement and an agreement on geographical indications (GIs)

Talking about the major reasons for the delay, the report revealed that the EU seeks tariff elimination on over 95 per cent of its exports, including sensitive agricultural products and automobiles, while India is comfortable opening up only around 90 per cent of its market and is hesitant to lower tariffs on bulk agricultural products. Both parties started negotiations in 2007 with a Prime Ministerial mandate for covering up to 90 per cent of trade.

Additionally, differing views on new issues like sustainability, labour standards, intellectual property rights, and data protection have added complexity to the negotiations. “A political push may needed to bridge these differences and finalize the agreement,” the GTRI report recommended.

Benefits And Concerns
A successful FTA would significantly boost trade and investment, creating new opportunities for businesses and contributing to economic growth on both sides. The report added that the FTA will bring significant benefits to both sides, primarily through tariff reduction and enhanced commitments in services. This will boost exports from both countries, creating new opportunities for Indian businesses. 

Major Indian goods exports to the EU, such as ready-made garments, pharmaceuticals, steel, petroleum products, and electrical machinery, will become more competitive. Additionally, key services exports like telecommunications, other business services, and transportation services will see substantial growth.

On the other hand, the EU will benefit from increased exports of essential goods from India, including aircraft and parts, electrical machinery, diamonds, and chemicals. The services sector will also gain from the FTA, with enhanced trade in other business services, intellectual property services, and telecommunications and IT services.

Talking about the concerns, the report mentioned that Indian firms are concerned about the potential negative impacts of regulations like the Carbon Border Adjustment Mechanism (CBAM), deforestation regulation, and supply chain regulation. These regulations would adversely impact India’s exports to the EU. 

After the implementation of the FTA, the EU products will continue to enter India at zero duties, but Indian products may pay 20 to 35 per cent tariff equivalent to CBAM charges. “A suitable text may be inserted in the FTA chapters dealing with this possibility,” it stated.

Meanwhile, key negotiation subjects include tariff reductions, improving market access for goods and services, protecting intellectual property, enhancing trade in services, protecting investments and investors, ensuring fair access to public procurement markets, incorporating environmental and labour standards, addressing data protection and data flow, harmonising regulations and standards, establishing mechanisms to resolve trade disputes.