Business Standard | 14 January 2025
India-EU FTA negotiations a tough nut to crack as key issues unresolved
by Shreya Nandi
Despite nine intense rounds of negotiations over two-and-a-half years, progress on the proposed free trade agreement (FTA) negotiations between India and the European Union (EU) is now on a slow track over fundamental differences.
An assessment of the negotiations is now pending at the ‘political’ level, with recent statements by top government officials from both sides making their intentions clear.
A few months ago, the EU Ambassador to India Hervé Delphin suggested recalibration on both sides in order to seal the deal. Similarly, Commerce and Industry Minister Piyush Goyal, at the same public forum, pointed out that ‘extraneous elements’ are hurting the interests of both trade and business, thereby slowing down the FTA talks.
One of the key reasons for the delay is the divergent aspirations of both sides, according to a Delhi-based think tank Global Trade Research Initiative (GTRI) report.
“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,” GTRI said.
India-EU Trade
At $75.9 billion, the EU accounted for 17.4 per cent of India’s overall goods exports during the financial year 2023-24, while imports stood at $61.5 billion during the same time period, with a 9 per cent share. The trade bloc is also India’s largest trading partner in terms of goods.
Finalising a trade agreement is expected to give fresh impetus to the relationship between India and the EU amid rapid changes in the geopolitical scenario - be it the exit of the United Kingdom from the EU bloc or the diversification of supply chain from China, and now a new US administration set to take charge next week.
Divergent local interests
Besides, differing views on new issues such as sustainability, labour standards, intellectual property rights (IPR), and data protection have added complexities to the talks, it said.
To be sure, this is not the first time that India-EU FTA talks are facing a roadblock, despite both sides being desirous of finalising the deal. India-EU broad-based bilateral trade and investment agreement (BTIA) was first mooted 18 years ago; however, after 15 rounds of discussions, negotiations stalled in 2013.
At the time, the impasse was attributed mainly to an inability to bridge differences on crucial issues, including India’s demand for a more liberal visa regime for skilled professionals, and a lack of willingness to negotiate government procurement issues. On the other hand, the trade bloc vehemently pushed for stricter IPR, and bargained for greater market access and massive import duty cuts on automobile and alcoholic beverages, mainly wine.
There were some attempts to restart talks after the 2014 general elections in India, but investment treaty-related disagreement turned out to be a major hurdle.
An EU official told Business Standard that the next round of FTA talks is slated for the week of March 10, 2025, in Brussels. The last round, the ninth in the series was held in New Delhi on September 23-27, 2024.
“Both sides also continue to engage between the rounds at all levels, including the ministerial level, in order to address difficult issues and make progress towards a balanced, ambitious, comprehensive and mutually beneficial trade agreement.” the official said, on condition of anonymity because negotiations are ongoing.
Contentious issues
Commerce Department officials said one of the major hurdles towards the talks has been the EU trade bloc’s stance on sustainable development since it is set to implement regulations such as carbon border adjustment mechanism (CBAM), deforestation regulation law, and supply chain law.
They said that India’s gain could be limited because these regulations will eventually become a non-trade barrier and hurt Indian exports, at a time when both sides are trying to finalise an FTA.
New Delhi is pushing for a ‘transition period’ before adhering to these regulations, because it believes that it is crucial to keep in mind that countries should be given responsibility according to their growth potential, in line with the United Nations (UN) principle of common but differentiated responsibility and respective capabilities (CBDR-RC).
Biswajit Dhar, a distinguished professor at the Council for Social Development, said that there are behind the border measures such as EU’s labour and environment standards, which could be a sticking point going ahead. There could also be pressure on India to strengthen intellectual property law, especially related to patents.
Another major problem is India’s investor-state dispute settlement clause under the model Bilateral Investment Treaty (BIT), according to Dhar. Under the exhaustion of local remedies clause under the model BIT, an investor can go for international arbitration only after exhausting all local legal channels. Investors believe that such a clause makes the dispute resolution process longer.
“How India will deal with the issue or will change our stance is something yet to be seen,” Dhar added.
According to Pradeep S Mehta, secretary general of the Jaipur-based Consumer Unity & Trust Society (CUTS International), even as both sides now have a better understanding of respective interests and sensitivities, positions remain far apart, particularly on product specific rules of origin, technical barriers to trade, and government procurement market access.
“There has been a lot of discussion on the EU's non-trade demands, including trade and sustainable development, but the EU's core market access demands are also very ambitious. What the EU desires as commercially meaningful commitments from India will translate into undertaking substantial liberalisation,” Mehta said.
Mehta also pointed out that there is a change at the helm on the EU side in the form of a new trade
