EU-India FTA – tough struggle or gaining ground?

Negotiations on a FTA had been stalled since 2013. The reason behind the same could be restrictions put on the Indian skilled  professionals to access the EU market and high custom duty imposed by Indian Government on imported goods such as automobiles, alcoholic beverages, cheese etc. In order to establish harmonious relationship between both the parties, intensification of European-Indian talks on a political level has started at the 15th EU-India Summit 2020. Subsequently, during the EU-India Summit 2021, both sides emphasized on India and the EU becoming strong partners. 

 

Being world’s largest democracy, India rightly sees itself as a natural partner of Western democracies. However after the announcement of the next steps, no further actions were taken and no official news about the same followed. However, it seems that the situation is changing now as the EU and India have agreed on three meetings this year to work out a basic concept within the framework acceptable to both parties. On the basis of this framework, they will try to conclude a deal and hopefully sign a FTA.^[2] 

 

A total of approx. 4500 European, of which approx. 1700 German, companies are active on the Indian market, creating approx. 6 million direct and indirect jobs.^[3] One of the focuses of European efforts in India is the planning and implementation of infrastructural projects. While these efforts have been so far carried out primarily at the national level, a bundling of projects at the European level is planned for the future. According to the German Foreign Office: “The EU-India Connectivity Partnership is concluded as part of the EU-Asia Connectivity Strategy, with which the EU promotes rule-based and sustainable networking in Europe and Asia”.^[4] The simultaneous announcement of negotiations on a separate investment protection agreement, as well as an agreement on the protection of geographical indications, is all the more a reason for hope. The EU is already one of India’s largest foreign investor. Ratification of the envisaged agreements is therefore likely to further increase the existing investment volume. The India-EU FTA is expected to double bilateral trade between the two partners from the existing 110 billion dollars.^[5] According to a 2020 study by the EU Parliament, a trade agreement with a reduction of around 90 perv of tariffs could mean added value of 8 billion to 8.5 billion euros for both sides.^[6] 

 

In the past, India was known for its trade barriers towards its domestic market, despite efforts to develop India into a global manufacturing hub and to facilitate foreign investment. The current inclination to conclude a FTA is likely to have been influenced by three main factors:

 

The fact that India and the EU have once again taken a further step towards the creation of a common market is promising and gives a ray of hope. The European Commission President Ursula von der Leyen noted that the India’s existing “untapped potential” will be explored. The first projects are to be undertaken in the field of artificial intelligence development.^[13] 

 

It is yet to be seen whether the differences of the past will stand in the way of a renewed solution such as the regulation of mutual market access and its hurdles. For example, how does the Indian Government’s “Make in India” program or the “Atmanirbhar Bharat” campaign would affect an opening of Indian markets for non-Indian products? It remains to be seen whether the common goals will be implemented in this second attempt. The time component is also likely to be interesting in this regard. Affirmation of a goal is one thing and achieving the same is altogether a different topic. Therefore the exciting question is, when and how the actual implementation will take place.  

 

Germany, being already India’s most important trading partner in the EU, could expect a potential welfare gain of up to 2.2 billion euros in this regard and hold the leading position within the EU when it comes to the expected increase in exports and imports.^[14] 

 

According to a study by the Bertelsmann Stiftung ^[15], a potential FTA between the EU and India will not have the same positive impact on all EU member states and sectors. According to this study, however, an increase in German gross domestic product of up to 4 billion euros appears possible. The automotive and mechanical engineering sectors, which are already strongly represented, are therefore likely to retain their leading role in India.