Context: Realising the vision of a self-reliant India would need localising an increasing share of value added along supply chains with strategic partners such as the European Union (EU).

Export potential of India

  • India has an untapped export potential of $39.9 billion in the EU and Western Europe. 
  • The top products with export potential include apparel, gems and jewellery, chemicals, machinery, automobile, pharmaceuticals and plastic. 
  • India benefits from tariff preferences under the EU’s Generalized System of Preferences (GSP) for several of these products. 
  • Product graduation applies when average imports of a product from a beneficiary country exceed 17.5% of EU-GSP imports of the same product from all beneficiary countries over three years.
  • However, there are several products where India has export potential in the EU, but these have “graduated” or are at the brink of “graduation” under EU GSP. 

Approach to Free Trade Agreements (FTAs)

  • FTAs are arrangements between two or more countries or trading blocs that primarily agree to reduce or eliminate customs tariff and non tariff barriers on substantial trade between them.
  • India’s negotiation for a Broad-based Trade and Investment Agreement, is yet to materialise due to lack of concurrence in areas like automotives and dairy and marine products. 
  • New Delhi’s demand for skilled Indian workers to be allowed to work in Europe: It has been a major sticking point in talks with European officials under the umbrella of a long-negotiated free-trade pact, titled the India-European Union Bilateral Trade and Investment Agreement (BTIA).

European countries’  objection

  • Migration is a hot political issue in Europe, so they have been emphasizing economic needs-based mobility of workers to plug, what they determine, as specific skills gaps.
  • The EU has usually insisted that the entry of workers will depend on the state of demand (of workers and professionals) rather than as an automatic economic right.

Broad-based trade and investment agreement (BTIA)

  • Negotiations for a free trade pact, formally called a broad-based trade and investment agreement (BTIA), between the EU and India started in 2007, but were unofficially suspended in 2013.
  • India’s decision to end/suspend bilateral investment treaties it has with its partner countries, including EU members, and seek fresh pacts based on its model investment pact is a fresh area of concern. 
  • The EU wants India to sign a single investment treaty with all members as part of the BTIA and wants a number of items suggested in the model treaty removed, including provisions on Investor-State Dispute Settlement (ISDS).
  • The EU is now insistent that the BIT also is part of the BTIA being negotiated and this has made the matter more complicated as there are several areas where India and the EU don’t see eye to eye.
  • The EU is of the opinion that there are too many provisions in India’s model BIT which protect the government and go against the interest of the investor.

Way forward:

  • Thorough assessment of the benefits from FTA for domestic producers is warranted.
  • Due consideration should be given to the impact on sensitive sectors, and possibility of inclusion of safeguards such as sunset clauses on concessions for some items.
  • Further, there should also be provisions for aspects such as investment and non-tariff measures (NTMs).
  • India also needs to negotiate on investment-related aspects with the EU to enhance bilateral investments and foster stronger value chains, especially in technology-intensive sectors in which the EU has a comparative advantage. 

Post-Brexit EU finds itself in the midst of a growing need for recalibrating ties with its partner countries. Forging stronger ties with the region through a mutually beneficial agreement could help strengthen Indian manufacturing and revitalise the flailing exports.