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Trade relations between India and the European Union precede the 1994 EU-India Cooperation Agreement. The bilateral trade between India and the EU makes them one of their leading trade partners.
Illustration by The Geostrata
The high-quality standards of the EU are making prime Indian export industries struggle to get a hold of the EU market. The article will analyse the obstructions in signing the Free Trade Agreement between India and the EU and also outline how India could mitigate these obstructions by fostering bilateral relations with individual European countries.
FREE TRADE TO MITIGATE TRADE RESTRICTIONS
The EU is India’s third largest trading partner, accounting for €88 billion of trade in goods in 2021; it is also necessary to comprehend that India has a trade surplus with the EU, one of the few countries apart from China, Russia and South Korea. The first talks of a Free Trade Agreement started in 2007, though there is still no firm indication of a mutual consensus between India and the EU after seven rounds of negotiations.
The key objectives for a Free Trade Agreement between India and the European Union are accessing each other’s markets by limiting tariffs and trade barriers, increasing transparency in quality standards, transferring technology and human resources, agreement on geographical indications (GIs) and promoting interactions and investments between businesses.
Obstructions arise in India’s regulatory market for certain essential sectors such as automobile, consultancy and pharmaceuticals.
These industries heavily influence and advocate the government, which makes them impose protectionist policies in these sectors. The European Union, on the other hand, has strict restrictions on the agricultural sector, and their implementation of sustainable policies around manufacturing and logistics, such as carbon tax, is leading to the negotiations of a sound and mutually beneficial Free Trade Agreement in vain.
SHIFT IN EUROPEAN ENGAGEMENT
The lack of a comprehensive, balanced and mutually beneficial trade agreement had made India shift their focus on establishing bilateral trade relations with individual European countries, within and outside the European Union.
India’s biggest trading partner in Europe is Germany, one of India’s most influential countries in technology collaboration. Both countries had signed a joint agreement to strengthen financial and technical cooperation toward 2030 sustainable development goals in 2022.
Also, India is in talks with the United Kingdom, a former member of the European Union, to sign a Free Trade Agreement, where the UK may allow the flow of Indian professionals, and India would allow the entry of premium goods, such as cars, at a fixed cap, a significant breakthrough for India to leverage their large pool of professional and skilled labour force.
Recently, India kick-started their efforts in approaching individual European countries by signing a Free Trade Agreement with the European Free Trade Association (EFTA), comprising four non-EU member states of Iceland, Norway, Liechtenstein and Switzerland in March 2024.
The members of the EFTA would invest over $100 billion in India for the next fifteen years, along with reducing customs duties on imported commodities, cooperation in the service sector and cross-access to over 100 sub-sectors of the economy between India and the EFTA member states.
India’s initiative has diversified its approach to establishing trade relations with European countries, yet is also negotiating with the EU to develop critical relationships with the whole bloc of twenty-seven member states.
This approach displays India’s desire and commitment to fostering economic partnerships with Europe. This could generate confidence among the EU policymakers about the disagreements in market access, tariffs, trade barriers, and quality standards.
ECONOMIC PARTNERSHIPS WITH REGIONAL ECONOMIC BLOCS
In order to foster economic partnerships with EU member states, India could also engage with regional groupings of the countries within the EU. This could help address critical issues of market access, customs and tariffs, investment and cooperation that could be specifically relevant to that region of the continent.
For example, the Benelux Union, comprising Belgium, The Netherlands and Luxembourg, could act as an anchor point for entering the European market as defined by their shares of trade volumes with India.
One of the largest ports in Europe, Rotterdam and Antwerp, would act as a starting point for shipping Indian imports across the continent through the already established transportation infrastructure of the European continent, which would streamline the supply chain.
Initiating cross-governmental mechanisms and forums to discuss potential areas of partnerships would usher in engagement and could also assist India in achieving an entry point into the European consumer market.
Another such initiative could be with the Visegrad Group (V4) countries of Poland, Czech Republic, Hungary and Slovakia, where this regional grouping cooperates in political, defence and economic spheres specific to Central Europe. India’s potential interests in the Central European market could converge with its broader interest in signing a Free Trade Agreement with the EU.
The surge in trade between India and Poland since 2017, as well as the renewal of an MOU signed between India and Hungary on enhancing bilateral investments in 2022, signals India’s economic interests and its desire to foster significant trade relations with the Central European countries.
India can utilise its existing partnerships with the members of the V4 to formulate a more comprehensive, standard policy and initiatives to include the rest of the members of the V4 regional grouping and other Central European countries.
France was the first country to establish a strategic partnership with India. India could utilise their relations by increasing engagement in trade and commerce, along with the already growing cooperation in the technology and military sector.
France, one of the most influential members of the European Union, could assist India in negotiating the EU delegation for the Free Trade Agreement.
India might utilise the already established forums and channels, such as the EU-India Trade and Technology Council and established think tanks from both regions, to focus on resolving issues of bilateral market access, which significantly boost the ongoing negotiations with the EU. India’s efforts to engage with individual countries of Europe may help rally political consensus within the EU regarding the negotiations for the Free Trade Agreement.
While India is trying for an equitably beneficial Free Trade Agreement with the EU, it is also putting efforts into fostering bilateral trade relations with individual European countries, showcasing their image as an approachable and committed partner with one of the world’s largest consumer markets.
India’s changing trajectory and utilising such alternative approaches in establishing trade partnerships with European countries signifies its commitment to having strong relations with the continent.
BY RAVI RAWAT
DIPLOMACY & INNOVATION CENTRE
TEAM GEOSTRATA
Well done Ravi.. Really appreciate..Keep writing 👍
Very well explained!
I think this would be the first article as the subject will require a series of articles considering its vastness. This article provides how we are placed at present. Good efforts.
Must-read
Well articulated