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India-EU (Recalibration of trade ties)

  • 03 March, 2021

  • 5 Min Read

India-EU (Recalibration of trade ties)

India’s focus on self-reliance

  • The Atmanirbhar Bharat programme and the Budget 2021-22 have set the tone and tenor to bolster supply chains and achieve self-reliance.
  • A self-reliant India, however, cannot be economically insular.
  • Realising the vision of a self-reliant India would entail localising an increasing share of value-added along supply chains through investments and phase-wise reduction of import tariffs with strategic partners such as the European Union (EU).

Export potential

  • Potential: India has an untapped export potential of $39.9 billion in the EU and Western Europe.
  • Major Exports: The top products with export potential include apparel, gems and jewellery, chemicals, machinery, automobile, pharmaceuticals and plastic.
  • GSP benefits: India benefits from tariff preferences under the EU’s Generalized System of Preferences (GSP) for several of these products.
    • In fact, India is among the major beneficiaries of the EU’s GSP, with exports under the GSP valued at nearly $19.4 billion in 2019, accounting for nearly 37% of India’s merchandise exports to the EU.

Threat of Product saturation

  • 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.

What is Product saturation?

  • 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.
  •  India’s exports of products such as textiles, inorganic and organic chemicals, gems and jewellery, iron, steel and their articles, base metals and automotive are already out of the ambit of EU-GSP benefits.
  • There is also a likelihood of losing EU-GSP benefits in other categories such as apparel, rubber, electronic items, sports goods and toys due to product graduation.
  • In apparel, India’s exports to the EU were valued at $7 billion in 2019, of which nearly 94% was under EU-GSP, indicative of the impact that the graduation may have on apparel exports.

Competitors to India in apparel industry:

  • Meanwhile, India’s competitors in apparel exports such as Bangladesh would continue to receive tariff benefits in the EU under the Everything but Arms Initiative.
  • Another competitor, Vietnam, concluded a free trade agreement (FTA) with the EU in 2019.

Approach to FTAs

  • India’s negotiation for a Broad-based Trade and Investment Agreement, which commenced in 2007, is yet to materialise due to lack of concurrence in areas like automotives and dairy and marine products.
  • India’s cautious approach to FTAs derives from its past experience of an unequal exchange of benefits in several FTAs signed by the country.

Conclusion

  • Therefore, a thorough assessment of the benefits of FTA for domestic producers is warranted, with due consideration to the impact on sensitive sectors, and possibility of inclusion of safeguards such as a sunset clause 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.

Way ahead

  • 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.

 

 

Source: TH

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