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.

• 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.