Context: After Brexit, India can strengthen bilateral trade and investment relations with the EU by signing a Free Trade Agreement(FTA). This will mutually benefit both India and the EU.
Facts:
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The EU is India’s largest trading partner.
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It accounts for 11 per cent of total Indian trade in 2019, making it more important than China.
What is the EU’s Generalized Scheme of Preferences?
The EU’s Generalized Scheme of Preferences (GSP) helps developing countries by reducing the tariffs. This makes it easier for countries to export their products to the region.
Benefits EU’s GSP for India:
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Reduction in tariffs: The scheme removes import tariffs from the products coming into the EU market.
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Economic growth: The lower tariffs will increase exports. This export revenue encourages growth in income, economic growth, and job creation for India.
Challenges for India in FTA:
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Lack of agreeing to the terms in fields such as automotive, dairy, and marine goods by both the EU and India. So, the Broad-based Trade and Investment Agreement [BTIA] commenced in 2007 is yet to take final shape.
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After 2013, the Free Trade Agreement(FTA) negotiations were suspended between India and the EU. Both India and the EU were not ready to lose some privileges to gain more.
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Agreement on investment: China has negotiated a comprehensive agreement on Investment with the EU. But India didn’t. So, there is a huge possibility that the EU companies will start investing in China. The delaying of investment provisions will affect India.
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Non-tariff measures (NTMs): India faces 414 cases against NTMs in the EU. This is covering a wide spectrum of industries. This will also hamper India and EU FTA.
Suggestions to fast pace India-EU FTA:
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India needs to negotiate with the EU on investment-related issues. Further India also has to negotiate the provisions to improve value chains, especially in technology-intensive sectors.
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FTAs often have several institutional arrangements for Non-Tariff Measures(NTMs). India should explore such arrangements to remove the NTMs. This will increase bilateral trade.