The long pending FTA between India with the European Union (EU) has just been signed which will provide great impulse to Indian exports in Europe and open its domestic market even more for European products and services. Against the backdrop of global trade uncertainty due to new tariff shocks and slowing growth in major economies, India’s Prime Minister Narendra Modi and President of European Commission Ursula von der Leyen announced the deal at the 16th India-EU Summit.
The agreement will reduce 99 percent of the tariffs on Indian products exported to the EU based on total value and will also reduce nearly 97 percent of the import duties on EU products imported into India during the next ten years. The combined economies of India and the European Union comprise about one-fourth of the total global gross domestic product (GDP) and account for about one-third of total global trade activity, which makes this Agreement one of India’s most valuable trade agreements.
Big winners: labor-intensive sectors
High-technology sectors will benefit the most from the anticipated increased profitability of EU textile and apparel import tariffs, which have already dropped from approximately 12% to near zero as a result of new EU trade agreements. This includes footwear (from between 8 and 16% to virtually zero), automotive parts (from between 4 and 6% to virtually zero), and virtually every other sector traditionally considered to be labour intensive, including but not limited to, chemicals; marine products; gemstones and jewellery; leather; handicrafts and processed food items including tea, spices and baked items.
The potential benefits include huge market opportunities for exporters, as the EU textile market alone is worth $263 billion; the EU footwear & leather industry is valued at $100 billion, and the EU premium gems & jewellery sector is estimated at $79 billion. Export hubs in Gujarat, Maharashtra, Rajasthan, Tamil Nadu and Uttar Pradesh will be able to benefit directly from this.
Autos, spirits and European imports
India has also agreed to reduce tariffs on imports of European wines, spirits and beers from previous levels of between 110% and 150% to between 30% and 50%. Tariffs on imported vehicles will be reduced to 10% for a quota of up to 250,000 vehicles, and tariffs on imported machinery, chemicals, electronics and aircraft will be phased out over time.
According to analysts, this news is good for European automobile manufacturers, particularly luxury automobile manufacturers, however, the importation of vehicles into India will continue to be managed by means of import restrictions, while the luxury automobile segment of the Indian market continues to be very small.
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Services, Mobility, and Future Technologies
The FTA also opens up access to services such as IT and IT enabled Services, Education, Finance, Tourism, and Professional Services. In addition, there is a new Mobility Framework that has been established to enable the movement of Skilled and Semi-skilled Indian Professional employees; such as Intra-Corporate Transferees and Independent Services Suppliers, as well as to enable Student Mobility and to provide Post-Studio Opportunities.
The FTA will promote cooperation related to Artificial Intelligence, Clean Technology and Semiconductor Technologies. Furthermore, the FTA aims at reducing Non-Tariff Barriers through Regulatory Coordination and Streamlined Customs Processes.
An unresolved issue
There continue to be some challenges for exporters of steel or aluminum located in India. They will still have to contend with the European Union’s Carbon Border Adjustment Mechanism (CBAM), which is similar to a carbon tax, while EU exporters to India do not face this same levy. Additionally, challenges that are regulatory and standards based in specific sectors must also be worked through over time.
The ratification of this agreement is pending before the European Parliament; this process can be lengthy; it can take at least one year to complete. Once the agreement goes into effect, it will mark the 22nd trade agreement for India and, together with the UK and EFTA trade agreements, will create access to all of Europe for Indian businesses, allowing for an increase in exports, job creation, growth of micro, small and medium enterprises, and long-term economic growth in India.
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