Singed by US President Donald Trump’s tariff moves, the European Union seems keen to cement trade and investment ties with the rest of the world, which includes Latin America (where it has stitched together a trade deal), the Middle East and India. Last week’s visit of European Commission President Ursula von der Leyen to India should be seen in this context.
India and the EU have meandered along in trade talks since 2007, with the number of sticking points only expanding over time — so it is tempting to be dismissive of the EU’s latest overtures. However, von der Leyen’s latest attempt should be seen against the backdrop of sudden uncertainty in EU-US ties. Hopefully, the EU could turn out to be less rigid than before when bilateral talks resume soon. This is despite the fact that India is only the EU’s ninth largest trade partner (bilateral trade of $190 billion in goods and services). India can negotiate deftly with its top trading partner. It ran up a goods trade surplus of $20 billion in goods trade of $140 billion in 2023. Of its exports of about $80 billion to the EU, 25 per cent is petroleum exports. This may change if sanctions are lifted on Russia. Textiles and garments exports of close to $7 billion can benefit from a reduction in EU tariffs, now at 12-16 per cent. India could seek further market access in pharma, steel and electrical machinery.
The EU wants India to lower tariffs of 100-125 per cent on completely built up automobiles to 10-20 per cent for a certain number of units, beyond which India can slap the rates of its choice. However, the question is whether that number of cars to be allowed at low tariffs is too high for India’s comfort and the issues it could pose with respect to imports from other auto producing countries such as Japan, Korea and, not the least, the US. The EU is keen to push its EVs in particular, while the production here is in its infancy. It would be hard, indeed wrong, to expect India to concede ground on opening up markets to labour-intensive dairy products, when it has refused the same to Australia and New Zealand. Yet, a deal around allowing wines and spirits at lower duties, as well as a few concessions on auto imports in return for access in textiles can be examined.
However, trade with the EU is replete with non-tariff barriers, be it the Carbon Border Adjustment Mechanism (impacting steel and aluminium), EU Deforestation regulations and labour standards. While the EU cannot be expected to dilute these regulations directly, India could seek indirect concessions and compensation in an FTA, as suggested by analysts. India, in turn, should not concede so-called TRIPS-plus provisions such as ‘evergreening’. A bilateral investment treaty can work, provided there is clarity on dispute settlement systems. In services, some flexibility from India’s side on opening up legal and financial services could translate into gains in IT exports. Despite the hurdles, a deal with the EU has never looked more promising than in the prevailing global climate.