Opinion | India-EU FTA: Creating world’s largest free trade area

India has shared a rich trading relationship with Europe that dates back to 250 BC, even predating the Silk Road. For most part of the next 2000 years, Indian muslins, cotton, handicrafts, spices, emeralds and gems had become the most coveted merchandise in international trade, a bulk of which made their way to Europe. In return, gold and silver poured into India to pay for these fabulous commodities. The Indo- Europe trade achieved great scale and proportions in its halcyon days.

The efforts to cement this relationship through a comprehensive free trade agreement started in 2007. The negotiations had to be abandoned in 2013 due to serious differences in positions on both sides on multiple issues. The negotiations started afresh in 2022 and despite the enormity and complexity of the challenges could be completed only due to the strong commitment and visionary leadership of the two leaders. Importantly, the trade agreement that both sides have negotiated is a reaffirmation of the rules-based trading relationship in an increasingly fragile global economic order. The agreement is historic not merely because of the breadth and depth of the topics and disciplines; the agreement is historic because both sides had to reach a common ground on issues that were at the same time hard and difficult.

Most consequential trade agreement: The India- EU free trade agreement is perhaps the most consequential trade agreement concluded in recent times. It could create one of the largest free trade areas in the world comprising almost 2 billion people and 28 countries that represent 25 percent of the global GDP. In addition, the agreement is modern and novel in its treatment of issues and concerns. The agreement has up-to-date and substantive disciplines as well as procedural provisions for deepening trade relationship. The agreement establishes a new template for addressing market access and regulatory barriers both on goods and services, which reinforces traditional disciplines with innovative elements. For example, the Rules of Origin chapter ensures that only products with substantial processing or production in the partner countries are granted country of origin; this is achieved through detailed and intricate product specific rules that seek to align with existing and newer supply chains. In addition, the agreement replicates intellectual property protections with an added focus on promoting transfer of technology and information flows.

Market openings in goods and services: The critical focus of the agreement is opening up their vast and expansive markets to each other. The agreement offers market access for more than 99 percent of India’s export trade by value of which at least 90 percent of India’s exports will receive immediate duty elimination upon entry into force of the agreement. Notably, the labour intensive items such as textiles and clothing, leather, gems and jewellery, wood and wooden crafts, and marine products will receive early gains. It will also enable industries such as chemicals, electronics, agri-processing industries, and minerals to diversify their exports in the vibrant EU common market. While India has allowed market access for EU’s automobiles, this has been done is a phased and calibrated manner through tariff quotas. Likewise, India’s concessions on EU’s wine seeks to protect the interests of the domestic industry, while encouraging competition in higher price segments.

Services trade offers significant potential in India- EU trade relationship. India has received commitments from the EU across 144 services sectors under the agreement, which is unprecedented. In addition, the chapter on mobility ensures that temporary entry and stay of professionals and contractual service suppliers will be smoother and more assured, implying that India’s talented service professionals can establish their presence in the EU market. The annex on Financial Services provides for greater engagement between India and EU on electronic payment systems, including leveraging India’s technological expertise in digital payment systems such as the UPI. The agreement also provides the possibility for the practitioners of AYUSH and Traditional Medicine to provide their services in the EU with greater certainty.

Enhancing freer and fairer trade: The free trade agreement seeks to enhance freer, fairer and mutually beneficial relationship between the two large markets. The trade and sustainable development chapter sets a new model of cooperation in relation to sustainability concerns. The chapter holistically integrates the objective of sustainable development in their trade relationship, without seeking to harmonise the labour or environment standards of the Parties. The thrust of the engagement is on policy dialogue, technical assistance and mobilization of financial tools and resources. Both sides have also negotiated mechanisms such as the rapid reaction mechanism, non-violation complaints and standalone annexes that could address their specific concerns with respect to certain policy measures or product specific measures.

The real challenge was in achieving the high ambition on market opening without compromising the concerns and sensitivities of some of the key stakeholders, for example, the dairy and agricultural sector. The income and livelihood concerns of the small and marginal farmers and certain industry segments were uppermost in our minds. To be fair, the EU also demonstrated the much needed flexibility in this regard.

Complementing India’s FTA strategy: In an era of supply chain disruptions, the India – EU free trade agreement will complement the gains from the India – UK FTA, EFTA and other comprehensive trade agreements. Since 2021, India has concluded 9 comprehensive trade agreements and is holding negotiations to complete several key economic partnership agreements in the next few months. The conclusion of the India- EU trade agreement will serve as a catalyst for hastening India’s newer economic and trade engagements.

The India -EU free trade agreement is a major step in achieving expanded market access, closer economic integration and achieving strategic autonomy and resilience, especially in an uncertain and volatile global economy. As economic historians note, economic prosperity can best be achieved when nations trade based on fair, rule-based and predictable legal frameworks and institutions. The India- EU free trade agreement seeks to uphold this time-tested principle.

(The author is the Secretary, Department of Commerce, Ministry of Commerce and Industry)