India: A Dense European Trade Agenda

The free trade agreement with the EU remains complex, but the creation of the TTC and the New Delhi-EFTA agreement show that there is considerable scope to deepen relations between the two areas.

by Andrea Noris

India, a country that underwent a process of economic reform in the 1990s with a gradual opening to foreign markets, has been one of the world’s fastest-growing economies since the 2000s. India’s economic development, initially concentrated in advanced services, has gradually extended to the industrial sector, where Chinese competition nevertheless remains very strong.

The country’s outlook is positive. According to the World Bank, GDP is expected to grow by 7.5% in fiscal year 2024, while growth over the following two years is expected to stand at around 6.6% per year. In the medium term, one factor strengthening India’s competitiveness vis-à-vis China is its substantial demographic dividend, in contrast with China’s ageing population.

Relations between India and the European Union have seen a 30% increase in goods trade over the past ten years. While India has become the EU’s tenth-largest trading partner, the EU is the second destination for Indian exports after the United States. Trade in services is also significant, reaching EUR 30 billion in 2020. Moreover, the EU’s importance to the Indian economy is reflected in its role as the country’s leading foreign investor, with a stock of foreign direct investment (FDI) of approximately EUR 60 billion. However, European FDI in India remains relatively low, particularly when compared with the stock of EU investment in China (EUR 201 billion) or Brazil (EUR 263 billion).

India-EU Negotiations: A Long and Uneven History

Negotiations on a possible trade and investment agreement between India and the EU began on 28 June 2007 and covered a range of matters: trade in goods, trade in services, investment, sanitary and phytosanitary measures, technical barriers to trade, trade remedies, rules of origin, customs and trade facilitation, competition, public procurement, dispute settlement, intellectual property rights, geographical indications and sustainable development. However, after fifteen rounds of negotiations in Brussels and New Delhi, talks between the parties stalled in 2013.

At present, trade in goods and services between the EU and India is governed by the most-favoured-nation principle under the World Trade Organization. The EU also grants India tariff preferences under the Generalised Scheme of Preferences. However, these preferences were temporarily suspended in early 2023 because increasing Indian imports into the EU exceeded the defined safeguard thresholds.

On 17 June 2022 it was announced that European Commission Executive Vice-President Valdis Dombrovskis and Indian Minister of Commerce Piyush Goyal had formally relaunched negotiations on a balanced, ambitious, comprehensive and mutually beneficial free trade agreement. At the same time, negotiations were also launched on an investment protection agreement and an agreement on geographical indications. The two parties agreed to accelerate the talks with the aim of concluding them by the end of 2023. However, several rounds of negotiations have not yet led to the conclusion of a free trade agreement (FTA).

In February 2024, the Indian press reported a statement by Stefano Sannino, Secretary General of the European External Action Service, who stated: “As we speak, the seventh round of negotiations is taking place in New Delhi. It is an ambitious agreement and the FTA includes several elements. Although it is not possible to set a deadline for the announcement of the free trade agreement, I can say that there is the political will to conclude it.” In addition to FTA talks, India and the EU reportedly also discussed an investment protection agreement and a pact on geographical indications. The next round of negotiations is expected to take place after the conclusion of India’s electoral process, which began in late April.

The Agreement Finally Signed Between New Delhi and EFTA

On 10 March 2024, EFTA (the European Free Trade Association, comprising Iceland, Liechtenstein, Norway and Switzerland) signed a comprehensive Trade and Economic Partnership Agreement (TEPA) with India. Negotiations began in 2008 and the TEPA was signed at the conclusion of the twenty-first round of talks.

As stated by Swiss Federal Councillor Guy Parmelin, who signed on behalf of EFTA: “The EFTA countries gain access to a major growth market. Our companies strive to diversify their supply chains while making them more resilient. India, in return, will attract more foreign investment from EFTA, which will ultimately translate into an increase in good jobs.”

One particularly significant element of this agreement is the commitment by the association’s Member States to invest USD 100 billion in India and create jobs. Under the agreement, India will carry out a broad reduction of import duties on numerous industrial goods, while almost all Indian industrial goods would benefit from duty-free access in EFTA countries, alongside reduced duties on processed agricultural products. Switzerland, India’s main trading partner within the bloc, has already removed duties on almost all industrial goods as of January 2024.

The Positive Creation of the Trade and Technology Council

Economic relations between the EU and India continue to strengthen, and New Delhi represents a strategic market for European companies. Although the country is still at a lower stage of development than China and faces numerous challenges, including infrastructure gaps and a low labour-force participation rate, especially among women, India offers medium- to long-term growth prospects, also thanks to a population that will not face ageing for some time.

The goal of signing a free trade agreement by 2023 was not achieved, and an agreement appears unlikely before the conclusion of the Indian elections and the European Parliament elections. However, cooperation between the parties is continuing in other areas, such as the Trade and Technology Council (TTC), established on 6 February 2023, which will focus in particular on three areas:

• strategic technologies, digital governance and digital connectivity;
• green and clean energy technologies;
• trade, investment and resilient value chains.

For example, on 24 November 2023, a memorandum of understanding on semiconductors was signed thanks to the TTC’s work. Under this memorandum, the EU and India intend to:

• share experience, best practices and information on their respective semiconductor ecosystems;
• identify areas of cooperation in research, development and innovation between universities, research organisations and companies;
• promote skills, talent and workforce development for the semiconductor industry and facilitate cooperation through workshops, partnerships and the promotion of direct investment;
• ensure a level playing field in the sector, including by sharing information on public subsidies granted.

Both partners will continue to meet regularly and report within the TTC framework.

An Uphill Battle, but Not Yet Over

Several difficulties remain in relation to the signing of the free trade agreement. In particular, one of the issues attracting the greatest attention among various Indian industrial and agricultural circles concerns the so-called non-tariff barriers applied by the EU. Indeed, quality requirements such as maximum residue levels for certain food products, particularly rice and tea, registration obligations for chemical and pharmaceutical products, and the Carbon Border Adjustment Mechanism (CBAM) appear to be especially complex issues for Indian businesses.

Nevertheless, there also appears to be political will to strengthen cooperation between New Delhi and Brussels. The TTC’s activities, which have already led to the signing of the memorandum of understanding on semiconductors, demonstrate this. In addition, India, including through the signing of the TEPA with EFTA, is showing its willingness to continue opening up to international trade. It is therefore foreseeable that, in the not-too-distant future, following the elections in the two contracting areas, an agreement between the EU and India will be signed, enabling faster growth in trade and greater opportunities for European and Indian businesses.

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Image Credits: European Union, Dati Bendo