After signing comprehensive economic and trade agreements with the United Arab Emirates (UAE) and Australia, India has stepped up efforts to negotiate a free trade agreement (FTA) with the European Union (EU).

What is a Free Trade Agreement (FTA)?

• A FTA is a pact between two or more nations to reduce barriers to imports and exports among them.
• Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
• The concept of free trade is the opposite of trade protectionism or economic isolationism.
• Countries often agree to FTAs if their economic structures are complementary, not competitive.

India-EU Trade Ties

• The EU is India’s third largest trading partner, accounting for 11.8% of India’s total trade in 2020-21, after the US (12.61%) and China (12.59%).
• It is India’s second-largest export destination after the US.
• India is the EU’s tenth largest trading partner, accounting for 1.8% of the EU’s total trade in goods in 2020.
• The EU is also a major source of FDI in India. Between April 2000 and March 2021, FDI flows from the EU to India totalled $88.32 billion.

How would the FTA help India?

• It will help Indian exporters gain competitive advantage in the EU markets while helping domestic manufacturers get cheaper access to imports from the EU.
• India’s major exports to the EU include mineral fuels, mechanical appliances, electrical and electronic machineries, organic chemicals, automobiles and auto components, pharmaceuticals, precious stones, and iron and steel products.
• The untapped export potential for India in the seven major markets of the EU—Germany, France, Italy, the Netherlands, Spain, Belgium, and Switzerland—is around $26.8 billion.

Why is the FTA important for the EU?

• After Brexit, the EU is trying to clinch trade deals to diversify supply chains and find profitable exporting destinations for European companies.
• The EU is looking for a large market as intra-EU trade remains stagnant and trade with the UK shrinks because of new institutional trade barriers.
• The FTA with India will also help the EU reduce trade ties with Russia.

What are the key stumbling blocks?

• A major point of contention has been the EU’s demand for  reduction in India’s tariff rate.
• Earlier talks did not resolve issues involving trade in agriculture and services, digital trade, intellectual property rights, and commitments on sustainable development issues such as environmental, social, and labour rights.
• Visa requirements and work permits for Indian workers to the EU have been a major bone of contention.
• Restrictions on transfer of personal data from the EU to other countries is a barrier for trade in digital services.

What is the likelihood of an agreement?

• The two sides have set the ball rolling on the FTA.
• The president of the European Commission recently agreed to establish a trade and technology council to deliberate on data protection regulations and strengthening digital trade between India and the EU.
• PM Modi’s recent visit to three key EU member countries is expected to further reinvigorate the FTA talks.

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[Burning Issue] India-EU Relations

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