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In the margins of India's Republic Day celebrations, and with much fanfare, the leaders of the European Union and India have announced the "signing" of what they have both described as the Mother of All Free Trade Agreements – a comprehensive EU-India free trade agreement (the "EU-India FTA").
As is usual with this kind of event, all that has been signed is a not yet public text marking the end of the negotiations. Judging by the progress of other recent EU agreements, actual signature may be 6 months away while ratification and full entry into force, some years away.
The EU and India are also engaged in separate negotiations on agreements for the protection of geographical indications and investment protection and these have not been concluded.
At present, information on the content of the EU-India FTA must be gleaned from memoranda, fact sheets and FAQ's issued by the EU and India.
The parties naturally trumpet the significance of this trade liberalisation in an era of trade fragmentation and the advantages that it will bring to their respective economies. The EU FAQ document in particular provides a useful summary of the most important concessions secured by the EU. Below we highlight some of the significant trade openings that have been agreed for both sides.
Overall importance
Only a week before the close of these negotiations, the EU was celebrating its agreement with Mercosur as creating the "one of the biggest trade zones in the world covering a market of around 700 million consumers" that would increase EU exports by €49 billion. The EU-India FTA will cover 2 billion consumers and should bring even greater economic benefits to both parties. Both the EU-India FTA and the Mercosur agreement will create free trade areas that should qualify as such under the rules of the WTO Agreement.
Tariff Preferences
For the EU, the most readily quantifiable benefits are the reductions in Indian customs duties in industrial goods trade. As a developing country, India has very high tariffs on most goods and the reductions secured by the EU will provide it with very significant advantages compared to countries subject to India's full WTO-bound tariffs. For chemicals, textiles, ceramics and boats, for example, most Indian tariffs will be eliminated on entry into force whereas for more sensitive products, such as cosmetics and car parts, this will take place more gradually, after 5 or 7 years. EU automobiles, however, although benefitting from a reduction of tariffs from 110% to 10% will be subject to a tariff rate quota ("TRQ") of 250 000 vehicles. Improved market access for agriculture and agri-food products will be more complex, gradual and subject to more TRQs.
For India, the reductions in EU tariffs are more immediate and complete. The most significant are in labour-intensive sectors such as textiles, leather and footwear, tea, coffee, spices, sports goods, toys, gems and jewellery and certain marine (fisheries) products. Some sectors which are sensitive in the EU will be subject to TRQs.
The available documents provide little clarity about India's access to the EU market for iron and steel products – an important export sector for India. As we explained in our earlier blogpost, the EU is proposing to introduce unprecedented protection for this sector, imposing a 50% tariff on all imports subject to global TRQs at half the level that were applied under its existing temporary safeguard regime. Since these new measures will involve a withdrawal of the EU's WTO tariff commitments, implementation requires negotiations with trading partners which will include tariff reductions on other goods as well as negotiations on the distribution of TRQs. Press reports indicate that India has been assured of "preferential treatment" on TRQs and also in the application of the EU Carbon Border Adjustment Mechanism ("CBAM") but this does not appear in the official documents.
Trade Regulation
The rules of origin in the EU-India FTA will be modelled on those used in other EU agreements and be based on self-declarations subject to verification by EU customs authorities. According to India, there will be some transitional exceptions to incentivise what it calls its 'Make in India' program by building in transition period for certain product specific rules of origin in the machinery and aerospace sector.
The EU emphasises that trade will remain subject to EU technical and sanitary and phytosanitary standards although there will be provision for trade facilitation through cooperation, exchange of information and mutual recognition.
The parties also retain the right to introduce trade defence measures in the form of WTO consistent antidumping, antisubsidy and global safeguard measures. As in all such agreements, there is also provision for bilateral safeguards to be introduced when a significant increase in trade under the agreement causes or threatens to cause serious prejudice to the industry of the other party.
Services
The agreement also covers services trade. The EU reports that it has secured commitments from India that include liberalisation based on the WTO General Agreement on Trade in Services ("GATS") provisions on domestic regulation and financial services that India has not committed to at the WTO as well as commitments allowing the presence of senior management and professionals in India.
India, for its part, claims that it has secured broader and deeper commitments from the EU across 144 service sectors – presumably a significant improvement to that which India enjoys under the GATS. It states that these include IT/ITeS, professional services, education and other business services.
India highlights that the agreement contains an "assured regime" for temporary entry and stay for professionals and a "comprehensive mobility framework" that will ease the movement of employees, their spouses and dependants in many technology and education sectors. There will also be negotiations on social security to be negotiated with EU Member States within five years.
Intellectual Property Rights
Both parties announce ambitious provisions on intellectual property rights in the EU-India FTA, apparently going beyond the confirmation of the WTO agreement on Trade Related Intellectual Property Rights ("TRIPs"). These include enhanced provision on enforcement, including provisions on cooperation to facilitate information flows and business partnerships. India notes that that the agreement will include provisions on the Traditional Knowledge Digital Library project that it initiated.
Sustainability, Environment, Workers Rights, Gender Equality etc
Like most modern trade agreements, the EU-India FTA contains a wide range of miscellaneous provisions of ancillary matters with an indirect relevance to trade. Of particular note is the obligation of the parties to work together on climate change issues.
Dispute Settlement
Enforcement is always a critical issue in international agreements, and the EU-India FTA appears to incorporate a state-of-the-art chapter allowing for enforcement through panels of arbitrators based on pre-established rosters. Like at the WTO and many other EU agreements, there is provision for enforcement by suspension of concessions in case of non-compliance with panel findings.
Concluding comments
The EU-India FTA is an important trade liberalising measure that will provide significant economic benefits to the parties once it is implemented and which embodies the EU's more ruled-based approach to international trade.
The EU often applies the strictly trade related parts of its international agreements provisionally following signature. Full implementation of EU agreements normally requires formal ratification by the European Parliament and each Member State of the EU so takes longer. For example, the EU-Canada Free Trade Agreement has still not entered into force over eight years after provisional application.
Provisional application does not seem to be an option for the EU-India FTA since India does not have a practice of provisional application. However, since the EU-India FTA has been negotiated as an EU-only agreement final conclusion and entry into force may not take so long as for a mixed agreement such as that with Canada.
There are also further obstacles to its implementation, especially in the current environment, as evidenced by the difficulty in obtaining the agreement of the EU Council to the Mercosur agreement, let alone that of the Parliament. The outstanding issues of iron and steel TRQs and the application of the EU CBAM to India may also become obstacles to the realisation of the benefits of the EU-India FTA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
