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The India-European Union free trade talks have gathered pace with both partners starting sector-specific negotiations for the first time after narrowing chapter-wise differences, but their key disagreement over “sustainability” issues persists, which they hope to address in the forthcoming 11th round of talks starting next week in New Delhi, according to people in the know.
‘Sustainability’ still looms over India-EU trade talks
Significant achievements have been made on core chapters related to market access, hence sector-specific discussions have been initiated, starting with the automotive and medical devices industries, they said requesting anonymity. Market access is core to any FTA and the proposed India-EU free trade talks have built a “considerable” consensus on several chapters such as trade in goods, sanitary and phytosanitary issues, technical barriers to trade, trade remedies, rules of origin, government procurement, services and investments, they added.
The two partners aim to conclude the agreement by the end of 2025.
After the meeting between leaders of both sides in New Delhi on February 28, trade matters have now gained precedence in negotiations over vexed non-trade issues such as sustainability, carbon tax and deforestation regulations, they said. They were referring to European Union president Ursula von der Leyen and Prime Minister Narendra Modi’s meeting during the college of commissioners’ India visit in February this year.
While the EU’s insistence on making sustainability a “binding” part of the proposed free trade agreement (FTA) is still a contentious issue, the two sides have agreed to discuss the matter in their next meeting scheduled from May 5 in the Indian Capital, they said. India is all for environment protection, but it does not want to make it a part of an FTA that could be used against India by any of the 27 EU members as a non-tariff barrier, they added.
“Good that the EU has softened its rigid position and progress on core trade subjects has been fast-tracked. We have already started sectoral negotiations covering industries like automotives and medical devices in our last round of meetings in March,” one of them said.
According to the people mentioned above, chief negotiators have been able to progress fast with support from top officials from both sides. Union commerce and industry minister Piyush Goyal is expected to visit Europe next week, which may see some tangible outcomes in the proposed 11th round of talks expected from May 5 in New Delhi, they said. Goyal is expected to visit London, Oslo and Brussels, the headquarters of the European Commission.
A second person said Goyal is not in favour of including sustainability issues in the FTA. “In principle, India may agree on a chapter on TSD [trade and sustainable development], but with fair dispute settlement provisions and without any binding commitment so as to ensure that the clause would not be misused by any party as a non-tariff barrier to trade,” he said, adding that deliberations are on to narrow the differences.
At the 9th Global Technology Summit co-hosted by Carnegie India and the ministry of external affairs (MEA) on April 11, Goyal was candid about India’s position on this matter. He said no self-respecting nation can have a free trade agreement with the EU unless the latter stops superimposing its non-trade agenda into bilateral trade negotiations. He, however, hinted that some solution to this contentious matter was in the offing. “My sense is, we’ll be able to complete most of the discussions quite amicably,” he said at the summit. Explaining the reason, he said the EU cannot impose non-trade commitments on India when it is not the real culprit on matters related to climate change. HT reported this on April 12.
Citing him, the second official said that the EU is saddled with impractical standards that are nothing but non-tariff barriers prohibiting any country from having a meaningful bilateral trade pact. “I am actually a worried man for the very future of the European Union and their businesses, given the kind of… difficult non-tariff barriers that they have set up, both for their own businesses and for the rest of the world,” Goyal said at the summit.
India and the EU resumed the FTA negotiations in June 2022 after a gap of nine years. Since then, they have finished 10 rounds of negotiation. The 10th round was resumed on March 10 in Brussels after elections in Europe.
According to the people mentioned above, the EU’s insistence on including non-trade matters is the reason that a deal could not be agreed upon for the last 18 years. The FTA negotiations between the two partners were first launched in 2007 and then suspended in 2013 due to “a gap in ambition”. The talks resumed in 2022 after the India-EU leaders’ meeting in May 2021.
While many members of the European block are keen to close the FTA deal with India amid trade uncertainties and the tariff war, the EU is pushing sustainability measures such as the Carbon Border Adjustment Mechanism (CBAM) and the EU deforestation regulation (EUDR). India believes the CBAM is a form of tax that can lead to tariffs of up to 35% on imports of high-carbon goods such as cement, aluminium, fertilisers, chemicals including hydrogen, and iron and steel from India. The CBAM will be levied on carbon intensive products to offset “carbon leakage” involved in importing high-carbon goods.
Carbon leakage occurs when firms in the EU move carbon-intensive production abroad to countries where less stringent climate policies are in place, or when EU products get replaced by more carbon-intensive imports. The tax is being implemented in phases from October 2023 and will become fully effective from January 2026.
The EUDR or the regulation on deforestation-free products covers production of commodities such as cattle products, wood, cocoa, soy, palm oil, coffee, rubber and some of their derived products such as leather, chocolate, tyres and furniture. This demands certification from importers to prove their products didn’t originate from recently deforested land or contributed to forest degradation. The EUDR will begin to apply from December 30 this year.
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