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India EU trade

26 November 2007
by eub2 -- last modified 26 November 2007

EU-India trade has grown impressively over the years, from €4.4 billion in 1980 to over €46 billion in 2006. Trade with the EU represents almost 20% of India's exports and imports and the EU thus as a bloc is India's largest trading partner. The EU is also India's largest source of foreign direct investment. However, India accounts for just 1.8% of total EU trade. India attracts only 1.3% of the EU's world-wide investments.


BILATERAL TRADE RELATIONS

The EU and India are important trading partners and founding members of the World Trade Organisation (WTO) multilateral trading system. The Commission is facilitating EU trade with India by seeking to ensure that progress is made in the Doha Development Agenda (DDA) and by co-operating at expert level in order to remove existing trade barriers between the two trading partners and preventing new ones from emerging.

During their Summit of 7 September 2005, the EU and India adopted the India - EU Strategic Partnership Joint Action Plan and agreed to take positive steps to further increase bilateral trade and economic cooperation and to tackle barriers to trade and investment.

Specifically, they agreed to set up a High Level Trade Group to study and explore ways and means to deepen and widen their bilateral trade and investment relationship and agreed to cooperate on a number of other trade-related issues.

The High Level Trade Group reported to the 7th EU-India Summit in Helsinki on 13 October 2006, in recommending that an expanded trade partnership be developed through the negotiation of a broad-based trade and investment agreement. The EU-India Summit endorsed the recommendations of the High Level Trade Group in agreeing that both sides move towards negotiations for such an agreement.

Following that agreement, the Council adopted a negotiating Directive for a Free Trade Agreement (FTA) with India on 23 April 2007 (together with negotiating Directives for an EU-ASEAN and an EU-Korea FTA). Negotiations for this EU-India FTA were launched on 28/29 June 2007 in Brussels. Further negotiating rounds are planned to take place later this year in both Delhi and Brussels. We expect the FTA to be fully WTO compatible, ambitious and comprehensive covering not only trade in goods and services, but also investment and paying special attention to non-tariff barriers, and to rules and regulations such as Intellectual Property Rights, competition, government procurement, and transparency.

The policy of moving towards an FTA with India reflects the EU's Global Europe strategy, which suggests a new generation of competitiveness-driven FTAs based primarily on economic criteria (market potential, protection against EU interests, FTAs/ongoing negotiations with EU competitors). India meets all these criteria. It constitutes a sizeable market, its GDP growth rate is between 8 and10 % and substantial tariff and non-tariff barriers hinder trade with the EU.

A quantitative and a qualitative study (main report and executive summary) on the impact of a potential FTA between the EU and India have been prepared by independent contractors. More studies will be done, like a Sustainability Impact Assessment which the Commission will contract out to accompany the negotiating process.

Goods and services

The EU is India's largest trading partner and main source of foreign inward investment. The EU accounted for 18.9% of India's exports and imports in 2005. India ranks as EU's 9th trading partner accounting for 1.8% of EU exports and imports. In 2006, EU imports from India amounted to €22.4 billion (covering mainly textiles/clothing, agricultural products and chemicals) while EU exports to India amounted to €24 billion (covering mostly machinery and chemical products). During 2006 EU-India trade increased by almost 16% and has increased with an annual average of 13.6% between 2002 and 2006.

Given its developing country status, India's exports to the EU currently benefit from reduced tariffs under the EU Generalised System of Preferences. India is the largest beneficiary of this scheme and in 2006 imported goods of a value of € 9.7billion under this scheme.

Bilateral trade in services has grown substantially in recent years and in 2004 India's exports of commercial services to the EU amounted to €3.8 billion in 2004 (up from €3.0 billion in 2003), while the EU's exports to India amounted to €3.3 billion in 2004 (up from €2.7 billion in 2003).

Investment

India's regime for Foreign Direct Investment (FDI) has been considerably simplified and liberalized, however important sectors still remain restricted for FDI (e.g. telecommunications, retail distribution, insurance, banking, aviation) or are banned (e.g. legal services).

The EU is India's largest source of foreign direct investment (FDI). In 2005 EU investment outflows to India amounted to €2.2 billion and represented 1.3% of total FDI outflows from the EU. EU investment has mainly taken place in the power/energy telecommunications and transport sectors.

India is a member of the Multilateral Investment Guarantee Agency and the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitration Awards.

Tariffs and non-tariff barriers

Indian import tariffs have been substantially reduced, but still remain high by international standards. In addition to the Basic Customs Duty, various additional duties, taxes and charges apply resulting in a complex and non-transparent system.

Overall India's high tariff levels remain a genuine problem for European industry. The elimination and/or reduction of tariffs are therefore an important goal of both the multilateral and bilateral negotiations.

India also imposes a number of non-tariff barriers in the form of quantitative restrictions, import licensing, mandatory testing and certification for a large number of products, as well as complicated and lengthy customs procedures.

For a more extensive review of Indian trade policy and specific EU market access problems please see the reports in the EU Market Access Database.

Trade Related Technical Assistance

Support in the field of trade related assistance is provided through an ongoing €13.4 million bilateral Trade and Investment Development Programme funded from the Country Strategy Paper (CSP) 2002-2006. The programme aims to assist India in better integrating into the world economy and promoting bilateral trade. Specific support is provided to address EU sanitary and phytosanitary requirements, issues related to intellectual property rights, customs procedures, and facilitation of investment in India. A further amount of €8 million was made available towards the end of the 2002-2006 financial perspective to pave the way for new areas of activities to be funded through the CSP 2007-2013 including €500.000 for activities in the field of trade, industry, employment and labour issues aimed at enhancing mutual understanding and co-operation in these.

The future priorities for cooperation with India for the forthcoming financial perspective have been set down in the 'Country Strategy Paper 2007-2013'. It is foreseen that follow–up to the ongoing 'Trade and Invest Development Programme' shall be provided in the context of the Action Plan Support Facility which will also support activities in the field of energy, environment, employment and social affairs. The precise amount to be allocated for trade related activities will be decided in the course of the design of programmes end 2007/2008.

A further amount of €7million has also been set aside at the request of the European Parliament to promote improved cooperation between the business and research sectors in Europe and India.

In addition, India shall also participate in the new 'EU-SAARC Programme of Economic Cooperation' as well as a range of regional programmes designed to support the SME sector which support economic co-operation between India/Asia and the EU by financing business to business match-making opportunities, partnership-building and capacity strengthening activities.

BILATERAL AGREEMENTS

Agreements in force

The EU and India already signed a number of bilateral agreements. These include the following:

Agreements under negotiation

Besides the FTA, for which negotiations started on 28/29 June 2007, a 'Maritime Agreement' is currently being negotiated between the EU and India. Formal negotiations were launched at the 4th EU-India Summit in November 2003. Such an agreement would improve the conditions and legal framework under which maritime transport operations to and from India are carried out for the benefit of both economies.

WTO ISSUES

India is one of the founding members of both the GATT and the WTO. Although India is critical of the implications of the results of the Uruguay Round for developing countries and is sceptical of the broad agenda of the current round of multilateral negotiations (Doha Development Agenda), it is clearly committed to advancing the multilateral trading system.

Since the creation of the WTO in 1995, India has been involved in more than 30 dispute settlement proceedings. At present there are two pending cases between the EU and India, i.e. Anti-dumping measures on certain products from the EC and/or Member States (DS 304) and a case launched by the EU against India's discriminatory Additional Duties and Extra Additional duties on wines and spirits. More information on the current dispute settlement cases.

INDIA'S TRADE AND ECONOMIC POLICY

After independence in 1947 and until the beginning of the 1990s, India's trade policy was heavily influenced by the "Swadeshi" (self sufficiency) mentality and the "licence raj" system of restrictions on production and imports. A first generation of reforms (1991-1996) - aimed at, inter alia, liberalising trade - led to a reduction of import tariffs, elimination of quantitative restrictions, exchange rate reforms and deregulation of industry resulting in yearly growth rates of around 7% (compared with 3% before the reforms).

A second generation of reforms was initiated in 1999 to address issues related to lack of competitiveness, poor infrastructure and overregulation. Over the past four years India has met her ambitious target of an annual growth rate of 8%.

India is a member of all major multilateral economic fora, including the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB). India was a founding member of both GATT and the World Trade Organisation (WTO).

At regional level, India is a member of SAARC, (South Asia Association of Regional Co-operation) of BIMSTEC (Bangladesh, India, Myanmar, Sri Lanka, Thailand Economic Co-operation) and the Bangkok Agreement. India has a free trade agreement with Singapore and with the other SAARC countries (SAFTA) and is in the process of negotiating one with Japan, Chile, Thailand, MERCOSUR, South Korea, GCC, ASEAN and with the EU.

Source: European Commission



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