India, EU to begin next round of talks on free trade pact on Monday

Senior officials of India and the 27-nation European Union (EU) will commence the next round of talks for a proposed free trade agreement from Monday in New Delhi, an official said.

The agreement is aimed at further boosting bilateral trade and investments between the two regions. The two sides are negotiating a free trade agreement, an investment protection agreement and an agreement on geographical indications (GIs).

"The five-day talks will start from September 23. It will be the ninth round of negotiations. Also, the concerns of Indian stakeholders regarding the EU's sustainability measures, such as CBAM, deforestation and others, will be discussed with the EU," the official said.

During the ninth round, both sides will discuss core trade issues covering goods, services, investment and government procurement along with necessary rules such as rules of origin, SPS (sanitary and phytosanitary), and technical barriers to trade.

The Carbon Border Adjustment Mechanism (CBAM) or carbon tax (a kind of import duty) will come into effect from January 1, 2026. It will initially be imposed on seven carbon-intensive sectors, including steel, cement, fertiliser, aluminium and hydrocarbon products.

India has raised concerns over these two regulations as it would have an impact on the country's exports to the bloc.

According to think tank Global Trade Research Initiative (GTRI), the European Union's Deforestation Regulation (EUDR) would hit India's agricultural exports worth USD 1.3 billion to the EU starting December 2024.

The GTRI said that Indian firms are concerned about the potential negative impacts of regulations like the carbon tax, deforestation regulation, and supply chain regulation.

"These regulations would adversely impact India's exports to EU.

After implementation of the trade agreement, the EU products will continue to enter India at zero duties, but Indian products may pay 20-35 per cent tariff equivalent as CBAM charges. A suitable text may be inserted in the FTA chapters dealing with this possibility," GTRI Founder Ajay Srivastava said.

In June 2022, India and the European Union resumed the negotiations after a gap of over eight years. It was stalled in 2013 due to differences over several issues.

"Initially, from 2007 to 2013, multiple rounds of negotiations took place but were hindered by disagreements over market access, intellectual property rights, labour standards, and sustainable development. By 2013, the talks hit a standstill, particularly due to differences on tariffs for automobiles, wine, spirits, data security for Indian IT firms, and public procurement," it said.

It added that one of the major reasons for the delay is the differing aspirations between the two parties.

The EU seeks tariff elimination on over 95 per cent of its exports, including sensitive agricultural products and automobiles, while India is comfortable opening up only around 90 per cent of its market and is hesitant to lower tariffs on bulk agricultural products, the GTRI said.

GTRI Founder Ajay Srivastava said that major Indian goods exports to the EU, such as ready-made garments, pharmaceuticals, steel, petroleum products, and electrical machinery, will become more competitive, if the pact gets concluded successfully.

Additionally, key services exports like telecommunications, other business services, and transportation services will also see substantial growth.

On the other hand, the EU will benefit from increased exports of essential goods from India, including aircraft and parts, electrical machinery, diamonds, and chemicals.

"The services sector will also gain from the FTA, with enhanced trade in other business services, intellectual property services, and telecommunications and IT services. These sectors stand to gain the most from the FTA, driving economic growth and strengthening India's trade relations with the EU," Srivastava said.

The total trade has surpassed USD 200 billion in 2023. India exported USD 75.18 billion in goods and USD 31.13 billion in services to the EU, while the EU exported USD 63.44 billion in goods and USD 31.35 billion in services to India.