The World Trade Organisation (WTO) concluded the Trade Policy Review (TPR) of the European Union (EU) in early July. The TPR provides some interesting insights on the state of trade liberalisation in the EU. These insights are important to understand in the context of the on-going negotiations for a bilateral trade and investment agreement (BITA) that India is proposing with the 27-nation EU. This is the first trade policy review of the EU since the new Treaty of Lisbon has come into force for the EU since 2009.
The first issue is that of tariffs in the EU since they form the basic ingredient of any trade deal. The simple average applied most-favoured nation (MFN) tariff rate is at 6.4 per cent. The applied rate of tariff on agriculture stands at 15.2 per cent, while the average applied rates on non-agricultural goods stood at 4.1 per cent. However, the WTO report points out that “the structure of the EU’s applied tariff remains complex and around nine per cent of tariff lines have peak rates of more than 15 per cent.”
In case of agriculture – on which a little over five per cent of its population is dependent – it continues to have high tariffs and support, though it has come down over the years. The EU also imposes a large number of non-ad valorem duties on its agricultural products.
Close to nine per cent of all tariff lines have applied rates of duties exceeding 15 per cent. Dairy is subject to the highest average tariff rate, followed by tobacco, live animals and their products and grains. Some of the high duties in the EU include: prepared or preserved mushrooms (200.6 per cent and 153.7 per cent), concentrated or sweetened milk and cream (164.8 per cent), whey (139 per cent), olive oil (159.3 per cent), certain meats and edible meat offal (157.8 per cent and 122.9 per cent), and isoglucose (120.6 per cent). The highest rates for non-agricultural products apply on motor vehicles (22 per cent) and on fish (22-26 per cent).
The reduction of tariffs by the EU for the BITA, therefore, has to be more on specific goods that have high tariffs so that India is able to achieve real market access into the 27-nation market.
Another area of interest for industry would be the anti-dumping and the countervailing duties imposed by the EU on Indian products. Though India is far below China in the number of these actions, it still accounts for over six per cent of the total anti-dumping actions imposed by the EU. The two countries will need to identify any possible problems that may arise because of a sudden surge in imports, which may occur when tariffs come down.
This becomes important since from March 2011 the adoption of antidumping and countervailing measures is subject to the new comitology rules that entered into force in March 2011. These new rules establish the conditions for control by the member states of the Commission’s exercise of implementing powers ensuring “a more robust trade defence policy.” This proposal has to be adopted by Parliament and the Council in accordance with the ordinary legislative procedure.
Another area that needs to be closely watched is of technical regulations. According to the WTO report on EU, there were 146 TBT notifications covering a range of sectors in which the EU notified technical regulations between 2008 and 2011. Member states individually notified over 140 regulations covering a range of products. These regulations sometimes end up becoming non-tariff barriers and some may even end up becoming a dispute at the WTO between countries.
Finally, on the issue of services there is a need to look at how the directive on services that makes member countries of EU look at keeping non-discriminatory rules on services works. What is important to note is that several important services are not covered under the directive and the liberalisation of these sectors by the EU will have to be studied separately.
Though the EU has continued to liberalise trade, there are still some important issues that can trip market access for countries even after a bilateral free trade agreement is signed. India has been identifying these issues to ensure that the BITA, which may be concluded by the end of this year, will help build Indian exports to the EU — the largest single market for India. But there is a need for industry to be wary of the various regulations and the possible problems to market access if it has to benefit from the bilateral agreement.
The author is Principal Adviser with APJ-SLG Law Offices