India-EU FTA negotiations a tough nut to crack as key issues unresolved

A major hurdles in the way of talks has been EU's stance on sustainable development, since trade bloc is set to implement regulations such as CBAM, deforestation regulation law, and supply chain law

Despite nine intense rounds of negotiations spread over two-and-a-half years, progress in the proposed free trade agreement (FTA) between India and the European Union (EU) is now on a slow track because of fundamental differences. An assessment of the negotiations is now going on at a ‘political’ level, with recent statements from top government officials from both sides making the intention clear.

 

A few months ago, the EU Ambassador to India, Hervé Delphin, suggested recalibration on both sides in order to seal the deal. Similarly, India’s Commerce and Industry Minister Piyush Goyal, who was present at the same public forum, pointed out that “extraneous elements” were hurting the interests of both trade as well as business, thereby slowing down the progress of the FTA talks.

 

One of the major reasons for the delay is the differing aspirations of the two parties, according to a report by Delhi-based think tank Global Trade Research Initiative (GTRI). 

 

“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,” GTRI says in its report. Besides, differing views on new issues such as sustainability, labour standards, intellectual property rights, and data protection have added complexity to the negotiations, it says. 

 

18 years in the making

 

To be sure, this is not the first time that the India-EU FTA talks are staring at a roadblock, despite willingness on both sides to seal the deal. India-EU broad-based bilateral trade and investment agreement (BTIA) was first mooted 18 years ago. However, after 15 rounds of discussions, negotiations were stalled in 2013.

 

It was mainly because both sides were not able to bridge the differences on crucial issues including India’s demand for a more liberal visa regime for skilled professionals and a lack of willingness to negotiate government procurement issues, among other things. On the other hand, the trade bloc vehemently pushed for stricter intellectual property rights and bargained for greater market access and massive import duty cuts on automobile and alcoholic beverages, mainly wine.

 

There were attempts to restart talks after the 2014 Parliament election in India, but investment treaty-related disagreements turned out to be a major hurdle.

 

An EU official told Business Standard that further to the ninth round of FTA negotiations between the EU and India that took place in New Delhi on September 23-27, 2024, the next round is foreseen to take place during the week of March 10, 2025 in Brussels. 

 

“Both sides also continue to engage between the rounds at all levels, including the ministerial level, in order to address difficult issues and make progress towards a balanced, ambitious, comprehensive and mutually beneficial trade agreement,” the official said.

 

Contentious issues

 

Commerce department officials say one of the major hurdles in the way of the talks has been the EU’s stance on sustainable development, since the trade bloc is set to implement regulations such as carbon border adjustment mechanism (CBAM), deforestation regulation law, and supply chain law. They say India’s gain could be limited because these regulations will eventually become a non-trade barrier and hurt Indian exports at a time when both sides are trying to finalise an FTA.

 

New Delhi is pushing for a ‘transition period’ before adhering to these regulations, because it believes it is crucial that countries should be given responsibility according to their growth potential, in line with the United Nations principle of Common but Differentiated Responsibility and Respective Capabilities (CBDR-RC).

 

Biswajit Dhar, Distinguished Professor at Council for Social Development, says there are behind-the-border measures such as the EU’s labour and environment standards, which could be a sticking point. There could also be pressure on India to strengthen intellectual property law, especially related to patents.

 

Dispute settlement

 

Another major problem is India’s investor-state dispute settlement clause under the model bilateral investment treaty (BIT), according to Dhar. Under the exhaustion of local remedies clause under the model BIT, an investor can go for international arbitration only after exhausting all legal channels locally. Investors believe that such a clause makes the dispute resolution process longer.

 

“How India will deal with the issue or will change its stance is something yet to be seen,” Dhar adds.

 

According to Pradeep S Mehta, Secretary General, CUTS International, even as both sides now have a better understanding of their respective interests and sensitivities, positions remain far apart — particularly on product-specific rules of origin, technical barriers to trade, and government procurement market access. 

 

“There has been a lot of discussion on the EU's non-trade demands, including trade and sustainable development, but the EU's core market access demands are also very 

 

ambitious. What the EU desires as commercially meaningful commitments from India will translate into undertaking substantial liberalisation,” Mehta says.

 

Mehta further notes that there is also a change at the helm on the EU side — a new trade commissioner, which could mean firming up political understanding afresh may take some time. 

 

Fresh impetus?

 

At $75.9 billion, the EU made for 7.4 per cent of India’s overall goods exports during the financial year 2023-24, while imports stood at $61.5 billion, with a 9 per cent share. The trade bloc is India’s largest trading partner in terms of goods.

 

Finalising a trade agreement is expected to give fresh impetus to the relationship between India and the EU, amid changes in the geopolitics scenario — be it the exit of the United Kingdom from the trade bloc or the diversification of the supply chain from China.

 

Story so far 

> India-EU bilateral trade and investment negotiation began in 2007

> Talks stalled in 2013 after 15 rounds of negotiations

> In May 2021, India, EU decided to resume negotiations but as three separate pacts — trade, investment protection and geographical indications agreement

> Negotiations launched in June 2022

> Nine rounds of negotiations completed till now

> 10th round scheduled in March