India's protectionism and FTA with European Union

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  India's protectionism and FTA with European Union

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Read more on - Polity | Economy | Schemes | S&T | Environment

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• The story:  India and the European Union have agreed to resume negotiations for a free trade agreement (FTA), pending since years. The road ahead may not be smooth, as growing protectionism across countries due to the pandemic creates new problems.
• Reducing tariffs: Reducing tariffs and negotiations could be complex as the markets have changed over the past few years. Growing protectionism around the world has resulted in countries, including India, imposing higher tariffs on items. Market access issues in the goods sector will see challenges. Since the India-EU talks remained in a stalemate, tariffs went up. 

1. The government announced the Aatmanirbhar policy in 2020, to protect the industry and to allow the manufacturing sector to grow in India. So cutting tariffs could be a challenge.
2. Formal negotiations between India and the EU were stalled eight years ago over differences on a range of issues, as the bloc insisted on cutting import duty on automobiles and wine. The negotiations were launched in 2007.
3. Since 2013, average tariff has gone up by 3 per cent. The sentiment now is to protect the industry. 

• May movement: In May 2021, both India and the EU agreed to resume negotiations for balanced and comprehensive free trade and investment agreements. Negotiations on both the trade and investment agreements will be pursued on parallel tracks to conclude them together at an early date. 

1. To diversify economic engagement, India and the EU also agreed to have dedicated dialogues on WTO issues, market access issues, and supply chain resilience. 
2. The development assumes significance as EU nations collectively were India’s largest trading partner in goods 2019-20, ahead of China and the US. The total trade was close to $90 billion. 
3. Resuming the trade deal will give fresh impetus to the relationship between India and the EU, especially after Brexit.

• Word of caution: While entering into a trade agreement with an export market such as the EU will be a good move, it is important for negotiators to have sound knowledge of the market as a lot has changed since 2013. FTAs are negotiated in terms of market access, regulatory transparency and consistency. In market access, one faces tariff and non-tariff barriers both, so negotiators have to be totally updated.
• Knowledge centre:

1. FTA - A free trade agreement (FTA) is a pact between two or more nations to reduce various barriers to trade (imports and exports) among them. Under a free trade policy, goods and services can be bought and sold across international borders with almost zero tariffs, quotas, subsidies, or prohibitions to inhibit their exchange. The concept of free trade is the opposite of trade protectionism or economic isolationism. India has ten operational FTAs as on date, and six operational Preferential Trade Agreements (PTAs) as on date. 
2. EU - The European Union (EU) is a political and economic union of 27 member states, with a combined area of 4,233,255.3 km² and an estimated total population of about 44.7 crore. The EU's purpose is to promote peace, establish a unified economic and monetary system, promote inclusion and combat discrimination, break down barriers to trade and borders, encourage technological and scientific developments, champion environmental protection.

Read more on - Polity | Economy | Schemes | S&T | Environment

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