The EU and India Launch High Level Talks on Trade and Investment

February 9, 2021 Posted by India Briefing Reading Time: 4 minutes

By Bob Savic, Advisor to Dezan Shira & Associates

New High-Level Dialogue

The European Union (EU) and India held their first high-level dialogue (HLD) on February 5. The HLD arose out of the agenda set out during the 15^th EU-India Leaders’ summit held in July 2020, which meets annually. While the HLD’s principal aim is to develop bilateral trade and investment ties, to be captained by top ministerial levels on both sides, it is a sign of the great importance the Europeans have attached to their future relations with vibrant Asian economies, such as India, whose economy ranked the world’s fifth largest at the end of 2020, just ahead of the UK’s.

At the first bilateral HLD between the EU and India, the talks were co-chaired by Valdis Dombrovskis, the EU Trade Commissioner, and Piyush Goyal, India’s Minister for Commerce and Industry. Both sides explored a wide spectrum of issues with a view to setting up an agenda for the upcoming EU-India Leaders Meeting on May 8, 2021; a further meeting of experts will be convened prior to this gathering.

Plugging the gaps in bilateral trade and investment

Among the items for discussion were vaccine production and their associated global value supply chain linkages, notably in relation to achieving unfettered and effective cross-border distribution. This was a particularly sensitive area of discussion for the EU, in light of the controversies over availability of vaccine supplies for its population.

Both sides also sought a means to plug existing gaps in their trade and investment relations, which were raised in their previous formal negotiations several years ago. In fact, trade and investment talks had first begun in 2007 and were stalled in 2013 due to several irreconcilable differences. These largely involved India’s high tariffs on the EU’s alcoholic beverages, environmental concerns, and the EU’s opposition to the cross-border movement of professional and technical Indian personnel. Moreover, New Delhi’s policy of reviewing all its signed international trade deals only further delayed re-engaging on trade and investment talks with the EU.

Even so, since the last negotiations, and up until the first HLD, the EU has been prepared to begin discussions on a standalone investment agreement though this was never reciprocated by the Indian side.

Dealing with growing protectionism and enhancing multilateralism

Aside from setting out a roadmap for resuming trade and investment discussions, the HLD examined other avenues for cooperation, including coordinating the regulation of modern technologies, in addition to enhancing the efficiency and security of global cross-border value supply chains. Key market access policy developments for the EU, such as the “Make in India” and “Self-Reliant India” programs, were discussed alongside India’s access to the EU’s ambitious “Green Deal” program, such as the development of an EU Carbon Border Adjustment mechanism.

One of the principal areas of concern, expressed by India during the HLD, was the EU’s ongoing review of its Generalised System of Privileges (GSP). The GSP, which terminates at end-2023, applies lower to zero preferential tariffs on imported materials in manufactured goods that originate in India, Bangladesh, Bhutan, Nepal, Pakistan, and Sri Lanka, among others.

Other areas of cooperation discussed at the HLD touched upon enhancing collaboration on reforming the World Trade Organisation (WTO). This included their ongoing efforts at promoting a rules-based multilateral trading system. In so doing, the EU has proposed holding specific and regular structured dialogue on the WTO’s reform, and to advance a combined agenda at the 12^th WTO Ministerial Conference on June 2021. It should be noted that up until the first HLD, issues of market access, investment conditions, and WTO obligations were held at lower levels of officialdom. This included the EU-India Trade Sub-Commission, set up under the 1994 EU-India Cooperation and Partnership Agreement, involving several technical working groups.

EU-India’s economic dynamics

On the economic front, the EU stands as India’s largest trading partner. In 2019, two-way trade amounted to €80 billion (US$96 billion). This currently makes up 11 percent of India’s total trade with all countries and is just ahead of India’s bilateral trade with China constituting 10.6 percent of the total. Since 2010, bilateral EU-India goods trade has risen strongly, by 72 percent. Meanwhile, services trade has also expanded rapidly, rising from €22 billion (US$26.5 billion) in 2015 to €30 billion (US$36 billion) in 2018.

The EU’s share of total foreign direct investment (FDI) into India expanded from eight percent in 2010 to 18 percent in 2020. This made the EU India’s largest source of FDI. However, the EU’s cumulative FDI total of €68 billion (US$82 billion) was still below that of its accumulated stock of investments in China, at €175 billion (US$210 billion).

The EU accounts for substantial levels of investments across India. There are over 6,000 EU-owned companies, which directly account for 1.6 million jobs and a further indirect five million jobs – covering a broad range of sectors and industries. It should be borne in mind, though, that the above figures still include the UK, before its departure from the EU. Hence, these amounts should be significantly reduced, if the UK was excluded, given its position as the top EU investor in India during its membership within the bloc. UK-India trade and investment ties have been covered separately in a previous article.