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India-EU trade pact may allow duty-free access to 90% of Indian goods
The India-EU free trade agreement may allow duty-free access for over 90% of Indian goods, while excluding sensitive dairy and agricultural items.
New Delhi: The proposed India-European Union (EU) free trade agreement (FTA) may allow duty-free access to over 90% of Indian goods in the bloc while shielding India’s sensitive dairy and agricultural items, two people aware of the matter said.
They added that the EU’s preferential trade mechanism --- or the generalised system of preferences (GSP) --- will become irrelevant after the operationalisation of the proposed FTA. The suspension of the preferential trade mechanism currently impacts less than 3% of Indian exports to the European bloc.
Both India and the EU have agreed to conclude a “balanced, ambitious, mutually beneficial and economically meaningful” FTA that must include “enhanced market access” to ensure prosperity and stability. As the proposed pact is being negotiated within these basic premises, it is expected to eliminate almost all tariff and non-tariff barriers while protecting the sensitivities of both sides, the people cited above said, requesting anonymity.
They described the EU’s move to extend the suspension of preferential trade benefits for India from January 1 as a routine exercise, noting that concessional duty access to the EU market is unilaterally granted by Brussels to “vulnerable developing” countries to help them integrate into the world economy.
“The new regulation impacts only 2.66% of India’s exports to EU,” a government spokesperson said. Last month, the EU announced the continued suspension of Generalized Scheme of Preferences (GSP) benefits for India and two other nations for three years, effective January 1.
Experts said that after the operationalisation of an FTA between India and the EU, Indian exporters across sectors will not require GSP benefits because customs duty on almost all items they export to the 27-country bloc will become zero.
Federation of Indian Export Organisations (FIEO) director general and CEO Ajay Sahai said: “GSP will not be relevant after implementation of the India-EU free trade deal as [tariff] concessions under the FTA will be much more than what is available under GSP.” India and the EU are expected to announce the conclusion of negotiations of an FTA on January 27.
Another expert, who asked not to be named, said GSP benefits are unilateral, non-reciprocal and non-discriminatory benefits extended by certain developed countries to developing countries, based on certain conditions.
“In June 2019, the US had withdrawn India’s GSP benefits. It was worth about $6.3 billion, approximately 12% of total annual exports to the US at that time. So, such concessions are not entitlements of the recipient countries,” the expert said.
Similarly, the EU has a policy through which it decides its GSP benefits, suspension or withdrawal, the expert said. Under the EU’s recent notification, there has been limited impact of the GSP withdrawal for three years. For example, India’s agricultural lines are spared, he added.
According to the EU’s notification, the suspension covers 13 specific sections such as mineral products; inorganic and organic chemicals; plastic products; rubber; textiles; articles of stone, plaster, cement, asbestos, mica or similar materials; ceramic products; glass and glassware; pearls and precious metals; iron, steel and articles of iron and steel; base metals (excluding iron and steel) and articles thereof; machinery and mechanical appliances; electrical machinery and equipment and parts thereof; railway or tramway locomotives, rolling-stock; motor vehicles, bicycles, aircraft and spacecraft, ships and boats.
“In 2023, EU imports from India amounted to approximately €62.2 billion. Of this, only €12.9 billion was eligible under the EU’s standard GSP framework. India has graduated from 12 major product categories. As per new regulation, €1.66 billion of trade is expected to graduate out of GSP regime leaving the eligible GSP trade to be €11.24 billion as per 2023 data,” the government official quoted above said.
The official added that the new regulation impacts only 2.66% of India’s exports to the EU.
The graduation process is based on the competitiveness of a country’s exports, which is periodically reviewed by the EU. India’s graduation over time is on account of the increasing competitiveness of its exports, the official added.
The GSP is non-reciprocal and operates as an exception to the World Trade Organization’s (WTO) most-favoured nation (MFN) principle, which allows developed countries to grant differential and more favourable treatment to developing countries.
There are three tiers under the scheme. The first is the standard GSP, which is for low and lower-middle-income developing countries that meet certain conditions. India gets the benefit under standard GSP.
The second tier is called the GSP+, an enhanced incentive scheme; countries must ratify and implement a set of international conventions on labour, human rights, environment, and governance. A third is called Everything But Arms (EBA), which involves least developed countries. They get duty-free, quota-free access for all goods except arms.
