India EU FTA

CASE STUDY

INDIA-EUROPEAN UNION FREE TRADE AGREEMENT BENEFITS

& CONCERNSM V S SAI HEMANT BBA FT IIND SEMESTER 1

ARE EU & INDIA NATURAL &/OR ARE OBVIOUS TRADING

PARTNERS? JUSTIFYQUESTION-1

M V S SAI HEMANT BBA FT IIND SEMESTER 2

ARE EU & INDIA NATURAL &/OR ARE OBVIOUS TRADING PARTNERS? JUSTIFY India- EU relations go back to the early 1960s. India was among the first countries to establish diplomatic relations with the (then) EEC. The 1994 cooperation agreement signed between EU and India took bilateral relations beyond merely trade and economic cooperation.India-EU relations have grown exponentially from what used to be a purely trade and economic driven relationship to one covering all areas of interaction. The Summit in The Hague was a landmark Summit, as it endorsed the proposal to upgrade the India-EU relationship to the level of a 'Strategic Partnership'.The GOI see it as a qualitative transformation in the way we engage as equal partners and work together in partnership with the world at large. SOURCE:http://commerce.nic.in/trade/India_EU_jap.pdf


EU TRADE WITH INDIA


FDI INFLOW TO INDIA FROM EU YEAR FDI TO INDIA BY EU

IN MILLION USD1991 1651992 3931993 6541994 13741995 21411996 27701997 36821998 30831999 24392000 23472001 35202002 33592003 20792004 32132005 43552006 111202007 159212008 370962009 270442010 210072011 346212012 22789


FDI INFLOW TO INDIA FROM EU


FDI OUTFLOW FROM INDIA TO EU

Increased inflow from developing countries is partially explained by the well-known investment development path (IDP) theory by Dunning, which says outward FDI is undertaken when the country reaches a certain minimum level of development. As countries move along the IDP from the initial stage of only receiving inward FDI, domestic firms acquire ownership and other advantages to go abroad and the country reaches the final stage and becomes an important outward investor. Indian outward investors are investing in a number of developed and developing countries.

As predicted by IDP theory, Initially Indian Official FDI was concentrated towards other developing countries. However, after the year, 2004-05 overwhelming proportions of these investments are directed to developed countries and the gap between the two has diverged considerably. Initially, the outflows to high income and developed countries were in the ratio of 40:60, but it has now become 85:15


FDI OUTFLOW FROM INDIA TO EUIndian industrial houses like the Tata group, Birla, Reliance, Ranbaxy, ONGC, Infosys and etc. are now more interested in cross-border acquisitions.

The inclination for cross border acquisitions by Indian corporate suggests that they have started bidding for much larger businesses than their own and for those that are based in high-income countries.

http://euacademic.org/BookUpload/12.pdf


FDI OUTFLOW FROM INDIA TO EU


ANSWER So it is clear that EU and India are trading naturally they are not in any pressure from any Multilateral agencies i.e. WTO, world bank group, IMF etc. to perform trade. Therefore they are Natural and Obvious trading Partners. According to me yes both EU and India are Natural & obvious trading partners but the advantages of trade is not shared equally. "India and the EU, as the largest democracies in the world, share common values and beliefs that make them natural partners as well as factors of stability in the present world order."

source: http://commerce.nic.in/trade/India_EU_jap.pdf


WHAT KIND OF ECONOMIC

COOPERATION EXSISTS TODAY BETWEEN EU &

INDIA?

QUESTION-2


WHAT KIND OF ECONOMIC COOPERATION EXSISTS TODAY BETWEEN EU & INDIA? Over the years, India and the EU have signed a number of bilateral agreements and MoUs, notably a 1.Science & Technology Agreement (2001, renewed in 2007), 2.Joint Vision Statement for promoting Cooperation in the field of Information and Communications Technology (2001), 3.Customs Cooperation Agreement (2004), 4.Memorandum of Understanding on Cooperation in Employment and Social Affairs (2006), 5.Horizontal Civil Aviation Agreement (2008), Joint Declaration in the field of Education & Training (2008), 6.Joint Declaration on Multilingualism (2009), 7.Agreement in the field of Nuclear Fusion Energy Research (2009), 8.Joint Declaration on Culture (2010), MoU on Statistics (2012), 9.Joint Declaration on Research and Innovation Cooperation (2012) 10.JointDeclaration on Enhanced Cooperation in Energy (2012).


ANSWER Present scenario of Economic Cooperation between European Union & India is development of diverse economic, scientific, technological ties among India and groups of EU countries and between the socialist and capitalist ,socioeconomic and political systems, based on the principles of independence, equality, and mutual advantage. M V S SAI HEMANT BBA FT IIND SEMESTER 13

HOW WILL FREE TRADE AGREEMENT BE BENEFICIAL FOR

INDIA AND EU?QUESTION-3


HOW WILL FTA BE BENEFICIAL FOR INDIA AND EU? In the recent past, the EU considered the need to build strategic

relationships with emerging economies in trade and investment in its vision document Europe 2020: A European strategy for smart, sustainable and inclusive growth. To realize this objective, it concluded FTAs with Singapore and Korea, and is currently negotiating FTAs with India, Canada, and Japan and the ASEAN group.

India has a lot to gain from an FTA with the EU, particularly in regard to preferential and duty-free access to the European market. A Sustainability Impact Assessment, commissioned by the EU, indicates that an extended (broad) FTA (including further removal of non-tariff barriers to trade harmonization) would result in significant benefits to both parties in terms of welfare gains, production, international trade, wage and productivity increases. The welfare effects amount to an additional 0.3 per cent growth for the Indian economy in the short run and 1.6 per cent growth in the long run.


During the FTA negotiations, both sides have committed themselves to an ambitious agreement, with tariff elimination on more than 90 per cent of goods traded and a strong GATS (General Agreement on Trade and Services) - plus agreement in services. Most of agriculture will be exempted by mutual agreement. However, academicians maintain finalizing the India EU FTA will be a difficult journey because of the high trade-related regulatory and partial access to some services sectors such as professional services, financial services, retail and distribution.

There is a serious doubt among Indian policymakers of any substantial gain through trade negotiations, as India levies an average tariff rate of 14.5 percent, whereas the EU’s average tariff rates are only around 4.1 per cent. Moreover, India has a negative trade balance with the EU and there is a fear among industry and non-governmental organizations (NGOs) in India that this may further worsen after the tariff reductions. Trade negotiations are not easy for India given its track record of negotiations with Japan and Korea as the level of competitiveness differs vastly between emerging and advanced countries.


KEY AREAS OF DISCUSSION

BETWEEN INDIA & EU

QUESTION-4


1. INDIA-EU FTA2. India-EU Trade Economic and Technological

cooperation.3. Pharmaceuticals and Bio-Technology4. Finance & Monetary Affairs5. Environment6. Information & Communication Technology7. Transport8. Agriculture and Marine Working Group9. Customs Cooperation10.Employment and Social Policy11.Science and Technologysource: http://www.indembassy.be/pages.php?id=59


MAJOR IMPEDIMENTS OR OUTSTANDING

ISSUES BETWEEN THE TWO?

QUESTION-5


MAJOR IMPEDIMENTS OR OUTSTANDING ISSUES BETWEEN THE TWO? MAJOR IMPEDIMENTS FOR INDIA

Data secure status for the country, liberalized visa norms for its professionals and market access in services and other sectors including pharmaceuticals, agricultural produce, chemicals, textiles, apparels and leather goods. There is optimism that textiles, apparels and leather goods may get improved access into the EU and that should help these industries to expand their operations..

Indian Average Tariff rates are around 14.5% whereas EU's average Tariff rates are around 4.1%, so tariff reductions in India will hit the domestic players severely.


Indian companies and subcontracting parties have to meet the cumbersome requirements laid down under the EU directives on data protection and that increases their cost of operation. There are some double standards on the part of the EU in this, as India has amended the Information Technology Act, 2000 and issued new Information Technology Rules in 2011 which are in line with the safe harbour principles adopted by the United States, which has been accorded data secure status.

Lack of harmonisation of qualifications and professional standards is another problem that restricts the ability of Indian professionals to access the EU markets.


MAJOR OUTSTANDING ISSUES FOR INDIA

1.India gets preferential and duty free access to the European Markets.India’s interests lie in Mode 1 of the BTIA, which covers information technology enabled services (ITES), business process outsourcing (BPO), and knowledge process outsourcing (KPO), and Mode 4 which covers movement of skilled professionals like software engineers.

2.A recent Reserve Bank of India (RBI) survey on computer software and ITES exports shows that Europe’s share in India’s software exports declined from 27 percent in fiscal 2008 to 20 percent in fiscal 2013. The share of Mode-4 services in overall software service exports declined from 25 percent in fiscal 2008 to 14 percent in fiscal 2013.

3.Improved market access in Mode 4 will allow skilled professionals such as software engineers to temporarily reside and work in EU countries. The barriers to Mode 4 include work permits, wage-parity conditions, visa formalities and non-recognition of professional qualifications.

4.India also seeks a data secure status from the EU, as the high cost of compliance with existing EU’s data protection laws and procedures renders Indian small and medium enterprises (SMEs) un-competitive.M V S SAI HEMANT BBA FT IIND SEMESTER 22

MAJOR IMPEDIMENTS FOR EUROPEAN UNION

The recent EU ban on the import of mangoes from India will further strain the bilateral commercial relationship, which is already troubled due to a series of tax disputes involving European companies.

source:http://thediplomat.com/2014/06/whats-holding-back-the-india-eu-fta/

India’s intellectual property regime (IPR) is another impediment. Any commitment over and above the WTO’s Trade Related Aspects of Intellectual Property Rights (TRIPS) will undermine India’s capacity to produce generic formulations. It is feared that data exclusivity protection measures (which allow pharmaceutical companies to exclusively retain rights to their test results for a certain period) would delay the supply of Indian generic medicines.

source:http://thediplomat.com/2014/06/whats-holding-back-the-india-eu-fta/


Again, India has reduced duties on parts and components, and other vehicles, but maintains high import duties on assembled vehicles: 60 percent (75 percent in cars with a free on board (fob) value above $40,000 and an engine capacity of 3000 cc for petrol and 2500 cc for diesel). This protectionism remains the most contentious issue in the BTIA negotiations.

The EU also seeks deeper cuts in India’s tariffs on wines and spirits. They feel that high effective duties and additional state-level taxes inflate the price of imported liquor in India. However duties on wines and spirits are a critical source of tax revenue for the government.

source: http://thediplomat.com/2014/06/whats-holding-back-the-india-eu-fta/


MAJOR OUTSTANDING ISSUES OF EUROPEAN UNION

1.Liberalise its professional services sector, specifically accountancy and legal services.

2.Access to Indian Market.

3.Reductions in Prevailing Tariffs in different sectors.

source:http://swarajyamag.com/economy/india-eu-fta-the-gains-and-the-losses/


WHY THIS AGREEMENT IS CRITICAL TO INDIA

India has higher stakes in getting the agreement in place than the EU. This is because the EU is partnering the United State for two mega regional trade agreements, which India is not a part of. The two mega-regionals are Trans Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (T-TIP). While T-TIP is an agreement between the United States and the EU, the TPP members include many countries from the Pacific Rim such as Vietnam, Malaysia, Chile and Peru.Once these mega regional agreements are finalised, Indian goods may face difficulties in accessing the European markets. However, with a separate bilateral trade agreement such as BTIA, Indian exports can hope to continue getting access. The mega regionals also encourage creation of global value chains whereby processes are split across countries to exploit each nation’s competitive edge and thus drive down costs while raising standards. India has an insignificant role in the value chains of European companies. The mega regionals can lead to investment diversion away from non-member countries to signatories.India could also do with greater flow of investment and technical cooperation from the EU for many of its development projects. Many European companies are known to have done pioneering work in setting up of smart cities. As India plans to develop 100 smart cities, their assistance would help in planning and execution of these projects. Likewise, many programmes planned by the government could benefit from cooperation from the EU-based companies. M V S SAI HEMANT BBA FT IIND SEMESTER 26

COST BENEFIT ANALYSIS BETWEEN EUROPEAN UNION &

INDIA FREE TRADE AGREEMENT

QUESTION-6


COST BENEFIT ANALYSIS OF EU-INDIA FTA

India has reduced duties on parts and components, and other vehicles, but maintains high import duties on assembled vehicles: 60 percent (75 percent in cars with a free on board (fob) value above $40,000 and an engine capacity of 3000 cc for petrol and 2500 cc for diesel).

My example >3000 CC car in India i.e. Ford Endeavour 3198 CC Cost : 23.9-28.5 Lakhs Now same Ford endevour imported from EU 75% of $40000 + $40000= $70000* 68.54 = INR 47,97,800 Difference= INR 19,47,800 Therefore, in CBA analysis India has benefit in automobile sector which EU wants to shift it towards itself by entering into Free Trade Agreement with India


SOLUTIONS TO AREAS OF CONCERN

QUESTION-7


SOLUTIONS TO AREAS OF CONCERN

1. Improvement in Indian manufacturing through domestic reforms, slashing of tariffs and proper government procurement processes.

2. India’s manufacturing sector is still struggling, and providing a more conducive environment to domestic manufacturers by carrying out long awaited economic reforms, and addressing regulatory and governance issues will certainly improve domestic productive capacities.

3. Launching long awaited economic reforms in India can be an incentive for EU firms to enter the Indian market. This could offset the impact of the tapering off quantitative easing, both by the US Federal Reserve and the European Central Bank by injecting appropriate capital flows in India.

4. India could fix lower tariffs on the automobile sector and gradually moving towards more stringent IPR regulation and promoting of innovations.


HAVE THE CONCERNS RAISED EARLIER BY

VARIOUS STAKEHOLDERS WITH REGARD TO THE UNDER NEGOTIATION

INDIA – EU FTA BEEN DULY ADDRESSED?

QUESTION-8


HAVE THE CONCERNS RAISED EARLIER BY VARIOUS STAKEHOLDERS WITH REGARD TO THE UNDER NEGOTIATION INDIA – EU FTA BEEN DULY ADDRESSED? Farmers and trade unions of India have been protesting against the undemocratic EU India free trade agreement. Over the last couple of months, the alliance of organizations called the Anti FTA front has written 872 letters to important officials, organizations and political parties including the Prime Minister and the Members of Parliament about this unfair trade deal. “There are serious impacts on food security, livelihood security of millions of farmers and small retailers and we haven't even been informed or consulted about the EU India FTA,”

said Rakesh Tikait of Bhartiya Kisan Union a member of La Via Campesina.


SHOULD INDIA SIGN THE DEAL/

NEGOTIATE FURTHER/ABONDON

IT FOR GOOD? JUSTIFY

QUESTION-9


SHOULD INDIA SIGN THE DEAL/ NEGOTIATE FURTHER/ABONDON IT FOR GOOD? JUSTIFY

According to me India should sign the deal


REASON India has higher stakes in getting the agreement in place than the EU. This is because the EU is partnering the United State for two mega regional trade agreements, which India is not a part of. The two mega-regionals are Trans Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (T-TIP). While T-TIP is an agreement between the United States and the EU, the TPP members include many countries from the Pacific Rim such as Vietnam, Malaysia, Chile and Peru.Once these mega regional agreements are finalised, Indian goods may face difficulties in accessing the European markets. However, with a separate bilateral trade agreement such as BTIA, Indian exports can hope to continue getting access. The mega regionals also encourage creation of global value chains whereby processes are split across countries to exploit each nation’s competitive edge and thus drive down costs while raising standards. India has an insignificant role in the value chains of European companies. The mega regionals can lead to investment diversion away from non-member countries to signatories.India could also do with greater flow of investment and technical cooperation from the EU for many of its development projects. Many European companies are known to have done pioneering work in setting up of smart cities. As India plans to develop 100 smart cities, their assistance would help in planning and execution of these projects. Likewise, many programmes planned by the government could benefit from cooperation from the EU-based companies. M V S SAI HEMANT BBA FT IIND SEMESTER 35

ROADMAP OF INDIA - EU ECONOMIC

COOPERATIONQUESTION-10


ROADMAP OF INDIA - EU ECONOMIC COOPERATION The EU and India launched a Strategic Partnership in 2004. It builds on the 1994 Cooperation Agreement on Partnership and Development. In this framework, an EU-India Joint Action Plan was adopted in 2005 and revised in 2008.

It includes a significant research and innovation dimension. EU and India hope to increase their trade in both goods and services and investment through the Free Trade Agreement (FTA) negotiations launched in 2007.

Cooperation between the EU and India in research and innovation is governed by the Agreement on Scientific and Technological Cooperation which was concluded in 2001.

In 2012, the Commission published an independent review of the current agreement. The Agreement for Co-operation between the Government of India and the European Atomic Energy Community (Euratom) in the field of Fusion Energy Research was concluded in 2009.


India is also a member of ITER. A Joint Declaration on Research and Innovation Cooperation was signed on 10 February 2012 at the EU-India Summit which aims at stepping up the cooperation towards building an Indo-European Research and Innovation Partnership with

(i) larger scale, scope and impact,(ii) focus on common societal challenges, and (iii) enhanced synergies between India, the EU and its Member States.

In addition, an EU-India Energy Panel for dialogue and cooperation on energy issues was set up to promote enhanced cooperation on energy between EU and India. It aims at improving energy security, safety, sustainability, access and energy technologies.

In the information and communication technology (ICT) area, the EU-India Joint ICT Working Group focuses on regulatory matters (spectrum policy, market access questions and standardisation), internet security, internet governance, and cooperation in ICT research and innovation.M V S SAI HEMANT BBA FT IIND SEMESTER 38

The European Business and Technology Centre in India (EBTC) created in 2009 has as objective to facilitate mutual business partnerships and technology transfer between the EU and India in the focal sectors of Environment, Energy, Biotechnology and Transport – and having Climate Change as cross-cutting issue.

The EBTC mainly targets EU companies, especially SMEs, and provides services such as market insight, tender support and incubation services. Finally EURAXESS Links India is a networking tool for European researchers working in India and Indian researchers wishing to collaborate and/or pursue a research career in Europe. It provides information about research in Europe, European research policy, opportunities for research funding, for international collaboration and for trans-national mobility.

India is currently spending close to 1% of its GDP on R&D (with a share of 28% from the private sector). During the 11th Plan period (2007-2012), public investment in R&D has grown at 22% per year.It is the government's commitment to increase India’s R&D spending to 2% GDP during the 12thPlan period 2012-2017. The total number of Indian scientific publications almost doubled from 20,514 in 1996 to 40,062 in 2006. This did, however, only marginally increase India's share in the world output of science publications from 2.1% in 2000, to 2.3% in 2005. Over the last few years, the number of scientific publications increased by more than 12% per year against the global average of 4%.


India's developments, such as those in space technology with capabilities to launch commercial satellites and un-manned missions to the moon and to Marsnuclear technology, pharma research capabilities in drug discovery and commercialization, ICT software, biotechnology in health and agriculture and the emerging capabilities in automotive research 29 and telecommunications, have contributed to the country’s recognition as an important knowledge power in the global economy. India is also attracting attention as a vibrant and versatile source of frugal innovation, a cost effective and inclusive innovation, leading to affordable products and services without compromising on quality and environment protection standards.


BYBYM V S SAI HEMANTM V S SAI HEMANT

BBA FOREIGN TRADEBBA FOREIGN TRADEIIND YEAR, 4IIND YEAR, 4THTH SEM SEMUPES,DEHRADUN,UPES,DEHRADUN,

UTTARAKHAND, INDIAUTTARAKHAND, INDIAM V S SAI HEMANT BBA FT IIND SEMESTER 41

Economy & Finance

India EU FTA