EU-India Summit Gives New Impetus to Trade and Investment: An Overview

13 May 2021

On 8 May 2021, the 16th annual EU-India Summit injected fresh momentum into the expansion of EU-Indian economic relations through various trade and investment initiatives such as, most prominently, a resumption of negotiations on a Free Trade Agreement (“FTA”) and the launch of negotiations on an investment protection agreement (“IPA”).  Given the business relevance of this renewed impetus after the 2013 suspension of a first attempt to negotiate an FTA, this newsletter highlights the main features and potential for improvement of EU-India trade and investment relations before providing an overview of the key trade and investment outcomes of the Summit.

1. Main Features of EU-India Trade and Investment

At present, the EU and India share a significant trade and investment relationship that has expanded in recent years.  In this regard, EU statistics show that:

  • Bilateral trade in goods increased by 72% since 2010 and bilateral trade in services reached €7 billion in 2020;
  • The EU was India’s 3rd largest trading partner and 2nd largest export destination for goods in 2020, accounting for 11.1% and 14% of India’s total goods trade and exports;
  • India was the EU’s 10th largest trading partner and 11th largest export destination for goods in 2020, accounting for 1.8% and 1.7% of the EU’s total goods trade and exports;
  • The EU became the main foreign investor in India in the last decade, with EU foreign direct investment (“FDI”) in India more than doubling to over €75 billion in 2019.

 

In terms of specific goods, key EU exports to India include, in order of significance, machinery and vehicles (e.g. aircraft and associated equipment), manufactured products (e.g. pearls and precious stones), and chemicals, whereas key EU imports from India include manufactured products (e.g. medicaments), chemicals, and machinery and vehicles (e.g. motor vehicle parts).  As for specific services, the EU’s main exports and imports to and from India consist of, respectively, information and communication technology and general business services, whereas recent EU FDI in India has focused on infrastructure, renewable energy and climate projects.

2. Potential for Improvement of EU-India Trade and Investment

Although EU-India trade and investment relations have, thus, grown in importance in recent years, there are clear indications that there is ample room for further expansion.  For example, the EU has recorded a trade deficit with India in the last two years, maintains more significant trade relations with other large countries such as China and the United States, and similarly continues to prioritize FDI in other large emerging economies such as Brazil and China.  In this regard, the EU has described India’s trade regime and regulatory environment as “relatively restrictive” and consistently highlighted India as maintaining a high number of barriers to EU export and investment.

In terms of potential for improvement, the EU has specified that India’s deviation from international standards and agreements, discriminatory administrative and legislative measures, sanitary and phytosanitary (“SPS”) measures and technical barriers to trade (“TBTs”) negatively affect market access for a wide range of sectors.  Based on the suspended first attempt to negotiate an FTA, other problematic areas for the EU have been India’s high tariffs on certain products such as cars or wines and spirits, intellectual property protection, and restrictive rules on commercial presence for banking, insurance, legal and retailing services.

As for India, the Indian government has repeatedly expressed an interest in surpassing China as an EU trade partner.  During the first attempt to negotiate an FTA, areas that India hereby prioritized for improvement included market access for cross-border services, temporary movement of workers, and EU SPS measures and TBTs, among others.

3. Trade and Investment Outcomes of 2021 EU-India Summit

On 8 May 2021, the EU and India used the forum of their 16th annual Summit to agree on various specific initiatives to inject fresh momentum into the expansion of their trade and investment relationship.  As such, they followed up on their announcement, at the previous EU-India Summit on 15 July 2020, that they would work towards balanced and mutually beneficial trade and investment agreements, opening markets and creating a level playing field on both sides.  To that effect, the EU and India on that occasion also agreed to establish a regular High-Level Dialogue on Trade and Investment, which was launched on 5 February 2021 with an initial discussion on approaches and positions and on the possible new areas of cooperation such as regulation of new technologies.

Building on these initial steps, the EU and India now issued a Joint Statement announcing, most prominently, their decisions to:

  • Resume negotiations on a “balanced, ambitious, comprehensive and mutually beneficial” FTA;
  • Launch negotiations on a stand-alone IPA; and
  • Launch negotiations on a separate agreement on geographical indications.

 

In terms of short-term measures, the EU and India first noted their agreement to “create the required positive dynamic for negotiations” by finding quick solutions to long-standing market access issues.  Second, they highlighted the need for “swift engagement” in areas of mutual economic interest and agreed to create joint working groups on resilient supply chains and regulatory cooperation on goods and services including, but not limited to, green and digital technologies.  Last, the EU and India agreed to enhance coordination at the multilateral level and to establish, in the run-up to the 12th WTO Ministerial Conference in November 2021, an EU-India Senior Officials’ Dialogue to deepen bilateral cooperation on WTO issues and reform.

4. Conclusion

As for next steps, any initial developments will likely take place within the framework of the High-Level Dialogue on Trade and Investment as this forum was tasked with ensuring progress on market access issues, keeping cooperation on regulatory aspects and resilient value chains under review, and supervising the establishment of the EU-India Senior Officials’ Dialogue.  No announcements were made in terms of next meetings or specific EU and Indian trade and investment objectives, however, and the concrete impact of the announced initiatives, thus, remains to be seen.

 

Pierstone will hereby continue to monitor relevant developments as they arise and can assist all businesses with each legal issue that they encounter in respect of the various announced initiatives and the wider framework of EU-India trade and investment.  If you have any questions on this subject or should you require legal assistance, please do not hesitate to contact us.

 

Maarten Vanderhaeghe                            Slavica Puric

Partner                                                          Associate

E: maarten.vanderhaeghe@pierstone.com  E: slavica.puric@pierstone.com