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The ongoing negotiations between India and the European Union (EU) for a bilateral Free Trade Agreement (FTA) are facing a crucial hurdle: rules of origin. These rules determine which goods qualify for preferential tariff treatment under the FTA, significantly impacting the cost and competitiveness of traded products. Currently, a major point of contention lies in the differing approaches to defining the origin of goods, particularly in sectors like chemicals and textiles. India's existing trade agreements often employ simpler rules, such as focusing on the 'wholly obtained' criterion or value-added criteria. The EU, however, typically adopts more complex product-specific rules, often involving detailed process-based criteria that go beyond simply verifying the country of origin of raw materials. This difference in approach creates significant challenges in ensuring fair trade and preventing circumvention of the FTA's intended benefits. The EU’s preference for more intricate process-based rules aims to prevent 'transshipment,' where goods from a non-FTA country are processed minimally in a participating country and then exported, thereby unfairly benefiting from preferential tariffs.
India's proposed compromise represents a significant effort to bridge this gap. By considering the value chains of exported products and drawing on the experience gained from its recent FTAs, such as the one with the European Free Trade Association (EFTA), India seeks a solution that balances the need for robust origin verification with the practical realities of complex global supply chains. This compromise focuses on creating product-specific rules that are flexible yet effective in preventing abuse of the system. The approach acknowledges the intricacy of modern manufacturing processes, where goods often traverse multiple countries before reaching their final form. Instead of rigidly adhering to the 'wholly obtained' criteria, the proposed rules would look at various stages of production to determine origin, giving consideration to significant value-addition at each stage. This approach is expected to help facilitate greater trade and economic integration while minimizing the risk of unfair competition.
The upcoming visit of the EU trade commissioner, Maroš Šefčovič, to India later this month highlights the urgency and importance of resolving these differences. The tenth round of FTA negotiations scheduled for March 10-15 in Brussels underscores the dedication of both sides to reaching an agreement. However, the negotiations are not without their challenges. The EU’s proposed process rules, which have been applied in other FTAs, have been a point of contention, particularly in sectors like textiles where the EU has suggested specific processing requirements for items like yarn to qualify for preferential treatment. These proposals require careful consideration to avoid imposing undue burdens on Indian manufacturers and ensuring a level playing field. Success in these negotiations will depend on finding a balance between the EU's concerns about trade fairness and India's need to protect its domestic industries and ensure competitiveness in the global market. The volume of trade between India and the EU, reaching $180 billion in FY24, underscores the economic stakes involved. A successful FTA could significantly boost this trade volume and contribute to the economic prosperity of both regions.
The successful conclusion of an FTA between India and the EU would have far-reaching implications. It would create a larger, more integrated market, fostering increased trade, investment, and economic growth for both parties. Beyond the economic benefits, such an agreement would have significant geopolitical implications, strengthening the strategic partnership between India and the EU. A successful FTA would demonstrate a commitment to multilateralism and rule-based trade, setting a positive example for other global trade negotiations. However, the challenges ahead are not insignificant. Addressing concerns about rules of origin, government procurement, and other sensitive issues requires careful diplomacy and a willingness to compromise. The upcoming negotiations in Brussels will be a crucial test of the commitment of both sides to forge a strong and mutually beneficial partnership. The outcome will significantly impact not only the future of India-EU trade relations but also the global trade landscape, underscoring the need for a pragmatic and equitable solution.
In conclusion, the proposed compromise on rules of origin signifies a critical step in the India-EU FTA negotiations. The ability of both sides to find common ground on this complex issue will determine the success of the broader FTA negotiations. The economic benefits of a successful agreement are substantial, and the geopolitical implications are significant. However, the intricacies of the rules of origin and the need to balance the interests of both parties require careful consideration and compromise. The outcome will have a profound effect on bilateral relations, setting a precedent for future global trade negotiations and highlighting the significance of finding solutions that foster collaboration and mutual benefit in an increasingly interconnected world.
Source: India working on compromise proposal to resolve origin rules differences with EU in FTA talks