India-European Union Free Trade Agreement (FTA)

The conclusion of negotiations on the India-European Union (EU) Free Trade Agreement (FTA) is a significant achievement as it resolves bilateral talks ongoing since 2007. This agreement marks India's expanded FTA strategy, involving both developed and developing nations, and reflects increased scope and depth in provisions.

Recent Developments in FTAs

• India-UK FTA: Features almost 90% tariff-line liberalization, includes environmental and labor standards, and opens select sensitive sectors under tariff rate quota provisions.
• India-EU Trade Deal: Shares characteristics of high ambition similar to the UK FTA, focusing on liberalization and comprehensive engagement.

Next Steps and Strategic Imperatives

• Completion of Remaining Formalities:
  • Finalize the FTA with the EU to facilitate its ratification by the EU parliament within the next financial year.
  • Market diversification away from the uncertain US market is crucial.
• Leveraging FTAs for Market Access:
  • Comparator economies like Vietnam have a first-mover advantage in several markets.
  • Sector-specific efforts and broader trade policies are necessary to improve export competitiveness.
  • Immediate trade policy should focus on regulatory ease, facilitative Customs procedures, and reducing import duties on critical inputs.
• Engagement in Mega-Regional Trade Agreements:
  • India should prepare for entry into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
  • CPTPP is a potential hub for rules-based trade, including members from diverse blocs like North America and Mercosur.
  • India should announce its intent to participate in CPTPP.

CPTPP: Opportunities and Challenges

• Advantages of Mega-Regional Agreements:
  • Facilitates cumulation of value addition through flexible rules of origin (RoOs).
  • Enables participation in Global Value Chains (GVCs) for member economies.
• Ongoing Evolution of CPTPP:
  • The agreement is reviewed every five years; first review concluded in 2025.
  • Revisions are necessary due to shifts in the global trade environment.
  • India must track changes to prepare for participation.

Independent Decision-making

• India's decision to participate in CPTPP should not be influenced by China's absence.
• China's application for membership has been delayed; however, global dynamics may change.

Conclusion

India's FTA strategy for 2026 should focus on bilateral, regional, and mega-regional trade agreements, supported by domestic trade policy reforms.