India-EU Free Trade Agreement and implications for Sri Lanka

The long-awaited India-EU Free Trade Agreement is expected to be concluded by spring this year, according to an announcement made by India’s Ambassador to the EU. He had however cautioned that the conclusion depends on both the negotiators as well as the political will.

The negotiations on this FTA commenced in 2007 and were expected to be concluded some time ago, but a number of contentious issues such as differences over services and automobiles are supposed to have delayed the conclusion.

The FTA is expected to cover over 95 % of the tariff lines between India and the EU. Although India absorbs only a mere 2.5% of EU exports, EU is India’s single biggest trading partner and according to the European Commission, the value of India-EU trade grew from 8.6 billion euros in 2003 to 79.9 billion euros in 2011.

Trade in commercial services according to the Commission has tripled from 5.2 billion euros in 2003 to 17.9 billion euros in 2010. It is also estimated that once the pact is concluded, India would gain five billion euros while the EU’s gains would be over four billion euros in the short run.

The pact, in addition to opening each others’ markets for goods and services is also expected to boost investment. Both parties are expected to benefit by the conclusion of this FTA. For the economically struggling EU, access to the over one billion Indian market with an increasing population of high income youth population would be a windfall.

A recent report by FICCI stated that India has become the third largest in Asia in terms of purchasing power parity. To India too, free trade with the 27 countries within the EU would be a major boost to the economy. As observers point out, the FTA would help create more jobs and uplift the living standards on both sides. It would also create opportunities for technology transfer, improvement in supply chains, increased competitiveness and skill transfer for both sides.

India already has free trade pacts with Japan, Malaysia and South Korea and in addition to ongoing negotiations with Thailand, Israel and Australia. With India gradually opening up her economy, this Broad Based trade and Investment Agreement (BTIA) between India the EU would cover almost 20% of the world’s population.

India and Sri Lanka are both recipients of tariff preferences under the EU GSP scheme and this scheme has enabled both countries to enter the EU markets. However, with the tariff liberalisation under the FTA, when concluded, Indian products will definitely have an edge over imports to the EU from Sri Lanka.

What the impact would be on Sri Lankan exports, particularly on items such as apparel, fishery products, etc. remains to be seen once the once the document is in the public domain. It is understood that India wants EU to relax its stringent food safety criteria which penalise Indian farm and fishery products.

If the agreement allows foreign companies operating in India to be given the same treatment as Indian companies, then the Sri Lankan companies operating in India will stand to benefit .As at present, a number of Sri Lankan companies have established manufacturing units in various parts of India.

Another area of interest not only to Sri Lanka, but to most developing countries would be the intellectual property provisions with regard to medicines. India which has a strong drug manufacturing industry supplies over 80 per cent of HIV and AIDS drugs used in developing countries in addition to high quality generic drugs. There is concern as to whether the pact will include strict provisions which could hinder access to cheaper quality drugs by developing countries.

(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)