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FTA talks: India begins hard bargain on non-tariff barriers with EU.
Mar 06, 2024

In an effort to get non-tariff barriers eliminated in the ongoing free trade agreement negotiations with the European Union, Indian negotiators have prepared an elaborate list of such roadblocks in key sectors such as pharma, engineering, electrical and agri items and have begun taking it up with their European counterparts, two people aware of the developed told The Indian Express.

This comes as India-EU concluded their seventh round of negotiations last month dealing with goods, services, market access, investment protection agreement (IPA) and a separate proposed pact on geographical indications (GIs). India and the EU had relaunched the negotiations in May 2021 after a gap of over nine years, at a time when western firms are looking at India as an alternate supply chain source to China.

The talks on non-tariff barriers (NTB) come in a backdrop of multiple environment and labour regulations brough by EU such as Carbon Border Adjustment Mechanism (CBAM) and Deforestation-free Regulation (EUDR) which is threatening to obstruct about 8 to 10 per cent of the Indian agri, steel and aluminum exports going into the 27-bloc union.

Barring Indian petroleum exports, India’s exports to EU- a key trading partner – have seen little gain over the last five years largely due to a slew of non-tariffs barriers in tea, agriculture, engineering and electronic items. While India has brought up the issues in negotiations, both parties continue to disagree on the definition of non-tariff barrier causing friction in the negotiations.

'The problem is that what we call the non-tariff barriers are referred to by them as non-tariff measures. They say that as a society we have high standards. Sometimes these standards are at par with the World Trade Organization (WTO) and sometimes they are WTO plus. They say that it’s an internal lookout that EU manufacturers are subjected to those high standards and are not meant to target India,' a senior government official said.

'We are not able to meet those standards and it is becoming a barrier to us. So the prism is changing. All that is required is standards and quality consciousness that needs to be there in India. But then comes the challenge of affordability. We are a developing nation with a large population and there is a cost associated with conformity to those high standards.That is the fundamental difference where per capita GDP comes into play. That is where they are able to use the deep pockets and insulate themselves, build and maintain those standards,' the official added.

The official further said that Indian chemicals and fertilizers face major disruption in exports because the domestic industry cannot match it and Indian consumers will not bear the high cost.

'Quality unfortunately [is a concern]..that is the reason why China was able to penetrate the Indian market because …their compliance level is high. So what you call an NTB is a major sticking point. It differs from one economy to another. That is a challenge that we are facing,' the official further added.

Council on Energy, Environment and Water (CEEW) in its report released last year said that the chemical exports from India were met with stringent regulations in the form of Registration,

Evaluation, Authorisation and Restriction of Chemicals (REACH), implemented by the European Union (EU) in 2007. The regulation resulted in approximately 40 per cent of exporters withdrawing from the market.

Moreover, India’s rice exports have suffered due to the imposition of maximum residue level (MRL) limits, which is the highest level of pesticide residue that is legally acceptable in or on food or feed when pesticides are applied following good agricultural practices. In 2017, the European Commission (EC) reduced the MRL limit for a fungicide used in rice cultivation, which led to a sharp drop in rice exports from India. India’s agriculture exports to the EU have declined in the last five years to $3.12 billion in FY23 from $3.36 billion in FY18.

'The European Union has got completely paranoid about maximum residue level (MRL). And they are actually using in the name of food safety, they are using pesticides and MRL laws as a non tariff trade barrier. So, they are setting laws for pesticide, but in the category of pesticide they are including naturally occurring pollutants and hydrocarbons which are in the environment, which are not being sprayed by anyone and they are putting limits for that under the pesticides category,' Chairman of Indian Tea Exporters Association (ITEA) Anshuman Kanoria told The Indian Express.

Notably, Indian tea export to Europe has slid to $166.08 million in FY23, down nearly 6 per cent from $176.47 million in FY18. Indian tea exports already face stiff competition from Sri Lanka and Africa who have been gaining market share globally.

'The other most important thing is they [European Union] has put Indian organic tea in a high risk category, because of which they are requiring a lot of testing and certification. The government is very keen to promote organic cultivation and export but the EU with its tough laws towards India is actually placing roadblocks to the cultivation and export of organic tea. We are losing the market because a lot of people are reluctant to export due to these laws. Lots of tea we know doesn’t pass the laws of tea anymore. Africa and Sri Lanka are exporting but India has its own market in the EU. And what these laws are doing is damaging the market of Indian tea in the EU completely,' Kanoria added.

'There are different kinds of market access barriers for example, the pharmaceutical sector faces the barrier of registration. The registration of drugs is taking enormous time in the European Union because of the huge influence the multinational drug companies have. Secondly, we have challenges in the electrical field, where standards different from what is globally followed is imposed. In agriculture, phytosanitary standards issue and traceability is an issue,' Ajay Sahai, Director General & CEO of the Federation of Indian Export Organisations (FIEO) said.

Sahai stressed that unless the issue of market access is addressed, the FTA will not make much headway because if the items are not freely allowed to be accessed in the country, there’s no point in having a tariff advantage. Globally, Indian exporters are also seeing that non trade issues are emerging and we feel that the environment and labor are the two non trade issues which are going to be extremely vital for global trade in this decade, Sahai added.

'Non trade issues are definitely emerging because probably the advanced economy feels that they have not much to restrict, either through the tariff or through the licensing and they want to regulate it through these non trade issues only,' he further said.

Indian textile exporters said that the problem with textile exports are not only the standards sought by the EU but also the private standards which differ from one multinational company to another. Notably, India’s textile exports to the EU have remained stagnant over the years. India’s textile exports in FY18 stood at $10.84 billion while in FY23 it fell to $10.48 billion.

'The problem in textile is the private standard issues which cannot be brought in negotiations. Each company in the EU has different standards that we need to meet. There are a slew of reporting requirements that are coming in which is becoming a market access issue for us,' Chandrima Chatterjee, Secretary General of Confederation of Indian Textile Industry (CITI) said.

Chatterjee added that the EU has increased reporting norms which are detailed in nature and are not easy to comply with without divulging sensitive information. She added that the government should bring in one reporting standard which the EU accepts.

indianexpress.com

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