India-EU Relations

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Context: The era of pandemic shown that we are living in an uncertain world. Trade between the countries got disrupted and certainly, the measures like lockdown have impacted the people movement. Cooperation among the countries is more essential now than before. But in the case of the EU and the U.K, the relations have strained after Brexit. This has to be analyzed from the perspective of India where India seeks global cooperation.

Relevance:
Mains: GS II-Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

 

About the European Union
  • European Union is an international organization consisting of European Countries, which was formed in 1993. It came into force after the signing of the Maastricht Treaty by 28 countries. The Maastricht Treaty is also known as the Treaty of the European Union (TEU). Maastricht is a city located in the Netherlands. The Maastricht Treaty was amended thrice. The amendments are listed below.
  • Treaty of Amsterdam (1997)
  • Treaty of Nice (2001)
  • Treaty of Lisbon (2007)

Objectives of the European Union:

  1. To increase political cooperation
  2. To enhance economic integration by creating a single currency the EURO.
  3. Unified security and foreign policy
  4. Common citizenship Rights
  5. Enhanced cooperation in the areas of judiciary, immigration, and asylum.

Member states:

Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

 

India-European Union Relations

India-EU SUMMIT 2020: Partners for a 21st century rules-based order | ORF

Trade picture:

  • The EU is India's largest trading partner, accounting for €80 billion worth of trade in goods in 2019 or 11.1% of total Indian trade, on par with the USA and ahead of China (10.7%).
  • The EU is the second-largest destination for Indian exports (over 14% of the total) after the USA.
  • India is the EU’s 10th largest trading partner, accounting for 1.9% of EU total trade in goods in 2019, well behind the USA (15.2%), China (13.8%) and the UK (12.6%).
  • Trade-in goods between the EU and India increased by 72% in the last decade.
  • Trade-in services between the EU and India increased rapidly from €22.3 billion in 2015 to €29.6 billion in 2018.
  • The EU's share in foreign investment inflows to India more than doubled from 8% to 18% in the last decade, making the EU the first foreign investor in India.
  • EU foreign direct investment stocks in India amounted to €68 billion in 2018, which is significant but way below EU foreign investment stocks in China (€175 billion) or Brazil (€312 billion).
  • Some 6,000 European companies are present in India, providing directly 1.7 million jobs and indirectly 5 million jobs in a broad range of sectors.
  • India has an untapped export potential of $39.9 billion in the EU and Western Europe. The top products with export potential include apparel, gems and jewellery, chemicals, machinery, automobile, pharmaceuticals, and plastic.
  • India benefits from tariff preferences under the EU’s Generalized System of Preferences (GSP) for several of these products.

Generalized System of Preferences (GSP)

  • The Generalized System of Preferences (GSP), instituted in 1971 under the aegis of UNCTAD, has contributed over the years to creating an enabling trading environment for developing countries.
  • The following 13 countries grant GSP preferences: Australia, Belarus, Canada, the European Union, Iceland, Japan, Kazakhstan, New Zealand, Norway, the Russian Federation, Switzerland, Turkey, and the United States of America.
  • Following the WTO Hong Kong Ministerial Decision in 2005 in which members agreed that developed countries and developing countries in a position to do so would grant duty-free and quota-free market access for exports of Least developed countries (LDCs), improvements were made to various GSP schemes and/or new schemes for LDCs were launched.
  • In fact, India is among the major beneficiaries of the EU’s GSP, with exports under the GSP valued at nearly $19.4 billion in 2019, accounting for nearly 37% of India’s merchandise exports to the EU.
  • However, there are several products where India has export potential in the EU, but these have “graduated” or are at the brink of “graduation” under EU GSP.
  • Product graduation applies when average imports of a product from a beneficiary country exceed 17.5% of EU-GSP imports of the same product from all beneficiary countries over three years.
  • India’s exports of products such as textiles, inorganic and organic chemicals, gems and jewellery, iron, steel, and their articles, base metals, and automotive are already out of the ambit of EU-GSP benefits.

Importance of India for EU:

  • India is amongst the world’s fastest-growing large economies and is an important player in global economic governance.
  • India is an important trade and investment partner for the EU. It represents a sizable and dynamic market, with an annual GDP growth rate of around 6% (pre-Covid-19).
  • Post-Covid too, India economy pictures a promising recovery and rise in consumer demand and GDP. 

India-European Union Free Trade Agreement:

  • India and the EU had launched talks for having a wide-ranging Free Trade Agreement (FTA), officially called broad-based Bilateral Trade and Investment Agreement (BTIA), long ago in 2007.
  • The BTIA was proposed to encompass trade in goods, services, and investments. However, the talks stalled in 2013 over differences in market access and movement of professionals.

India-EU cooperation in other fields:

  • Civil Nuclear Cooperation: A civil nuclear cooperation agreement was signed between the European Atomic Energy Community or Euratom and the Department of Atomic Energy, India.
  • The agreement will focus on research and development cooperation for peaceful uses of nuclear energy and on new ways of using nuclear energy.
  • Defence and Security Cooperation: The two sides also agreed to scale up defence and security ties which included:
  • The launch of a new maritime security dialogue.
  • Consultations on crisis management and deeper cooperation between the Indian Navy and the European Union Naval Force Atalanta.
  • The EU’s counter-piracy military operation in the western Indian Ocean.
  • India’s Central Bureau of Investigation (CBI) and Europol launched negotiations to combat organized crime and terrorism.
  • Both decided to intensify cooperation to tackle terror and its financing, radicalization, and abuse of the internet for such activities.

Brexit and its Implications on Europe:

  • Brexit is a vote against globalization. As a result, it has weakened forces in the EU that favour integration.
  • Brexit was the withdrawal of the United Kingdom (UK) from the European Union (EU) and the European Atomic Energy Community (EAEC or Euratom) at the end of 31 January 2020.
  • To date, the UK is the first and only country formally to leave the EU, after 47 years of being a member state within the bloc.
  • The effects of Brexit will in part be determined by the EU–UK Trade and Cooperation Agreement.
  • The broad consensus among economists is that Brexit will likely harm the UK's economy and reduce its real per capita income in the long term.
  • Brexit is likely to reduce immigration from the European Economic Area (EEA) countries to the UK and poses challenges for British higher education, academic research, and security.
  • The U.K. is no longer part of the customs union and a single market with the EU.
  • Brexit put a big strain on the relations of U.K. member Northern Ireland with its neighbour, the Republic of Ireland, an EU member.
  • Free movement between the U.K. and EU has ended.

Recent developments in India-Eu relations:

  • Recently India and the EU held the first virtual summit after Brexit. India and the EU also need new normality. The holding of this summit virtually is one of the first steps towards adapting to the new normality.
  • India-UK relations formed an important part of India’s relations with the EU. Now with the Brexit, the India-EU relations would require restructuring outside of their respective relations with the UK. 
  • China remains the major cause of concern. The two sides should look to cooperate in facing this common threat from China’s aggression.
  • China is a common threat because just like posing a challenge to India at the border and in the Indian Ocean Region, China is posing a challenge to the EU as well. 
  • China’s threat has opened up potential avenues for India and the EU to cooperate. China’s assertion against India and India’s strong response has highlighted the magnitude of the threat that China poses. 
  • India should look to work closely with the EU in the Indo-Pacific region. France is one country that has been strengthening its strategic relations with India. Indian and French navies participate in a joint maritime exercise called Varuna annually.
  • Recently India and France conducted joint patrol from Reunion Island. Along with France, Germany has also been showing interest in participating in the geopolitics of the Indian Ocean Region. 
  • Just like maritime security, data security is an important area for India and the EU to focus on. Data theft has been a major accusation against China in recent times. This has led India to ban 59 Chinese apps.
  • Concerns about using 5G technology from China have also led a number of countries to review the use of this equipment and subsequently banning them. 

EU has been an important partner for India. EU is the largest trading partner of India while India is the EU’s 10th largest trading partner. 

Still, there is a lot of scopes for the trade relations to improve since India is behind the US, China, and the UK in terms of being the EU’s trade partner. The UK has been an important country so far in India’s relations with the EU. After the UK, France and Germany had India’s major focus in the EU. But now India should look to develop relations with other countries such as Spain, Portugal, the Netherlands, Poland, and Denmark.

Way forward

The Covid-19 crisis and China’s aggression are challenges but they have presented an opportunity to India and the EU to restructure their relations to adjust to the new normality. The scenario of Brexit certainly provided India with an opportunistic outlook. India should cooperate with both U.K and the EU simultaneously to gain maximum benefit out of it. Certainly, people-to-people contact has to be improved once the pandemic is over with bringing the new investments in both the countries. This also leads to fastening BTIA from which India can leap forward.



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