Recently, the 3rd High-Level Dialogue (HLD) on bilateral trade and investment between India and the EU was held on August 26, 2023. The discussion covered progress in negotiations for a Free Trade Agreement (FTA), Investment Protection Agreement (IPA), and Geographical Indications Agreement, emphasising mutual market access and the India-EU Trade and Technology Council’s achievements. The aim was to further boost the already historic bilateral trade, which hit €120 billion in goods in 2022, including €17 billion in digital products and services. The meeting was co-chaired by key officials from the EU and India, underscoring the significance of this strategic collaboration, which may have implications for Pakistan being the latter’s next-door neighbour and a strategic rival.
EU-India negotiations in trade, investment protection, and geographical indications (GIs) are being conducted separately. A stand-alone GI Agreement allows an accelerated means for both the EU and India to mutually recognise each other’s GIs and welcome new trade opportunities and business scenarios. An agreement on GIs seems easiest, as the EU has already reached a similar agreement with China. India will need to establish its own implementation and control regime for GIs to be defined.
An IPA appears particularly difficult to reach, as it requires approval from the European Parliament and Council, as well as ratification by EU member states. Investment protection chapters have been controversial and provoked resistance in the past. The EU is also pursuing an ambitious new model of improved investor-state arbitration with India, including an appeal option and a commitment to support a multilateral court. These improvements are crucial preconditions for ratifying an agreement. Although India has reservations about older procedures, an agreement appears difficult due to limited room for manoeuvre in European negotiations.
An FTA might diminish Pakistan’s comparative advantage and market share in the EU market, particularly in areas where the country competes directly with India.
With 88 billion euros worth of goods trade in 2021, the EU is the third-largest trading partner of India. Likewise, with 2.1% of the EU’s total goods trade in 2021, India is the EU’s tenth-largest trading partner. In 2020, service trade between the EU and India was €30.4 billion, and with a stake valued at €87.3 billion, the EU is one of the largest foreign investors in India.
Both aim to increase exports from EU companies to India, open up the services and public procurement sectors, safeguard GIs, and pursue ambitious promises on trade and sustainable development. Moreover, both guarantee that the regulations agreed upon are enforceable through these agreements. Additionally, through commitments on non-discrimination, protection against expropriation without compensation and unfair treatment of investors and their investments while preserving the right to regulate, the investment protection negotiations aim to give investors from both sides a predictable and secure investment environment. They also seek to establish an efficient and cutting-edge dispute settlement mechanism to enforce such rules.
According to a European Commission study, an FTA can increase EU exports to India. Moreover, India and the EU reached a record-breaking $116.36 billion in merchandise trade, a 43.5% year-on-year increase in FY 2020-21. Likewise, India’s exports to the EU grew by 57% to reach $65 billion, creating more jobs in both countries. This growth is expected to continue in the coming years. Furthermore, an FTA may improve cooperation on key issues such as climate change, digital transformation, human rights, and regional security.
The trade dialogues between the EU and India, however, confront several obstacles and roadblocks. Market access for agricultural products, vehicles, wines and spirits, data protection, intellectual property rights, labour standards, environmental rules, subsidies, and dispute resolution processes are among the concerns. To overcome these gaps and establish a mutually acceptable agreement, both sides will have to make compromises and alterations.
Pakistan is both an adjoining neighbour and a strategic adversary to India. The country also has a preferential trade agreement (PTA) with the EU under the UN Generalized Scheme of Preferences Plus (GSP+), which allows 76% of Pakistani exports duty-free access to the EU market. Textiles, apparel, leather items, grains, fruits, vegetables, and fish are Pakistan’s principal exports to the EU.
A FTA between the EU and India might have positive and negative outcomes for Pakistan. On the plus side, an FTA may increase regional commerce and integration, open up new avenues for collaboration and conversation, reduce tensions and disputes, and promote South Asian peace and stability. Furthermore, it might potentially enhance demand for Pakistani goods in the EU market, as some Indian goods may become more costly as a result of increased EU regulations or tariffs.
But on the other hand, an FTA might bring difficulties for Pakistan. An FTA might diminish Pakistan’s comparative advantage and market share in the EU market, particularly in areas where the country competes directly with India, such as textiles, clothes, leather products, grains, fruits, vegetables, and fish. It could further exacerbate the trade gap between Pakistan and India, which is currently in India’s favour. It may also boost India’s economic clout and influence in the region and beyond, putting Pakistan’s strategic interests and security concerns at risk.
Pakistan, therefore, must take a proactive and pragmatic approach to dealing with the potential repercussions of an EU-India FTA. The country should seek to diversify its export basket and markets, improve its competitiveness and productivity, improve quality standards and compliance, strengthen trade diplomacy and advocacy, and explore new avenues of cooperation with the EU and India on mutual interests such as climate change, energy security, and counterterrorism. In this way, Pakistan can avoid any negative implications in future.