EU-Vietnam free trade pact may hurt India the most

Amiti Sen New Delhi | Updated on June 15, 2020 Published on June 15, 2020

Marine exports is one area which is causing concern to India   -  C.V.Subrahmanyam

Export of footwear, garments, marine products and furniture may take a knock

India’s exports of footwear, garments, marine products and furniture to the European Union stand to be the worst-hit once the 27-member bloc starts dismantling its tariffs for Vietnam under the EU-Vietnam free trade agreement (EVFTA) to be operational soon.

New Delhi is keen to expedite its own bilateral free trade negotiations with the bloc, which could level the playing field for its exporters, but will not be rushed into a deal, say experts and officials.

There are still wide gaps between the two in areas such as intellectual property, government procurement, investment protection, labour, environment and market access for sensitive products that need to be bridged, they say.

The EU-Vietnam free trade agreement is an ambitious pact eliminating almost 99 per cent of customs duties between the EU and Vietnam.

Exporters worried

“Indian exporters are apprehensive about losing their markets in the EU to Vietnam for key products where its competitor will soon have the advantage of duty-free access because of its FTA with the bloc. India can nullify this advantage by concluding its own FTA but it needs to move carefully as a hurried deal may result in the industry losing more than it gains.

“We are ready to talk with the EU whenever it shows interest,” a government official told BusinessLine.

In the EU market for apparels and marine products, where the two countries have almost equal share of $7 billion and $1 billion each respectively, Vietnam will benefit when its import duties reduce to zero under the FTA while India continues to pay 9 per cent duty on apparels and 6 per cent on marine, said Ajay Sahai from the Federation of Indian Export Organisations (FIEO).

“In footwear, where Vietnam exports $7.5 billion worth of items compared to India’s $1.6 billion, the advantage will be enhanced once EU reduced tariffs for Vietnam to zero from 8 per cent. Similarly, in furniture, where India had started making inroads into the EU with imports of over $900 million, Vietnam’s share of $1.5 billion is likely to increase several-fold when the import duty of 6 per cent is eliminated, Sahai said.

‘Speed up talks’

FIEO has recently asked the Commerce Ministry to expedite negotiations on the broad-based trade and investment agreement (BTIA), launched way back in 2007, but stalled since 2013 due to disagreements over key areas.

Although India expressed its willingness to get back into the talks late last year, the EU had made it conditional that issues such as government procurement, labour standards and sustainability have to be included which India finds difficult to accept.

“Trying to undercut the EVFTA by doing our own FTA will have its own problems. We can’t ignore the fact that there are market access issues on the EU side as well with the bloc insistent on opening up of sensitive sectors such as automobiles and wine & spirits,” pointed out Biswajit Dhar, Professor, JNU.

The EVFTA will also make Vietnam a more advantageous location for investments moving out of China due to the China-US trade war, Dhar added.

Vietnam, which had lagged much behind India in the EU market some years back, has almost caught up with the country. Vietnam’s exports to the bloc in 2019 was $53 billion compared to India’s exports of $58 billion, Sahai said.

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Published on June 15, 2020
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