Mains Practice Questions

Introduction

India and the European Union (EU) are negotiating a long-pending Free Trade Agreement (FTA) with an aim to conclude it by 2025. However, non-tariff issues like EU's proposed Carbon Border Tax (CBTs) and India's expanding Quality Control Orders (QCOs) have emerged as significant points of contention, influencing the trajectory of bilateral trade and diplomatic engagement.

Body

Carbon Border Taxes (CBTs):

• EU Proposal: It is a tariff on carbon-intensive imports to the EU, aimed at preventing carbon leakage.
  • Indian economic sectors like steel, aluminum, cement, and fertilizers, which are energy-intensive and heavily coal-dependent, would face increased export costs. This could undermine India’s price competitiveness in the EU market.
• India's Concerns: CBAM is seen as a non-tariff barrier that disproportionately affects developing countries.
  • India advocates a just and equitable transition, seeking differentiated responsibilities under climate frameworks.

Quality Control Orders (QCOs):

• According to the Ministry of Consumer Affairs, QCOs aim to protect public safety, environmental health, and prevent unfair trade practices.
  • India has notified 187 QCOs, covering 769 products for mandatory BIS certification.
  • These cover sectors including electrical appliances, machinery, chemicals, and more.
• Impact on EU Exports: EU exporters face compliance burdens due to India's expanding QCO regime.
  • Especially affected sectors include electronics, pharmaceuticals, and industrial machinery.
• India's Response: India believes that these quality checks, while important for consumer safety, could act as non-tariff barriers that limit access to the European market.
  • India seeks to negotiate more flexible standards and mutual recognition agreements (MRAs) on quality to facilitate smoother trade between the two regions.

Impact on Bilateral Economic Relations:

Opportunities:

• QCOs can improve India’s product standards, making them globally competitive.
  • A prime example is Japan, where strict internal regulations and robust quality control have led to the development of globally recognized brands like Toyota.
  • Aligning with CBT may boost India’s green credentials and open climate-tech cooperation with the EU.
• With a stable regulatory framework and improved market access, EU companies may be more inclined to invest in India, particularly in sectors like renewable energy, technology, and manufacturing.

Short-term Strain:

• CBAM and QCOs act as regulatory hurdles, slowing down FTA progress. Increased compliance costs for both Indian exporters and EU manufacturers.
• The EU seeks supply chain diversification from China, India is a key candidate. However, unresolved regulatory barriers could redirect investment elsewhere.

Conclusion

While these non-tariff barriers may delay the agreement, they also provide a platform for both parties to address broader concerns related to sustainability, trade fairness, and global competitiveness. A balanced approach to these concerns will determine the future trajectory of India-EU economic relations.