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  • Jun 04, 2024
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“INDIA’S TRADE OPPORTUNITIES WITH THE EU”

Syllabus:

  • GS-3- India -EU trade opportunities , Diversification in trade ,WTO rules

Focus :

  • The article discusses the significant impact of new EU supply chain laws on Indian businesses, emphasizing the need for compliance to sustain and grow trade.
  • It highlights key legislative changes, including deforestation regulation, corporate sustainability due diligence, and forced labor regulation, and outlines strategic steps Indian companies must take to adapt.
Source - TH

India’s Trade Opportunities with the EU

  • The EU is India’s third-largest trading partner, making compliance with EU regulations crucial.
  • Recent free trade deal with the European Free Trade Association (EFTA) exemplifies this potential.
  • Growing Economic Ties:-India’s economic growth presents significant opportunities for expanding trade with the EU.
  • Indian businesses must adapt to new EU supply chain laws to sustain and grow their market presence.
  • Key sectors affected include textiles and garments, pharma, and food and agriculture.

Key Legislative Changes in the EU

1. Deforestation Regulation:

  • Effective from June 2023, compliance deadlines are December 30, 2024, for large companies and June 30, 2025, for SMEs.
  • Targets deforestation in supply chains for products made after June 29, 2023.
  • Focuses on seven commodities: cattle, coffee, cocoa, oil palm, rubber, soy, and wood.
  • Extends to products made from these commodities, like leather, chocolate, palm oil, rubber tyres, and books.
  • Products must be ‘deforestation-free’,meaning they should not come from land deforested after December 31, 2020.
  • Companies must provide due diligence statements to confirm compliance.
  • Non-compliance penalties include substantial fines based on global turnover and product confiscation.

2.Corporate Sustainability Due Diligence Directive (CSDDD):

  • Focuses on identifying and mitigating environmental and human rights risks within large companies’ supply chains.
  • Applies to large EU and non-EU companies with a net turnover of €450 million or more generated within the EU.
  • Smaller companies will be indirectly affected through supply chain demands for due diligence information.
  • Requires companies to take ‘appropriate measures’ to identify, prevent, or mitigate risks.
  • Involves conducting risk assessments and integrating new contractual clauses with value-chain partners.
  • Compensation is payable to victims and substantial fines are based on global turnover.

Forced Labour Regulation:

    • Aims to eliminate products made with forced labour from the EU market.
    • Applies globally to all companies, regardless of size.
    • Enforcement will focus on larger economic operators early in the EU value chain, such as importers and manufacturers.
    • Indian businesses must ensure their products are free from forced labour.
    • Similar US legislation has resulted in the detention of 35 Indian shipments in April alone.

Strategic Steps for Indian Businesses

1.Enhancing ESG Compliance:

  • Develop policies aligned with EU standards to enhance ESG (Environmental, Social, and Governance) compliance.
  • Conduct regular audits and supply chain assessments.
  • Strengthen due diligence processes.
  • Track the origin and processing of commodities.
  • Train supply chain partners on compliance requirements.

Monitoring Regulatory Deelopments:

  • Stay updaed on EU legislation to proactively adjust business practices.
  • Engage with industry associations and regulatory bodies for guidance and resources.
  • Develop contingency plans for potential disruptions.
  • Establish crisis management teams to swiftly address compliance-related issues.
WTO rules for free trade :

1.Tariff Barriers-Tariffs are taxes imposed on imported goods and services.They are used to protect domestic industries from foreign competition and to generate revenue for the government.The WTO encourages the reduction of tariffs through negotiations and binding commitments.

2.Non-Tariff Barriers (NTBs)-NTBs include quotas, import licensing, and standards that restrict imports. The WTO aims to reduce NTBs that unjustifiably restrict trade.

  • Quotas: Limits on the quantity of a product that can be imported.
  • Import Licensing: Requirements for permits to import certain goods.
  • Standards: Health and safety regulations that imports must meet.

3.Most-Favored-Nation (MFN) Status- A principle ensuring non-discriminatory trade between all WTO members.Any favorable trading terms offered by one WTO member to another must be extended to all members.Promotes equal trading opportunities and reduces trade barriers.

4.National Treatment-A rule requiring imported goods to be treated no less favorably than domestically produced goods once they enter the market.Ensures fair competition between imported and domestic goods.Applies to both goods and services.

5.Transparency-Members must publish their trade regulations and ensure they are accessible to other members.Members must notify the WTO of any changes to their trade policies.

6.Dispute Settlement-The WTO provides a structured process for resolving trade disputes between members.Includes consultations, panels, appeals, and compliance reviews.

7.Special and Differential Treatment-Developing countries receive special rights and are given flexibility in implementing agreements.To help developing countries integrate into the global trading system and benefit from international trade.

Importance of Compliance for Trade Sustainability

1.Impact on Indian Export Sectors:

  • Textiles and garments, pharma, and food and agriculture sectors face the highest compliance risks.
  • Non-compliance with EU regulations can prevent products from being exported to the EU market.
  • Compliance ensures continued access to the lucrative EU market and fosters sustainable business practices.

2.Long-term Benefits of Compliance:

  • Adhering to EU regulations can enhance the reputation of Indian businesses.
  • Compliance can lead to increased market opportunities and competitiveness in the global market.
  • Ensures that Indian products meet high environmental and ethical standards, appealing to conscious consumers.

Enhancing Trade Relations with the EU

1.Strengthening Bilateral Frameworks:

  • Indian Pharmaceutical Alliance (IPA) proposed a US-India Affordable Medicine Partnership to address China’s dominance in supply chains.
  • Enhance collaboration through financial incentives, technology sharing, and collaborative research.
  • Expand production in both America and India to reduce dependence on China.

2.Leveraging  India’s Manufacturing  Strengths-

  • India is one of the largest suppliers of generics to the US, contributing significantly to the US healthcare system.
  • By enhancing manufacturing capabilities and compliance, India can further strengthen its position in the global pharma market.

Conclusion: Navigating the New Trade Landscape

  • Proactive Compliance and Strategic Adaptation:Indian businesses must proactively comply with new EU regulations to sustain and grow their market presence.
  • Strategic adaptation, regular audits, and enhancing ESG policies are crucial for long-term success.
  • Engaging with industry bodies and staying informed about regulatory changes will help businesses navigate the evolving global trade landscape.
  • By focusing on compliance and strategic growth, Indian companies can continue to capitalize on opportunities in the EU market and beyond.

Source:The Economics Times

Associated Article :

https://universalinstitutions.com/indias-trade-reliance-on-china-and-eu-rising-un-trade-body/

Mains Practice Question :

GS-1

“Discuss the impact of recent EU supply chain laws on Indian businesses. How can Indian companies adapt to these regulations to sustain and grow their trade with the European Union? What strategic measures should be taken to ensure compliance and capitalize on trade opportunities?. “(250 words)