Agricultural trade under the India-EU FTA

In this insightful interview conducted under the K-Hub | Trade Matters Series, Dr. Bibek Ray Chaudhuri, Professor, IIFT Kolkata, shares his perspective on the current state and potential of agricultural trade between India and the European Union (EU) under the India-EU Free Trade Agreement (FTA).

Dr. Chaudhuri delves into the major products driving trade, highlighting the complementary nature of agricultural exports and imports between these two regions. He addresses the substantial challenges, particularly focusing on high tariffs from India’s side and stringent non-tariff barriers from the EU.

Dr. Chaudhuri also discusses the implications of these barriers on Indian agricultural producers and exporters, and offers strategic insights on how India can navigate these challenges to enhance its trade competitiveness. This conversation presents a holistic understanding of the dynamics of India-EU agricultural trade and the potential benefits and obstacles of the FTA negotiations.

 

India Business & Trade: How do you view the agricultural trade basket between India and the EU at present? Which products are currently driving trade and what is the degree of complementarity between these two partners?

Dr Bibek Ray Chaudhuri: Trade between the EU and India in agricultural products is quite substantial. The major products driving imports from the EU are tobacco, products of milling, starch, malt, miscellaneous edible oils, preparations and animal and vegetable oil. On the other hand, India’s exports to EU majorly comprise animal & vegetable oils, cocoa and cocoa preparation, vegetable plating materials, residues of waste from the food industry, sugar and sugar confectionery, etc.

We have done some studies in this regard and where we could also bring out some of the products which might be coming up while these countries will negotiate in different rounds. For the EU, we have almost completed seven rounds and both sides have presented an exclusion list. India s exclusion list majorly comprises agricultural products. The EU’s exclusion list may have just 1-2 agricultural products, but mostly they are from other categories like ceramics and plastics.

If you look at the whole ecosystem of agricultural trade between India and the EU, and if we keep FTA negotiations in the forefront, there is a huge potential already.

But there are crucial concerns, particularly pertaining to high average tariffs from India’s side and the non-tariff barriers on the EU’s side. So if FTA negotiations are only concentrating on tariff then major benefits of the FTA agreement will go to the EU.

India Business & Trade: What are the major challenges on agricultural trade growth between India and the EU and how do you think they can be addressed?

Dr Bibek Ray Chaudhuri: So we just took some data right from 1990, 2000, 2010 and 2020. If you look at the average tariff which India has imposed on EU agricultural products, then it has changed from 75% in 1990 to 40% in 2000, 33% in 2010 and again it is now 36% in 2020. So the average tariffs are quite high.

In fact, the highest tariffs are commanded by beverages, spirits and vinegar. Earlier, they were as high as 266% and today they stand at around 170%.This means that there are certain products which India is vigorously protecting and that has to do with livelihoods of the people. Around 41% of our population is still dependent on agriculture, and out of these, around 50-60% are below the poverty line.

On the other hand, the EU’s average tariffs are quite low. They were at around 11% in 1990 and have come down to 4.6% in 2020. So, as I was mentioning, even if we go for an FTA that is only based on tariff then the major benefits will to go to the EU. Even in case of dairy where they are protecting their products, the tariff is only at 16%.

But the other part is non-tariff measures that are majorly affecting our trade, especially with the EU. Their SPS/TBT measures have had a huge impact on our agricultural exports. India has made multiple representations to the European Union. We have found that the residue limits and other kinds of requirements are much higher in case of products coming from India then other countries.

India Business & Trade: You have highlighted some concerns in your analysis regarding the FTA negotiations and if this FTA is finalized, so what kind of challenges can come up for Indian agricultural producers and exporters? Also, how can India address these challenges during the negotiation stage itself?

Dr Bibek Ray Chaudhuri: So here the problem see why I have some first hand information on this because we were doing this project for the ministry and also in one of the projects which involved UK, I personally was the lead researcher and we did it for UK Aid.

We found was that they were always very sensitive about this right from the beginning. Whenever you bring up non-tariff barriers, they will generally try to push that discussion to a later stage. Then the talks will not progress further.

But we have found in our study that the non-tariff equivalent of these barriers on India’s agricultural exports is substantially high. And we also concluded that if these barriers are removed, trade can increase by over 20-30%.

I feel that during the negotiations, the Indian side should look carefully at the compliance requirement and mutual recognition clauses. Beyond the FTA negotiations, they should also represent to the WTO for resolution. We have to very carefully look at the notifications and how they can hinder trade.

Some of the notifications might be valid for health and safety of animals as well as human beings. Our major effort should be to understand if the intent is more than that, i.e. where the partner country is actually trying to create a barrier. We should distinguish between non-tariff measures and non-tariff barriers.

So, negotiators have to go to the table with all this knowledge and also some back of the envelope calculations. This will help us understand the non-tariff equivalent and the possible increase in trade if they are reduced by a certain percentage. I think these are the issues that will be very important, and each round of negotiation should bring us closer to our objective

India Business & Trade: What is your view on how has the negotiation with UK progressed in parallel to the negotiation with the EU and how the issues or the opportunities are different for India in both cases. And are there some major learnings from India-UK FTA that can be cross leveraged in these negotiations?

Dr Bibek Ray Chaudhuri: In case of the UK, we are stuck because they are creating a lot of barriers for the movement of people, leading to visa issues. So we are looking at the UK majorly, not only for agricultural products, but majorly also for services.

Brexit majorly happened because people in Britain are worried and sensitive about people from other countries coming in and taking their jobs. Due to this, the talks are stalled and in my view, the deal will not be signed very soon unless this issue is resolved.

As far as learnings go, Brexit has created major potential for increasing India’s trade with EU, for which, we can also look at certain services sectors, apart from agricultural goods. In fact, we have done a very detailed analysis of agricultural products and found that intra-EU trade is also huge. If you compare the EU with other regions, then intra-EU trade will be around 79-80%.

This means that it is very difficult to break that supply chain. I found that India’s complementarity with EU is very high. So, if you look at in the scale of 0 to 100, then around 68 is the complimentarity. Now, which means that whatever India is exporting to the world, EU is importing from the world, but EU is not importing that from India. So, we tried to find out why and even we found some surprising thing. It is not only because of tariff or non-tariff.

Actually there are quality issues. So, the same product which is being exported by India to let us say Switzerland or let us say Germany that same product is also exported by let us say Poland. But even if the unit value is much higher for the product from Poland it is still preferred.

Transportation cost is cited as one reason. But quality also becomes an issue, since food products are majorly cultural products. There is a kind of consumer preference towards certain food products coming from certain places. That is very difficult to circumvent. But other than that if we look at processed food then I think there is a lot of potential.

India Business & Trade: On that point, we have seen how the Indian government has a strong thrust behind boosting the exports of processed food products. So in the case of EU, do you see any discernible shift?

Dr Bibek Ray Chaudhuri: We are currently exporting around 12% of our processed food to the EU. Our major market within the EU for processed food is the Netherlands. The leading contributors are processed food products of fish and crustaceans, vegetable oils and oil cakes.

Exports of these products is increasing over time and has a lot of potential. But as I have said, the major problem is quality and also a number of restrictions in the form of non-tariff barriers. We should leverage India-EU FTA negotiations to understand the compliance requirements and how Indian producers can better align with them. Do we require any additional certification agencies? Or can we develop our own standards? Should we use the multilateral route? All this should be carefully weighed, before deciding our way forward.

India Business & Trade: How do you see the present impact of regulatory challenges on agri trade in the global market? Do you see these kind of regulatory instances growing in the past few years? And how can governments address this issue or exporters address these challenges?

Dr Bibek Ray Chaudhuri: I think that there is a marked shift after COVID in the different kinds of restrictions. Predominantly, countries are citing health and other hazards for restricting trade, though they are allowing imports of vaccines and other kind of products. Their exports are being allowed all over the world; because the products are essentials and everybody cannot produce them.

But I would say in general agricultural products are facing a lot of challenges especially in the major developed countries which are also our key markets. They are protecting the agricultural sector through tariff and non-tariff barriers.

The major reason is that their cost of production is much higher than ours, and they have no other way of competing. Secondly, our agriculture is more labour intensive, whereas their agriculture is very capital intensive. In some of the developed countries, agriculture is more capital intensive than manufacturing. So, naturally the ecosystem is in the hands of large corporations there, instead of individuals.

In my view, India should take the help of the Dispute Settlement Mechanism and file cases there. For that, we need to create a strong capacity in terms of lawyers. Even today, the number of lawyers who can actually try such cases are much less in India. And once we start doing that, I think these barriers are going to come down.

Since the WTO has come in 1995, a plethora of regional training agreements have been signed. Tariff is not a major issue, instead the actual issue is non-tariff barriers and other kinds of compliance requirements. These are covert measures being used against us and restricting our exports.

India Business & Trade: when you look at agricultural export trends generally over the past few years, how do you see India’s growth as an agricultural exporter? And since it’s among the largest producers of commodities, what steps do you think can India take to enhance competitiveness in exports?

Dr Bibek Ray Chaudhuri: The major products that are doing well from India are fruits, nuts, dairy produce, beverages, fish, and meat, edible oils, animal and vegetable fats and preparations of cereals. Our revealed comparative advantage is much higher than one. But our destination markets are majorly US, EU, UAE, China. So if you look at our destination markets, then there are still major hindrances. As I mentioned, these hindrances stem from non-tariff barriers.

Industry associations and export promotion bodies should enhance awareness among producers regarding product varieties in demand in the world market. As a result, the producers know what product lines they need to focus on. There also needs to be dissemination of awareness on SPS standards required by those countries. If they require some kind of certifications, where should they go?

I think that the Indian government has now designated the Bureau of Indian Standards as a nodal body for TBT. So, there are various ways through which we can ensure this knowledge dissemination, which will help us to actually tackle certain issues, which are not only related to productivity or efficiency of production, but also to make our produce export ready.

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Dr Bibek Ray Chaudhuri did his Ph.D. in Economics from Jawaharlal Nehru University, New Delhi, India. He is currently Professor of Economics at Indian Institute of Foreign Trade (IIFT), Kolkata, India. Dr Chaudhuri started his career as a Consultant at the National Council for Applied Economic Research (NCAER). He was a Visiting Fellow at School of Environment, Education and Development (SEED), the University of Manchester, UK. His research interests include trade, microfinance and political marketing.

Dr Chaudhuri has been published in Journals like Journal of Business Research (Elsevier), Market Intelligence and Planning (Emerald), Journal of Political Marketing (Taylor and Francis), Journal of Industrial Statistics and Journal of Asian Business Studies (Emerald). He was a recipient of the prestigious “Japanese Award for Outstanding Research on Development”, conferred by Ministry of Finance, Government of Japan and Global Development Network (GDN). He is An avid traveler and likes to visit places, other hobbies include reading and sports.