EU’s Free Trade Agreement (FTA) with Vietnam Leaves India Fuming

EU’s Free Trade Agreement (FTA) with Vietnam has come as a big blow to India. India has started trade talks with the European Union (EU) and is open to dialogue with the United Kingdom for a free trade agreement, commerce and industry minister Piyush Goyal said recently.

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The FTA may hurt India’s garment industry as the new deal removes 99 percent of customs duties which would enable Vietnamese services and public procurement markets to EU companies.

India’s neighbours including Bangladesh, Sri Lanka, Cambodia and Pakistan currently ship apparel to the European Union at zero duty while India’s trade agreement with the EU features a 9.6 percent tax rate.

“The clear tariff differential in the EU market will add to our already-stark disadvantages in other areas such as logistics costs and further erode our competitiveness vis-à-vis Vietnam,” said Gautam Nair, Managing Director at Matrix Clothing, one of the country’s largest apparel exporters.

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

“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 EU. 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,” told a government official.

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Last year, India’s readymade garment exports to the EU dropped from €4.47 billion to €4.31 billion whereas, Bangladesh’s exports rose from €12.62 billion to €15 billion, Cambodia’s from €2.71 billion to €3.30 billion and Pakistan’s from €2.23 billion to €2.70 billion.

Vietnam’s garment exports to the EU went up from €2.61 billion to €3.29 billion. Experts have noted that aside from tariffs, India has a higher logistical cost which poses as an obstacle to its growth. The ongoing pandemic has put the garment workers out of work across the country.

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“Vietnam’s FTA with the EU will be another blow to the Indian garment exporters,” said Raja M Shanmugham, President of the Tirupur Exporters’ Association. “What we need is no quick-fixes but a long-term vision. Promoting garment clusters, initiating structural reforms and tailoring policy interventions accordingly will be a way forward,” he added.

Federation of Indian Export Organisations (FIEO) has asked the Commerce Ministry to expedite negotiations on an agreement launched in 2007, but stalled since 2013 due to disagreements over key areas.

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India has expressed its willingness to get back in talks with the European Union but the EU had put conditions which involving government procurement, labour standards and sustainability to be included which India finds difficult to accept.

“The EU and Vietnam FTA will also make Vietnam a more advantageous location for investments moving out of China due to the China-US trade war,” said Biswajit Dhar, Professor at Jawaharlal Nehru University.