EU's aggressive environmental regulations biggest hurdles of FTA talks with India: GTRI

New Delhi: The European Union's (EU) aggressive environmental regulations, particularly the carbon tax, deforestation rules, and supply chain due diligence laws are one of the biggest hurdles in the negotiations for a proposed trade pact with India, economic think tank GTRI said on Sunday.

It said that these regulations could impose additional costs on Indian exports.

Under the Carbon Border Adjustment Mechanism (CBAM), Indian exports of steel, aluminum, and cement to the EU could face tariffs of 20-35 per cent, even if an FTA is signed, the Global Trade Research Initiative (GTRI) said in its report.

This raises concerns that while EU goods would enter India duty-free, Indian exports would still face these indirect barriers in Europe, it added.

India and the 27-nation European Union (EU) bloc will start the tenth round of negotiations for a proposed free trade agreement from Monday in Brussels.

GTRI Founder Ajay Srivastava said that India is pressing for clear exemptions or compensatory measures within the FTA to neutralize the impact of CBAM and related environmental rules.

"Without such provisions, India fears that EU's climate policies could act as disguised trade barriers, limiting its ability to export to Europe. One of the biggest hurdles in the negotiations is the EU's aggressive environmental regulations," he said.

On the services sector, the report said the EU imposes restrictions on remote online service delivery (Mode 1) by requiring Indian companies to establish local offices and maintain high minimum salary thresholds for Indian professionals working in Europe.

These requirements undermine the very purpose of digital trade, making it more difficult for Indian IT firms to offer their services remotely, he said adding a long-standing demand from India is for the EU to recognize it as a 'data secure country' under the General Data Protection Regulation (GDPR).

Without this status, Indian companies handling EU citizens' data face additional compliance costs and legal barriers, unlike firms from countries like Japan or South Korea, which enjoy seamless data transfers.

"The EU is urging India to adopt stronger privacy regulations aligned with GDPR, but India sees this as an unnecessary burden on its digital economy. India has just enacted its Digital Personal Data Protection Act, 2023, which it argues should be sufficient, though it does not meet all EU standards," Srivastava said.

In the services chapter of the agreement, India has also called for easier business visas (Mode 4) for its professionals travelling to the EU for short-term assignments.

On the other hand, European firms are seeking greater access to India's banking, legal, accountancy, auditing, and financial services sectors.

The EU wants India to open these markets to European firms.

India is also seeking the recognition of professional qualifications through Mutual Recognition Agreements (MRAs). This would allow Indian professionals in areas like medicine, engineering, and accountancy to work more easily in EU countries, something the EU has been slow to agree upon, it said.

Further, the EU is pushing for access to India's lucrative government procurement (GP) market, allowing European firms to compete for contracts in India's central government and public sector undertakings (PSUs).

"However, India is unlikely to accept this demand, given that the EU's own procurement market is largely closed to external firms. India may not agree to the EU demands as the government procurement is a major Indian policy support for small firms, especially in sectors like infrastructure, defense, and public services," the report said.

In the investment negotiations, while India has proposed its Model Bilateral Investment Treaty (BIT) as the framework, the EU wants India to relax its investment protection clauses to align with European expectations.

India may be unwilling to dilute beyond its Model BIT, which is designed to protect India's regulatory autonomy and prevent excessive legal claims by foreign investors, it added.

The report said that the EU is demanding that India take on binding commitments on labor rights, environmental sustainability, and data protection. India, however, prefers a best-effort approach, arguing that imposing rigid sustainability obligations could interfere with its domestic laws and policies.

European negotiators are insisting that India align its labor laws with international standards, particularly in areas like collective bargaining, workplace safety, and wages, it said adding they also want India to commit to strict environmental norms as part of the FTA.

"Intellectual property (IP) remains another area of disagreement. The EU is pressuring India to agree to TRIPS-plus provisions, which go beyond the WTO's Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement," it said.

The GTRI said that the EU wants stronger enforcement mechanisms, extended data exclusivity for pharmaceutical companies, and tougher patent protection rules.

"India, however, resists these demands, as they could make life-saving drugs more expensive and restrict India's thriving generic drug industry, which supplies affordable medicines to the world," it added.

In the area of Geographical Indications (GIs), the EU is asking India to bypass its normal GI registration process for certain European products, granting them automatic recognition, according to the report.

This would give products like Champagne, Roquefort cheese, and Prosciutto di Parma (a dry-cured Italian ham) immediate GI protection in India without undergoing the standard verification process, it said.

"India insists that the EU follow Indian legal procedures for registering GIs, just as Indian products like Darjeeling Tea, Basmati Rice, and Alphonso Mangoes undergo rigorous scrutiny before receiving GI status in Europe," it added.

The India-EU agreement has the potential to significantly boost trade and investment between the two partners.

The EU, with a GDP of USD 18.4 trillion and a population of 448 million, is a major global trade player, exporting over USD 2.9 trillion and importing more than USD 2.6 trillion annually.

India, with a USD 3.9 trillion economy and a population of 1.4 billion, exported USD 437 billion in goods and imported USD 678 billion in FY'2024.