Adedokun Waliyu 
Adversity sometimes moves things along like nothing else. Under pressure from the threat of Washington’s tariffs, India and the European Union on Tuesday agreed the contours of a trade deal after muddling through stop-start negotiations for nearly 19 years. The deal could significantly ease market access for both partners sharing a 180 billion euro ($214 billion) trade relationship. Yet the handicaps that the South Asian country is trying to overcome by easing protectionism are precisely what skews the terms in Brussels’ favour.
India agreed to lower duties on high-end cars and liquor, which could improve the presence of European companies from Volkswagen (VOWG.DE), opens new tab to Renault (RENA.PA), opens new tab that have so far found the world’s fifth largest economy difficult to tap. In exchange, it secured in one shot a major market for goods from shrimps to textiles that might get locked out of the U.S. due to a punitive 50% tariff. Indian services firms will also gain steadier access to sectors from information technology to education.
The benefits seem lopsided, though. Most Indian goods only faced an average EU duty of only 3.3%, data by the World Trade Organization shows. Also, Brussels hasn’t acceded to easing its carbon tax rules. By contrast, European industries were subject to tariffs above 10% on average, with machinery and car makers facing duties of 44% and 110%, respectively. Those will now be slashed to zero and 10%.
The EU’s overall gains are still small, but the comparison with the less advantageous trade deal that Britain signed with India last year drives home the importance of having a big domestic market. Brussels could sell small concessions as big boons because it only exports 2% of its goods to India, while being home to 18% of Indian sales.
To be sure, New Delhi takes on limited risks. Indian farmers and dairy producers will remain protected even as import levies on less sensitive goods like olive oil and fruit juices gradually drop to zero. Car tariffs will come down slowly, buying time for local manufacturers like Tata Motors Passenger Vehicles (TAMO.NS), opens new tab and Mahindra & Mahindra (MAHM.NS), opens new tab to adjust, and will still apply to marques priced above 15,000 euros ($17,832).
For India, this is a long-term gamble to further its ambition of becoming an export powerhouse, which requires reversing weak foreign direct investment and bringing in superior technical knowhow in industries from car manufacturing to medical equipment. Exposure to the discipline of foreign markets, namely the EU’s strict health and safety rules, is a necessary step to ape the development experience of Japan, South Korea and China.
In the meantime, however, the poor quality of Indian products could make it hard to penetrate new markets. It’s one reason India’s trade deficit with the Association of South East Asian Nations has been growing, opens new tab despite safeguards from a deal signed in 2009. At least for now, Brussels seems to have gained the better end of the deal.
