India, EU discuss textile duty relief in exchange for whisky concessions under FTA

New Delhi: In the backdrop of global trade being rocked by tariffs imposed by the US and threats of more coming soon, India and the European Union (EU) have stepped on the accelerator on their long-in-the-works free trade agreement (FTA).

In the latest round of talks between the two sides in Brussels on 10-14 March, a move to reduce duties on textile exports from India and premium alcoholic beverages from the EU has emerged as a key negotiation manoeuvre, three people aware of the matter told Mint on the condition of anonymity. 

Currently, India imposes up to 150% duty on alcoholic beverages from the EU, while the 27-country EU levies a duty of up to 14% on Indian textile goods. Comparatively, India’s textile rival Bangladesh has free access to the European market, with zero import duty.

“The concessions on spirits are among several other important issues on the negotiating table,” the first person mentioned above said. “India is exploring the option of lowering tariffs on alcoholic beverages from the EU while protecting the interests of domestic manufacturers.”

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This person added the talks were progressing well and “we are moving closer to finalising a mutually beneficial trade deal that will boost exports for both sides”. 

The new tariff structure for alcohol being considered in the FTA under negotiation is expected to differ significantly from the model adopted in the India-Australia trade pact. Unlike the Australian agreement, where tariff cuts on alcoholic beverages were linked to price bands and gradually reduced over a 10-year period, the structure is expected to be more uniform in the case of the EU and not based on price segmentation.

“Negotiators are working on a separate formula, possibly a flat phased reduction or a threshold-based model tailored to the EU’s product profile,” the third person cited above said, adding that in return, the EU is expected to eliminate tariffs on Indian textile products.

Queries emailed to the commerce ministry remained unanswered till press time.

EU spokesperson Olof Gill said in response to an emailed query that the 10th round of talks was part of a broader push to conclude the FTA negotiations by the end of 2025, as agreed between EU President Ursula von der Leyen and Prime Minister Narendra Modi during von der Leyen’s visit to India on 28 February.

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“For many of the key areas, the EU and India have different approaches, objectives, and legal and administrative traditions; this translates, in some cases, in different levels of ambition,” Gill said. “In particular, negotiators are focusing on the core issues of a future agreement with the aim to try to identify contours of an economically meaningful market access package. During this round, both sides aimed to achieve greater clarity on their respective positions in the areas under negotiation.”

The 10th round of talks focused on key trade areas including goods, services, investment, and government procurement. Along with the trade deal, discussions are also being held on an investment protection pact and a deal on geographical indications (GIs).

Both sides have agreed to speed up the process, and the 11th round of talks is scheduled to take place in New Delhi from 12-16 May. The two sides had resumed talks in June 2022 after a gap of more than eight years. Negotiations had stalled in 2013 due to differences over how much to open their markets.

Industry reactions

“The signing of an FTA between India and the EU has the potential to be a game changer for India’s textile and apparel sector,” said Prabhu Dhamodharan, convenor of the Indian Texpreneurs Federation (ITF). “Currently, India holds just a 5% share in the EU apparel market, compared to China’s 28% and Bangladesh’s 21%. With the FTA in place, our market share can potentially double within two years, thanks to the competitive edge gained through zero-duty access.”

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“Bangladesh’s rapid growth in the EU has been largely driven by its duty-free advantage. With similar access, India can become significantly more competitive,” said Dhamodharan, adding that doubling India’s current $4.5 billion in apparel exports to the EU could create 600,000-700,000 new jobs in the apparel sector.

“The EU imports $92 billion worth of apparel annually, making it an even larger market than the US,” Dhamodharan said.

Meanwhile, Anant S. Iyer, director general of the Confederation of Indian Alcoholic Beverage Companies (CIABC), said the Indian alcoholic beverage industry is open to a reduction in import duties, but it should be phased over time. He said the CIABC has already urged the government to cut customs duties on spirits from 150% to 50% over a span of 10 years.

However, Iyer cautioned that strict rules of origin are needed in the India-EU FTA, as relaxed rules could allow products from non-EU countries to be routed through EU nations to India to take advantage of duty cuts.

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“We recommend that only products genuinely made in the EU should qualify for concessions under the FTA,” said Iyer. “This will prevent unfair trade practices and ensure a level playing field for Indian producers.”

India-EU trade

India’s textiles exports to Europe have seen a slight decline over the past three years. In FY22, exports stood at $10.83 billion, which dipped marginally to $10.48 billion in FY23 and further dropped to $9.66 billion in FY24, per data sourced from the commerce ministry.

The key textile products shipped to European markets include ready-made garments across all textile categories, cotton yarn, fabrics and made-ups, handloom products, man-made fibre-based textiles, handicrafts excluding handmade carpets, carpets, and jute-based manufactured goods including floor coverings.

India has reduced the import duty on American bourbon whiskey from 150% to 100%, in a move seen as a gesture to placate the US following the meeting between the heads of both countries in February.

In contrast, the US administration had in March threatened to impose a 200% tariff on European alcoholic beverages in response to the EU’s decision to levy a 50% tariff on US spirits. However, in response to the US threat, the EU revised its list of retaliatory tariffs and removed American bourbon and wine to avoid further escalation and protect its own alcohol exports.

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