Last week, the EU and US issued a joint statement on a tariff agreement between the two partners. In these troubled times of trade wars, this is nothing short of sweet music. Sweeter still is the fact that all countries, including India, can benefit from the reduction in tariffs.
The joint statement said that “United States Trade Representative Robert Lighthizer and European Union Trade Commissioner Phil Hogan today announced agreement on a package of tariff reductions that will increase market access for hundreds of millions of dollars in US and EU exports. These tariff reductions are the first US-EU negotiated reductions in duties in more than two decades.” Being a high-level representation from both sides, it received all the eyeballs it aimed at. US President Donald Trump tweeted several times claiming a victory for the people of Maine with promise of many jobs to follow.
In this much touted deal, tariffs on only a few items have been slashed on MFN (Most Favoured Nation) basis by EU and US retroactively from 1 August, 2020. Therefore, the duty slashed will have to be available for exports from all WTO members. To remain WTO compliant, countries can reduce tariffs only on MFN basis ( i.e., for all WTO members). To allow reduced duties only for each other’s goods, US-EU will have to enter into a free trade agreement (FTA), bringing down tariffs on almost 95% of the traded goods to zero.
The lobster, which seems the hero of the deal, got a zero tariff entry into EU after a well negotiated FTA with Canada. Canadian Lobster exports grew at a rapid pace after the FTA, so much so that the US exports were totally wiped out. Contrast this with the Indian industry, which has been unable to benefit from our FTAs. Niti Aayog has cited ADB estimates regarding utilization of FTAs by Indian industry being among the lowest in Asia at 5%-25%. The zero duty access for lobster that Canada negotiated with EU is now, by definition, available to Indian industry. Similarly EU products such as prepared meals, certain crystal glassware, propellant powders and cigarette lighters will get into the US at half the earlier tariff rates. This is now also available to Indian industry.
While the commodities for tariff reduction have been carefully chosen by both sides, it remains to be seen whether both sides can ensure only each other’s imports to benefit from this reduction. Both EU and the US are our traditional trading partners with billions of dollars in bilateral trade. Will the Indian industry seize this chance of a lower or zero duty market access into the two most sought after markets is what makes an interesting question.
The author has experience in international trade negotiations in the Ministry of Commerce. Views expressed here are personal.