IMPROVING ECONOMIC COOPERATION BETWEEN INDIA & EUROPE-ALTERNATIVE TO CHINESE SUPPLY CHAINS

 

The EU-India Free Trade Agreement (FTA) and the India-Middle East-Europe Economic Corridor (IMEC) play crucial roles in safeguarding Europe from Chinese dominance. The IMEC aims to enhance connectivity and reduce transportation costs and time for goods between Europe, the Middle East, and India. By making India the central hub for supplying South and Southeast Asia, the IMEC helps insulate these regions from China's aggressive trade tactics.

The historical significance of trade routes between Europe and India underscores the importance of these initiatives. When Constantinople became the trade hub after Egypt's fall to Islam, European powers competed to find alternative routes to India after Constantinople fell to the Ottomans in 1452. Vasco da Gama's discovery of a longer route around the Cape of Good Hope in 1498 revived the Roman trade route, connecting Kerala—where Romans loaded their pepper—to Europe. The creation of the Suez Canal further revived this route, connecting the Mediterranean and the Red Sea.

The Europe-India trade routes have been pursued persistently by Europe, leading to European colonization of India and the Indo-Pacific. The launch of the IMEC during the G20 in September 2023 aimed to politically secure this trade route by involving countries deemed politically safe and strategic by the United States-New Delhi partnership.

The IMEC aligns with the West Asian Quad (I2U2), a supply chain resilience and trade alliance between the US, UAE, India, and Israel. Securing trade routes from Europe and the Middle East to India automatically enhances supply chain resilience in the Indo-Pacific and ASEAN regions. Currently, ships transport crude from the UAE and Saudi Arabia to India's west coast ports, which house crucial refineries. A future extension of the IMEC could facilitate the supply of refined products through pipelines to India's east coast and the Bay of Bengal, benefiting South and Southeast Asian countries.

The IMEC's potential impact includes reducing transportation costs and time, enhancing connectivity through cables and pipelines, and establishing India as a key supplier for South and Southeast Asia. These outcomes effectively shield these regions from China's trade aggression. The IMEC remains a priority for all participating governments, including France, the UAE, Saudi Arabia, India, and the United States.

While France, the UAE, Saudi Arabia, and the United States have made progress in their involvement with the IMEC, Italy, a founding signatory, is yet to take significant action. Italy's participation is crucial since its typical dish, cacio-pepe, symbolizes the Europe-India trade. France appointed an IMEC special envoy in February 2024, the UAE-India framework for the IMEC was signed in the same month, and Saudi Arabia has been discussing normalization with Israel despite recent conflicts. However, the European Union and Italy have not made substantial moves.

During the EU's silence, an important development went largely unnoticed in Europe—the European Free Trade Association (EFTA)-India Trade and Economic Partnership Agreement (TEPA). The EFTA consists of Switzerland, Liechtenstein, Iceland, and Norway, which are part of the European Economic Community but not the European Union.

The EFTA-India TEPA, signed after 15 years of negotiation, promises $100 billion in investment from EFTA countries into India and reduces duties on over 90% of exported products between both sides. While this agreement benefits the private sector in terms of Italian exports to India, particularly from northern Italy, it weakens Italy's individual contribution. It incentivizes Italian businesses to establish a "final mile" in Swiss free zones, leveraging Swiss certificates of origin to enjoy reduced or waived duties on products like coffee, machinery, and technology in India.

The TEPA also enhances the competitiveness of Swiss equipment in India compared to Chinese equipment due to reduced or eliminated customs duties. To maintain this advantage, the EFTA states plan to invest $100 billion in India over the next 15 years, generating over 1 million jobs. While the EFTA successfully concluded its free trade agreement, the European Union-India FTA lags behind, posing a significant disadvantage for Italian and European companies.

The EU-India FTA is pivotal for the IMEC's ultimate success, as is Italy's role as the final destination of the IMEC from Haifa. If Italy can negotiate Taranto and Trieste as the two final terminals for the IMEC into Europe, it will revitalize Taranto's port, which China recently abandoned, and restore Trieste as the gateway to northern and eastern Europe.

The IMEC represents more than just a trade route; it secures the long-term connectivity, energy, and supply chain resilience of Europe, the Middle East, and India against various adversaries. History has shown the intertwining of religion, politics, and trade, emphasizing the importance of both the trade route (IMEC) and the EU-India free trade agreement for the success of the Italy-India trade story.