Free trade agreements (‬FTAs‭) ‬help countries export more outside their borders,‭ ‬gain better access to raw materials and vital components,‭ ‬and compete more successfully in the global marketplace.‭ ‬For India and Europe,‭ ‬the‭ ‬EU-India‭ ‬FTA faces a tough uphill battle.‭ ‬However,‭ ‬once that battle is overcome,‭ ‬the FTA will increase trade and opportunity between the two powerful regions.

India is an important sales market for Europe‭; ‬with a population of‭ ‬1.3‭ ‬billion‭ ‬it is‭ ‬the fastest growing economy in the world and a key supplier of a wide range of goods and services for many EU partners.‭ ‬Germany,‭ ‬ahead of India’s Prime Minister’s visit to Europe in late May,‭ ‬made a strong pitch for resuming negotiations for the EU-India FTA.‭ ‬Germany is one of many countries that India terminated its bilateral investment protection treaties‭ (‬BITs‭) ‬with,‭ ‬following the country’s release of a new BIT model in December‭ ‬2015.

If the new FTA is finalized,‭ ‬it will help both sides boost trade,‭ ‬create jobs,‭ ‬increase economic growth,‭ ‬and initiate new business opportunities.‭ ‬Companies need to prepare for the complex compliance processes that an FTA will bring when moving goods across these borders.‭

Overcoming import hurdles and new taxes
Though trade volumes could be higher between the two countries,‭ ‬the EU industry faces high hurdles shipping into India.‭ ‬In addition to the country’s sprawling bureaucracy,‭ ‬current import duties are as high as‭ ‬60‭ ‬percent,‭ ‬for example.‭ ‬in the automotive sector,‭ ‬plus additional import duties and non-tariff barriers such as regulatory standards.‭ ‬Companies are hoping to see a gradual tariff reduction for industrial goods with an approved FTA between the EU and India.‭

Despite India’s trade minister rejecting the FTA negotiations due to the restrictive environmental and social standards that the EU wants to establish,‭ ‬the Indian government is pushing ahead with one of its largest tax reforms since the country’s independence.‭

A bill is being put forward to the Indian parliament for the introduction of a uniform Goods and Services Tax‭ (‬GST‭) ‬across the country,‭ ‬which would replace a variety of indirect taxes.‭ ‬Goods and services would face a three-part GST structure that includes federal state GST for federal services,‭ ‬central government GST‭ (‬CGST‭)‬,‭ ‬and an Integrated GST‭ (‬IGST‭) ‬overriding tax.‭ ‬India’s parliament is still seeking consensus on this plan,‭ ‬which is supposed to be enforced on July‭ ‬1,‭ ‬2017.

For services within a federal state,‭ ‬CGST and SGST would be collected simultaneously,‭ ‬while services between two federal states along with the import of goods and services would be subject to the IGST.‭ ‬When importing goods,‭ ‬the IGST would apply as the customs taxes did previously.‭ ‬Standard GST will be‭ ‬28‭ ‬percent,‭ ‬while the rate for machinery and factory products,‭ ‬as well as many services,‭ ‬will be set to‭ ‬18‭ ‬percent.

For many companies,‭ ‬tax documentation with the new three-part GST structure will be more complex compared to the current service tax.‭ ‬While the new GST will simplify price and freight calculations,‭ ‬companies will need to adapt their current technology systems and accounting to be able to check their distribution channels and price calculations until GST is introduced.‭

How Automation Helps‭
To better manage the intricacies of an FTA,‭ ‬automation can improve a company’s compliance and save money in the long run.‭ ‬ Global Trade Management (‬GTM‭) ‬solutions offer more than just international trade compliance,‭ ‬they integrate global sourcing,‭ ‬supply chain risk,‭ ‬logistics,‭ ‬and trade compliance processes providing a holistic,‭ ‬digital view of the entire supply chain.‭

The new GST will accelerate the demand for automation,‭ ‬and with the right GTM in place,‭ ‬India’s complex import and tax regulations will be more cost-efficient and better managed.‭ ‬The best GTM can help with product classification,‭ ‬allocation of customs tariff numbers,‭ ‬maintenance of master data,‭ ‬collection and administration of origin certificates,‭ ‬and sanctions list checks.‭ ‬It can highlight what documentation is necessary for import into India and calculate model duties,‭ ‬taxes and other charges as well as the total landed costs.‭

By automating FTAs with solutions that rely on in-house sourced,‭ ‬country-specific regulatory trade content that is gathered,‭ ‬interpreted and updated daily by seasoned trade professionals,‭ ‬companies can plan,‭ ‬optimize and execute all aspects of global trade more efficiently and effectively.‭ ‬In addition,‭ ‬GTM systems can automatically document and archive all foreign trade processes for internal and government audits.

Some GTM solutions offer the most comprehensive and robust databases of global trade content,‭ ‬government regulations,‭ ‬and international business rules available.‭ ‬Amber Road,‭ ‬for example,‭ ‬covers over‭ ‬147‭ ‬countries‭ — ‬roughly‭ ‬95‭ ‬percent of world trade‭ —‬making its trade content and content management processes through Global Knowledge‭® ‬tightly integrated within the suite of GTM software.

As trade with India continues to grow,‭ ‬EU and global companies will face expensive,‭ ‬varied tariff and non-tariff trade barriers.‭ ‬While waiting for the final negotiation of the EU-India FTA and the gradual dismantling of tariffs,‭ ‬companies can prepare to automate legally-compliant,‭ ‬export and import processes with GTM solutions to be ready to capture the huge market opportunity that India offers.

Arne Mielken is a senior trade specialist at Amber Road, a provider of Global Trade Management software and solutions.