By (Mrs) Amb Narinder Chauhan
India and the European Union (EU) restarted talks for a comprehensive free trade agreement earlier this year after a gap of nine years and 15 rounds. The two sides concluded the first round of negotiations for Bilateral Trade and Investment Agreements (BTIA), including the Geographical Indicators (GI) on July 1 2022.
The EU considers India amongst the world’s fastest growing economies, an important player in global governance, representing a sizable and dynamic market with an annual projected GDP growth rate of over 8 percent. The EU is India’s third largest trading partner, accounting for 88 billion euro worth of trade in goods in 2021 or 10.8 percent of total Indian trade, after the USA (11.6 percent) and China (11.4 percent). The EU is the second largest destination for Indian exports (14.9 percent of the total) after the USA (18.1 percent) while China only ranks fourth (5.8 percent).
India is the EU’s 10th largest trading partner, accounting for 2.1 percent of EU total trade in goods in 2021, well behind China (16.2 percent) the USA (14.7 percent) or the UK (10 percent). Trade in goods between the EU and India increased by about 30 percent in the last decade. Trade in services reached Euro 30.4 b in 2020.
The EU’s share in foreign investment stock in India reached 87.3 billion euro in 2020, up from 63.7 billion euro in 2017, making the EU a leading foreign investor in India. This is significant but way below EU foreign investment stocks in China (Euro 201.2 b) or Brazil (Euro 263.4 b).
Some 6000 European companies are present in India, providing 1.7 m jobs and indirectly 5 m jobs in a broad range of sectors.
A key EU objective in its trade relations with India is, professedly,‘to work towards a sound, transparent, open, non-discriminatory, and predictable regulatory and business environment for European companies trading with or investing in India, including the protection of their investments and intellectual property’. The aim is to contribute to unlocking the untapped potential of two-way trade and investment between the EU and India.
According to the EU, currently India’s trade regime and regulatory environment remains relatively restrictive. TBTs, SPS measures, deviation from internationally agreed standards, as well as discrimination based on legislative or administrative measures by India, affect a wide range ofsectors, including goods, services, public procurement, and investment.
On 8 May 2021, both sides agreed to resume negotiations for a ‘balanced,ambitious, comprehensive, and mutually beneficial’ trade agreement, and to launch separate negotiations onan investment protection agreement and an agreement on GIs, and to link trade negotiation to finding ‘solutions to long standing market access issues’ preparing to launch three tracks of bilateral negotiations to secure theStrategicPartnership.
These negotiations began in 2007 when both sides inked the Strategic partnership Agreement and lasted till 2013 by when it was clear that due to some fundamental disagreements on issues such as the movement of professionals and custom duties on tariffs like automobiles talks won’t move forward. But the world of 2022 and the world of 2013 are different. This is the age of deglobalization and economic decoupling. Trade is now being looked at through a strategic lens rather than primarily through an economic one. India and the EU are ready to forge a new partnership in response to the challenges of the 21st century by relooking at the FTA and finding solutions to some longstanding disagreements.
For India, this is time to establish its credentials as a reliable trading partner and put behind its reputation as a country difficult to do business with. Time is opportune to do so as the allure of China dims for western nations. For the EU, China was the focal policy of attention for the last several decades, but with China now being seen as a “systemic challenger’ to the EU, there is now new keenness in the EU to build a robust partnership with New Delhi.
During EU President Ursula Von der Leyen’s visit to India in April this year, it was agreed to launch a shared trade and technology council that includes defense (even though she underscored the need for New Delhi to shift away from “dependence on Russian fossil fuel”). The EU is now looking at the Indo Pacific with a new sense of importance and India is at the heart of realignment for the EU. In her words, ‘the partnership with this region is one of our most important relationships for the coming decade, and strengthening this partnership is a priority for the EU”.
India, on its part, is now at the heart of global governance shifts. As stated by the Indian Foreign Minister last week at the UN, India has shown of late its willingness to take on greater responsibilities from green growth and better connectivity to digital delivery and accessible health.
This rise of a new proactive diplomatic posture has happened at a time when some of the most powerful nations in the world have moved away from these responsibilities. The challenges thrown by Covid,the economic distress of the Ukraine crisis are cases where the powerful have played a key role in dismantling the extant structures of governance. With or without UNSC reforms, India’s role in global governance is becoming decisive.
As seen this past week at the UN, the meetings of the QUAD, BRICS, IBSA, CARICOM, G-20, and other trilateral formats such as India-France Australia, India France UAE, India Indonesia Australia etc. are sign those new structures of global governance will emerge and India will at the heart of most of these. This is a transformative moment in global politics, and in Indian foreign policy aspirations.
After India’s rejection of RCEP,there is a need felt in India to go for pacts among like-minded countries. This year, 2022, began with India signing the historic CEPA with the UAE (though broad, but shallow) inFebruary. This was followed by “an early harvest” trade pact with Australia (interim and narrow)in April that is likely to enter a full FTA by the end of 2022. India and the UK also intend to have their pact by the end year.
The India EU FTA is expected to be much broader and ambitious than any other trade deal recently done by India. The negotiations held in New Delhi from June 27-July 1, the focus was primarily on finding convergence and better understanding of each other’s sensitivities to achieve the ambitious goal of liberalizing 94 percent of trade in goods. In a first for India, the proposed FTA will include a chapter linking trade and sustainable development. The investment protection agreement was separated from the FTA due to regulatory framework within the EU: while an FTA can be approved by European parliament, investment promotions pacts are to be additionally ratified by parliaments of member countries. In digital trade, there is focus on innovation while respecting individual freedoms: find a midpoint between the US system of laissez faire to the Chinese model of controlling everything, in other words, free flow of data with trust. Other complex issues include agricultural subsidies, always sensitive for India, and a fair system of arbitration. Most of the 52 technical sessions focused around 18 text proposals from the EU side, including IPRs, competition, transparency, rules of origin, and SPS: 7 sessions on investment protection and GIs. India was scheduled to table its own text proposals, including possible alternative chapters before the second round of negotiations in Brussels in the first week of October 2022.
India sees EU as its second largest trading partner after the US, with trade in goods at an all-time high of $ 116.36 billion during 2021-22, with year-on-year growth of 43.5 percent, India’s exports to the EU, with a trade surplus, jumped 57 percent in 2021-22 to $65 billion.
The EU is an economic giant-the world’s third largest economy by GDP, our largest trading and investment partner and primary source of cutting-edge technology. There are divergences, from restrictive visa regime for Indian professionals and tariffs on spirits and dairy products from the EU to data localization and EU regulatory frameworks. There is likely to be a political temptation to conclude an early harvest agreement, but it would be much more beneficial to conclude a comprehensive one, cementing a burgeoning strategic partnership with one of the most critical global economic players. India’s march to a 10 trillion-dollar economy by the end of the decade depends on such outcomes.
Author is a former ambassador and formerly posted in the Indian embassy Brussels accredited to EU, Belgium and Luxembourg.
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