Stalled negotiations between India and the EU for the proposed free trade agreement (FTA) are unlikely to resume anytime soon despite Prime Minister Narendra Modi attending the India-EU Summit in Brussels on Wednesday, mainly due to a lack of consensus required for serious talks.
Sources told FE that while the EU wants India to first address its key areas of concern—including reducing import duties on auto parts and wine, and ensuring a strengthened intellectual property rights (IPR) regime—before any formal resumption of negotiations, India wants discussions on all areas simultaneously, and not just on issues concerning the EU.
Both the sides are also learnt to be waiting for the outcome of a referendum on June 23 as to whether the UK should exit the EU so that they can set the agenda for negotiations with more clarity, they said. India also wants more concessions in services, especially in easier movement of professionals.
The secretary-level talks, launched last month for the EU-India Bilateral Trade and Investment Agreement (BTIA) after the initial stock-taking exercise in January, haven’t been able to build solid foundation for the negotiations, sources said. As many as 16 rounds of negotiations took place for the BTIA (the proposed FTA) between 2007 and 2013, but the negotiations were stuck after that.
A British exit, or Brexit, from the 28-member bloc will end central control by Brussels and offer the UK the freedom to manage its own affairs. “Both the EU and India will have to re-evaluate their positions in case the UK decides to pull out of the EU. So, it makes sense, especially for India, to watch out for the outcome of the referendum first and then make the move accordingly, as the UK is also a key market for India,” a source said.
India also feels the flexibilities shown by it in further opening up certain sectors to foreign investments should be considered positively by the EU, it also expects some reciprocal measures by the 28-member bloc to address its concerns, especially on data privacy and market access in the services sector. India is keen on services, as they account for over a half of its GDP. The country also seeks a data secure status because the high compliance cost with EU’s data protection laws will hit small and medium enterprises (SMEs) of India and make them uncompetitive.
India has further liberalised many sectors for foreign investments, including some of the areas where the EU had interests, over the past three years. For instance, the FDI cap in insurance has been raised to 49% from 26% and 100% FDI is allowed in telecom. In private sector banking, full fungibility of foreign investment is now permitted up to a sectoral limit of 74%, with certain conditions.
However, the EU is interested in further liberalisation of FDI in multi-brand retail and insurance, and closed sectors like accountancy and legal services. The underutilised private banking space in India is another draw. India’s intellectual property regime (IPR), which is unlikely to allow ever-greening of patents, remains a concern for European pharma majors. Moreover, the EU has been seeking a cut in the high import duties on assembled vehicles and wines and spirits. In case of assembled vehicles, the import duties remain in the range of 60-75%.
BTIA talks were to be revived last year, but the EU’s surprise ban on 700 products of GVK shocked India, which then called off the negotiations.