India-EU Trade Talks: Need a full FTA, not ‘early harvest’

Political interest in the deal is high, but bureaucratic hurdles won’t be easy to jump over

India-EU Trade Talks: Need a full FTA, not ‘early harvest’
Yet, few would be willing to bet even now that a free trade pact (FTA) can be reached without any glitches.

By Harsh V Pant

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India and the European Union have once again embarked on an ambitious journey. Both understand the need for urgency in reaching their destination. But the path towards that end game remains a tumultuous one despite a new momentum in their bilateral engagement. This is a moment to seize and make the most of when it comes to India-EU trade ties and policymakers on both sides seem well aware of what’s at stake. Yet, few would be willing to bet even now that a free trade pact (FTA) can be reached without any glitches.

Last month, after a hiatus of more than eight years, India resumed negotiations with the 27 nation bloc on the long-in-the-making FTA, that involves agreements on trade, investments and Geographical Indications (GI). This first round concluded on July 1 and the next round is slated to begin in Brussels in September. The two sides are aiming for “broad-based, balanced, and comprehensive” negotiations “based on the principles of fairness and reciprocity.”

India and the EU started this engagement on trade as far back as 2007 but by 2013 it became evident that due to some fundamental disagreements on issues such as the movement of professionals and custom duties on items like automobiles talks won’t move forward. Since then, there has been widespread pessimism around this issue in New Delhi as well as in Brussels.

But the world in 2022 looks very different from the world in 2013. Nations are having to reassess their long-held assumptions in a fundamental manner. This is the age of deglobalisation and economic decoupling. Suddenly, trade is being looked at through a strategic lens than primarily through an economic one. India and the EU are ready to forge a new partnership which speaks to the issues of today and responds to the challenges of the 21st century. This also means relooking at the FTA and trying to find solutions to some of the longstanding disagreements.

For India, this is a time to establish its credentials as a reliable trading partner. The perception that it is difficult to do business with India has done great damage to its credibility as a rising power. Without adequate capabilities to attract other economic players, India will remain marginal to the global economic order. This is something that Indian policymakers seem intent on rectifying as the allure of China dims for the western nations. For the EU, China was the focal policy of attention for the last several decades as Brussels proudly proclaimed that it was not in the business of geopolitics. With China now being seen as a “systemic challenger” to the EU, there is a new keenness to build a robust partnership with New Delhi.

During EU president Ursula Von der Leyen’s visit to India in April, the two sides agreed to launch a shared trade and technology council even though she underscored for New Delhi the importance of shifting from “dependency on Russian fossil fuels.” The EU-India Trade and Technology Council is aimed at tackling “challenges at the nexus of trade, trusted technology and security, and thus deepen cooperation in these fields between the EU and India.” The EU is now looking at the Indo-Pacific with a new sense of importance and India is at the heart of this realignment. In the words of Von der Leyen, “For the European Union, 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 European Union.”

Indian policymakers are keen to make the most of this unprecedented opening in bilateral relationship. Given New Delhi’s perception in the West as reliable and trusted partner, this is a moment to push for the FTA to secure long term economic objectives. This year began with India signed the historic Comprehensive Economic Partnership Agreement (CEPA) with the UAE in February. This was followed by an “early harvest” trade pact with Australia in April that is likely to enter into a full FTA by end of 2022. India and the UK have also announced their intention to have a comprehensive free trade agreement by Diwali this year.

New Delhi has now shown a new inclination to move forward with the India-EU trade talks as well. Commerce and industry minister Piyush Goyal made it clear that “all cards are on the table and we are coming with an open heart and an open mind… Agreements do not have to always be about gain or demands, I think agreements also have to be which is good for both negotiating teams and for the people.”

After India’s rejection of the Regional Comprehensive Economic Partnership (RCEP), India’s friends and partners have been asking New Delhi to up its economic game in the Indo-Pacific and beyond. The shock of Covid-19 also alerted India and the rest of the word to reduce their dependence on China as global supply chains got disrupted to an unprecedented degree, alerting the world to the problems that are likely to emerge if no remedial measures are taken. The strategic logic of trade pacts among like-minded countries is a reality that is shaping global politics today. The Modi government’s push to strengthen the domestic manufacturing base through its “Make in India” campaign will only succeed if New Delhi is able to enhance its global trade profile.

The India-EU FTA, in this scheme of things, has the potential to be a game-changer. And India will have to go much beyond what it has so far done with the UAE and Australia. The EU is an economic giant—the world’s third-largest economy by gross domestic product. It is India’s largest trading partner and investor as well as its primary source of cutting-edge technology. While the political interest in getting this deal done is high, bureaucratic hurdles remain and won’t be easy to overcome. There are divergences galore, from restrictive visa regime for professionals and tariffs on spirits and dairy products from the EU to data localisation and European regulatory frameworks. There is likely to be a political temptation to conclude an “early harvest” agreement but it would be much more beneficial if New Delhi can conclude a comprehensive FTA with the EU, cementing its burgeoning strategic partnership with one of the most critical global economic players. India’s march to a $10 trillion economy by the end of the decade depends on such outcomes.

(The author is Vice president, Studies and Foreign Policy, Observer Research Foundation, New Delhi)

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