EU-India Free Trade Agreement brooks no delay

The UPA government should push for the EU-India FTA with the same purposiveness it displayed on the civil nuclear agreement with the US and permitting FDI in multi-brand retail.

A high powered trade delegation from the European Union (EU) is due in Delhi next week. The visiting dignitaries are expected to call on the Union Minister for Commerce and Industry, Mr Anand Sharma, and bring up an issue that has been hanging fire since 2007: the EU-India bilateral free trade agreement (FTA).  Formally christened Broad-based Trade and Investment Agreement (BTIA), the FTA when signed would be a landmark agreement for both India and the 28-nation EU, its largest trading partner.


It is for the first time that the EU is venturing to sign such an agreement with a large emerging economy. Likewise, it is for the first time that India is seeking to conclude an FTA with an economy outside Asia. It is ambitious. It is broad-based, as the name suggests. Above all, its signing brooks no delay because it has the potential to give a fillip to the embattled economies of both the sides. Where New Delhi is concerned, the very signing of it will send powerful signals to those who have all but written off the Indian economy.

However, as with much else with the UPA government in New Delhi, this initiative too has met with major hurdles in the last mile of implementation. Differences between the two sides on a few issues have created an impasse-like situation and only a massive bilateral push can see it through.

What does the proposed India-EU FTA promise to deliver? In the first instance, it will mean a severe curtailment of trade barriers between the two sides. Customs duties would be either slashed or eliminated on over 90 percent of the goods traded by the two. It will also mean liberalisation of the services and investment sectors.

India can look forward to gaining market access for its textiles, pharmaceuticals and gems & jewellery industries, among others. It can also look forward to FDI in a host of areas, including financial services and defence industries. More importantly, it can look forward to multiple concessions, including lighter visa norms, for its IT and ITES industries, whose presence has been burgeoning in Europe in recent years. EU, on the other hand, will have greater and wider access to the vast and youthful Indian market with a growing middle class.  Its automobile, dairy and wines & spirits industries, in particular, will stand to gain to the extent that Indian entry barriers are eased.

The circumstances are propitious for the conclusion of an ambitious FTA between India and EU. Trade volumes between the two sides are already very substantial. According to Dr João Cravinho, Ambassador of the EU to India, bilateral trade can touch USD130 billion this year and can cross USD200 billion within four to five years. What is more, trade between the two sides is balanced. So, Indian Cassandras, who fear that India might be swamped by European goods, should have less to worry about if they take a holistic view.

From a political perspective, too, India and EU are more in alignment today than ever before in recent years. From tackling Somalian pirates in the Indian Ocean to the future of Afghanistan, there is a meeting of positions between the two sides on a host of issues. European powers, also, have been supportive of India’s quest for a permanent membership of the UN Security Council. If exchange of state visits is an indicator, both EU states and India accord the highest priority to each other.  This year alone, prime minister Manmohan Singh has visited Germany and president Mukherjee has visited Belgium, while prime minister Cameron of the United Kingdom, president Francois Hollande of France and prime minister Viktor Orban of Hungary have been among the highest ranking visitors who have come calling to India.

And yet, this year has also been the period when the least progress has been made in the FTA talks in thrashing out the contentious issues and coming to an acceptable via media. For instance, the EU has been pressing for a very substantial lowering of tariffs on automobiles and wines & spirits. While New Delhi is open to significant accommodation of EU demands on the latter, it is finding it difficult to be forthcoming on the former. The Indian automobile industry, used to high tariffs on imports and hit domestically by the double whammy of dipping demand (due to the economic slowdown and high interest rates) and higher cost of imported components (due to the plunging rupee), is lobbying hard to keep the European cars out. Indian negotiators have been seeking to find a via media like letting in higher end cars only and reasoning with the auto industry that if it wants its own cars to be exported it must be prepared to yield some ground.

Then again, the EU has been seeking concessions from India on the terms of government procurement and an increase in the FDI limit in insurance companies. Here, while New Delhi has shown flexibility on the issue of procurement, its hands are tied on insurance. The FDI limit in insurance cannot be increased without parliamentary sanction. The government has tried many times to bring in the insurance Bill in Parliament. But a stonewalling BJP, led on this issue by an obdurate Yashwant Sinha, a former finance minister, has just not let that happen. The union government is now left with the option of making another valiant attempt to secure passage of the Bill in the upcoming winter session of Parliament.

There is a deadlock also on the issue of “data secure” nation status that India has demanded. Such a status as well as more liberal visa terms are critical for a quantum leap in European business by its IT services industry. But the EU has been chary to grant, “data secure” status on the grounds that information confidentiality norms in India are unacceptably lax. The demand for liberal visa terms and easing of travel restrictions for Indian IT professionals has also met with resistance from the EU because of domestic pressures.

Stumbling blocks and even deadlocks are par for the course in trade negotiations. If there is political will on both sides, seasoned negotiators persevere and find ways of circumventing the hurdles. There is no reason why the Indo-EU FTA should be any different. If the UPA government is serious about sending out a clear signal about its commitment to taking India out of the economic morass it finds itself in, it should push for this agreement with the same purposiveness which it displayed on the civil nuclear agreement with the US and permitting FDI in multi-brand retail.

There is a fast closing window of opportunity still, and if the FTA is not to be deferred until a new government assumes office in Delhi, now is the time for its champions to press for it. More so, when there is no knowing how the new government might be disposed towards an FTA with the EU. Narendra Modi, a contender for the top job, has already publicly denounced the FTA negotiations, declaring that imports from the EU will destroy the Indian dairy and animal husbandry industries!

Photo: European Parliament