India – EU free trade agreement: Way forward
Dr Bharti Chhibber
With the commencement of another round of trade negotiations between India and European Union (EU), perhaps we are one step closer to a Free Trade Agreement (FTA) between the two trading partners. According to a joint statement released by the EU in Brussels where EU Trade Commissioner Karel De Gucht and Indian Commerce Minister Anand Sharma were engaged in talks, the European Union and India aim to conclude negotiations toward a free trade agreement before the end of this year.
So far, trade and economic ties have formed the core of India-EU relations. With more than $73 billion bilateral trade in 2007-08 to $91.3 billion in 2010-11, the European Union is India’s largest trading partner. The Bilateral Trade and Investment Agreement as it is officially called seeks to sharply reduce tariffs on goods and liberalize services and investments provisions. According to a FICCI report with the formalization of FTA, trade is likely to exceed $207 billion by 2015.
India-EU relations go back to 1960s when India was the first developing country to enter into a Cooperation Agreement with the European Community. However, it took long time for India-EU relations to warm up. India and the EU have worked closely on the World Trade Organization (WTO) Doha round and both played an important role in the formulation and adoption of the framework agreement in Geneva in July 2005. While both have a common desire to protect their agricultural sectors, differences arose in other areas such as market access for industrial goods, services, trade facilitation and anti-dumping. At times, India is suspicious of the EU’s neo-liberal economic policy.
India became more interested in the EU as a result of its emergence as an international actor, creation of the single market and the euro (current crisis notwithstanding), leadership role in trade, and environmental issues. On the other hand, India’s dramatic economic growth was one of the main factors that made Europe to take more interest in the world’s biggest democracy. Further, India’s emergence as a leading player in the IT revolution and rapidly growing untapped market for Europe played additional role. In 2007, FDI flows from Europe to India were more than European investments in China.
Despite rising trade between the EU and India, there appear to be several areas of untapped trade potential for both economies. For instance, there is a tremendous opportunity to widen the scope of trade, currently dominated by textiles and clothing. These factors led India and EU to start negotiations for a broad-base trade and investment agreement. However, there are some bottlenecks in the way of a free trade zone between India and the EU.
Although India sees EU as an economic power, there is widespread belief that the EU is over-protectionist. Large number of tariff and non-tariff barriers have become major deterrents in doing trade with EU. In this context, the EU’s health, quality and standards and environmental and social laws are seen by many as hindrance for developing countries in business relations with the EU. India and the EU have been negotiating an FTA since 2007 but have not been able to finalize the accord due to differences over the EU’s attempts to link trade with climate and other issues.
Moreover, some domestic opposition and a difficult global economic situation, may further derail the India-EU FTA. The negotiations are stuck on issues such as reduction in tariff on cars imported from the EU. India’s tariff on European cars is nearly 10 times greater than Europe’s on Indian vehicles. The domestic auto industry is against including this sector in the trade agreement, saying it will kill investments and technology inflow. However, as reported, Government may include the auto sector in the FTA, following which import duty on a specified number of cars may fall to 30% from the existing 60%.
Another, major irritant is inclusion of intellectual property rights (IPR). It has been argued that India’s thriving generic drugs business will be jeopardized by agreeing to stricter IPR rules in the pact. Indian pharmaceutical companies and some NGOs have expressed concern that inclusion of IPR in the proposed agreement would affect the sector’s ability to produce and export low-cost drugs.
In fact in 2010, India brought a case to the WTO arguing that the EU was wrongly stopping and inspecting shipments of generic drugs in transit to developing countries. Some shipments were either destroyed or turned away rather than be allowed to continue to their final destination. India reached an interim settlement with the EU on preventing seizures of generic drugs on EU soil.
One of the reasons that Indian exports to the EU have failed to reach their potential is EU’s stringent work permit rules that make it difficult for Indian professionals and workers to operate from the EU countries or Indian business houses to set offices in the EU states. The proposed comprehensive free trade agreement between India and the 27-nation EU bloc includes relaxation of visa norms for Indian professionals as well as tourists.
In the final, the EU with its 450 million consumers and the fourth largest GNP of euro 10 trillion will remain a major attraction for India’s trade, and source for inward foreign investment. There is immense potential to increase bilateral trade between India and EU to $200 billion by 2013 from less than $100 billion at present. A strong political will at both ends is needed for the agreement to come through. Indo-EU FTA would create one of the world’s largest free-trade zones population-wise covering 1.8 billion. It is time for India and the European Union to build on their shared interests and evolve an enduring partnership.
(The writer teaches political science in University of Delhi.)
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