EU-India trade agreement stalled by EU politics

EU-India trade agreement stalled by EU politics

The EU and India have negotiated an ambitious free trade agreement since 2007. Yet, an early conclusion of the agreement is highly unlikely as Brussels is in crisis mode. 

India and the European Union agreed in 2004 to elevate their ties to the status of a strategic partnership that promised mutual cooperation on a range of issues. The anchor of this partnership was, and still is, economic. The EU is India’s largest trading partner, with bilateral trade valued at $99 billion, and one of the largest sources of FDI in India. A recent study calculated that companies from the EU had invested close to $200 billion in India over the last decade.

To enhance this partnership, both sides embarked on negotiations towards an ambitious free trade agreement officially called the Broad-based Trade and Investment Agreement (BTIA) back in 2007. For the EU this is a part of its global strategy to advance multilateral trade liberalization, but for India, BTIA is more a question of development than just liberalization of trade and services. In other words, Indian policymakers look forward to an agreement that serves developmental objectives through free trade and investments.

15 rounds and still going

Differences over protection of intellectual property rights, movement of people for professional services, unfreezing foreign investment limits, agricultural trade and data security has slowed down talks, at times seeming to signal a collapse of negotiations. After 15 rounds of talks, many issues have been reportedly ironed out.

However, concerns regarding Indian tariffs on European automobiles and the EU’s data adequacy status for Indian IT companies are still to be resolved. The EU wants India to slash duties on automobiles, but the Indian industry’s opposition remains steadfast as this could dent its competitive edge. A Confederation of Indian Industry (CII) official told the writer that the automobile sector should be kept out of bounds and that the EU should instead opt for direct investment in the auto sector.

The EU not providing data secure status to Indian companies has of late taken centre stage. Without data adequacy status, Indian IT companies cannot apply for European government contracts. In fact, India’s previous commerce minister indicated that accordance of data security status is a non-negotiable issue. The EU has maintained, however, that data protection cannot be bargained as it is a fundamental right.

In addition to these considerations, pushes for agricultural market liberalization and intellectual property rights of the pharmaceutical industry beyond TRIPS could break the deal.

Positve overtures from new Indian government

The new government in New Delhi, elected decisively, has sent out positive signals on liberalization. It is all set to raise the FDI limit in the insurance sector and unlock e-commerce for foreign investors. Yet, it is unlikely to provide access to legal services and open government procurement as demanded by Europe.

Overall, there has been significant progress considering the development differential between both sides. However, the current political climate in Europe could delay and – if things get worse – stall progress on BTIA for two reasons:

First, political wrangling will delay the installation of the new European Commission. This became clear as Chancellor Angela Merkel and Prime Minister David Cameron were unable to agree on the next EU president. This effectively rules out restarting negotiations this year.

Second, anti-integrationist and protectionist voices of different hues in the EU member states could overwhelm the discourse in the new European Parliament. Given that the power of the EU Parliament has increased since the Lisbon treaty, the BTIA and other ongoing negotiations could be held up for political gains.

In the event of a stalemate, India would draw back its resources from pursuing an agreement with the EU and focus more on economic integration with East Asia. More worryingly, existing Indian scepticism about the supranational EU project will increase further.

The author wishes to thank Professor Arpita Mukherjee, Mr Pranav Kumar at Confederation of Indian Industry, and Mr Rohit Sharma at Federation of Indian Chambers for Commerce and Industry for their valuable comments.

Categories: Economics, International

About Author

Sundar Nathan

Sundar is currently a contributing analyst for IHS. Prior to that, Sundar was a project member at the Institute for Defence Studies and Analyses. He also worked at the Janaagraha Centre for Citizenship and Democracy where he helped launch a comprehensive study of urban governance in India. He has a Masters in International Public Policy from University College London.