External Affairs Minister S Jaishankar earlier this week addressed a European business leaders' conclave when he stressed on the importance of boosting trade in goods and services between India and the European Union (EU), a 27-nation bloc operating as a single market, by way of concluding the decades-old pending negotiations for having a free trade agreement. The talks have missed several deadlines even as they witnessed innumerable change of negotiators on both sides, underwent nomenclature changes, ever since they began in 2007. The exit of the United Kingdom from the EU, or the BREXIT, also happened in between and so did the Covid pandemic. But the issues on which both sides clashed, leading to the negotiations getting halted for nearly nine years, remain the same.
Since the beginning of the talks, Europe’s key demand has been deep and entrenched access into the Indian market as well as an investment protection treaty that will safeguard their investors. On other hand, India’s primary ask from the proposed FTA, which later came to be known as the Broad-based Trade and Investment Agreement (BTIA), has been a liberal Schengen visa regime for its teeming IT and ITeS professionals. But, it is not as simple as it sounds. In between these demands, there are several complicated corners that both sides have to iron out and that can only happen if there is a political will. And in the current situation, there also has to be a geopolitical will.
When the Narendra Modi government came to power a decade ago, it was severely anti-trade and sought to boost inward investments even as it took several steps to liberalise the country’s foreign direct investment (FDI) policy regime. As a result, all the proposed trade agreements, which began during the ten years of Congress-led UPA government, came to a screeching halt. The India-EU FTA was one of those pending trade pacts and the move to halt the talks invited sharp criticism from almost all major economies of Europe, such as Germany, Italy, Spain, and even from one of India’s greatest strategic ally, France. They were also upset with India because the Modi government scrapped all investment treaties with the EU member states in April 2016 all of a sudden because India came up with a new model Bilateral Investment Treaty (BIT).
To this date, both sides have not been able to negotiate an investment treaty because India’s BIT makes it difficult for European investors to go for international arbitration in case of a legal dispute. It was only in the second tenure of the Modi government that the FTA talks were given a fresh lease of life. In January 2022, India and the EU resumed negotiations for the free trade agreement, investment protection and Geographical Indications (GI), after they were halted in 2013.
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Addressing the Indian and European leaders on February 20, Jaishankar spoke about the “importance of concluding” the free trade agreement with the EU. He told the Europeans that it is all the more important today to conclude the trade pact with the EU because that bloc has to “prepare for the India that is to come”. The minister continued: “Today India has a GDP of about 3.75 trillion dollars. That GDP by the end of the decade would be 7.3. By the time we are into our 100th year of independence is estimated at 30 trillion. And according to Goldman Sachs, by 2075, we would be at 52.5 trillion. So that's an arithmetical way of saying that India is going to be an increasingly significant economy, the second largest by 2075, but certainly the third largest by the end of this decade in national terms. And that is something which the European Union has to take into account.”
While the minister tried to hard sell India, the real reason why both sides, particularly New Delhi, is keen to conclude the FTA is because the two parties well recognise the fact that much has changed since 2007. The FTA today will act as a strategic move that will seek to counterbalance China’s increasing influence in the European markets. And here lies the problem. India and Europe have never been closer strategically — a fact that was exposed as Russia waged a war against Ukraine in February 2022. While the war has gone on for three years now, Europe continues to harbour a grudge against India for not supporting it fully even as it continued to support Russia allowing Moscow to skirt the economic sanctions by substantially increasing its purchase of crude oil from Moscow. No doubt India has solid bilateral relationships with individual EU states, for example France, but that has not helped in pushing forward the difficult trade negotiations.
In July 2020, India and the EU signed the ‘EU-India Strategic Partnership: A Roadmap to 2025’ to strengthen foreign policy and security cooperation. But that has helped little to further the trade talks. Both sides also set up an EU-India Trade and Technology Council in May 2023. But beneath all these the tensions continue to simmer as both remain locked over their individual demands. On top of this, the EU is now planning to impose a border tax of sorts under the Carbon Border Adjustment Mechanism that will impact Indian importers as well when it comes into force in 2026. India’s demand for greater visa liberalisation has also faced a major blockade from the EU's side as the region faces a massive refugee crisis. The EU remains insistent on having significant access in India’s automobile and agriculture sectors.
While the dates for the next India-EU Leaders’ Summit continues to remain pending, it is clear that the much needed meeting will not happen before a new government comes to power in India after the general elections that are slated to take place in April-May this year. Adding fuel to fire, the EU also wants energy and climate partnership to be also included as part of the FTA, a move India had been resisting ever since the talks began. All in all, no matter how much New Delhi expresses its interest now in concluding the trade pact, the EU is in no hurry to rush through the talks. Besides, the EU knows it always has China to fall back on. In the upcoming India-EU Summit, both sides need to address these issues. The question is whether New Delhi needs to understand that the EU knows even if this is a 'New India' the inherent trade and investment issues are the same and they need to be addressed by the Modi government by unveiling some long-term reforms that are not solely aimed at winning vote-banks.
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Are India-EU Free Trade Agreement Talks Really Moving? Old Issues Back On New India’s Table
7
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22.02.2024
External Affairs Minister S Jaishankar earlier this week addressed a European business leaders' conclave when he stressed on the importance of boosting trade in goods and services between India and the European Union (EU), a 27-nation bloc operating as a single market, by way of concluding the decades-old pending negotiations for having a free trade agreement. The talks have missed several deadlines even as they witnessed innumerable change of negotiators on both sides, underwent nomenclature changes, ever since they began in 2007. The exit of the United Kingdom from the EU, or the BREXIT, also happened in between and so did the Covid pandemic. But the issues on which both sides clashed, leading to the negotiations getting halted for nearly nine years, remain the same.
Since the beginning of the talks, Europe’s key demand has been deep and entrenched access into the Indian market as well as an investment protection treaty that will safeguard their investors. On other hand, India’s primary ask from the proposed FTA, which later came to be known as the Broad-based Trade and Investment Agreement (BTIA), has been a liberal Schengen visa regime for its teeming IT and ITeS professionals. But, it is not as simple as it sounds. In between these demands, there are several complicated corners that both sides have to iron out and that can only happen if there is a political will. And in the current situation, there also has to be a geopolitical will.
When the Narendra Modi government came to power a decade ago, it was severely anti-trade and sought to boost inward investments even as it took several steps to liberalise the country’s foreign direct investment (FDI) policy regime. As a........
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