India- European Union Trade Deal: Problem Areas
The Covid-19 pandemic, with its re-surging cases in 2021 has put many nations in a difficult position regarding their economic status. The cases have affected the state’s ability to maintain the same revenue and production level which they were able to keep in the pre-Covid-19 period. And this situation can become more difficult if you consider the fact that how states are already going through certain events which are causing strain on their diplomatic and economic relations. The European Union is going through this twofold difficulty. As the bloc is trying to adjust to a new economic model after confirming the referendum by the United Kingdom to leave the European Union, it has created a lot of uncertainty in terms of how the EU single market can resume its functioning. Simultaneously, India proves to a possible avenue where European Union can formulate new economic ties as the pressure from China has enabled India to venture into new avenues. This article analyzes the possible avenues of the EU-India trade deals and the problem areas that exist in terms of establishing new economic relations during these testing times.
“EU-China’s trade and diplomatic altercations open doors for new and better bilateral trade deal with India in a post-Covid-19 world.”[1]
The re-initiation of the Bilateral Trade and Investment Agreement (India-EU BITA) has been an increasingly crucial topic for both parties.[2] India and EU trade talks, not only they are important from the standpoint of which nation will get the maximum benefit out of the trade deals but how they will pan out considering short term and the long-term situation will stand essential. High-level dialogue between the European Union and the Indian delegation in February 2021 exclusively focused on the possibilities of introducing new trade deals and programs between both the states.[3] The focus that was seen between both the nation-states was the question of how to achieve stability and trade growth in a post-Covid-19 era. The most recent horrific crisis that human civilization is currently going through has forced many nation-states and blocs to think about how to move ahead with economic policies and how to preserve the essence of globalization. The Covid-19 pandemic has forced many nations to go back to protectionist measures and a new status quo is being evolved which can see nation-preferring protectionist policies, because vaccine diplomacy is based much on nationalism and less on multilateralism. The increase in the amounts of discussions and meetings of re-initiation bilateral trade and investment agreements including the Regulatory Dialogue and an India-EU Multilateral Dialogue in February 2021 by India and the EU can be seen to explore further possibilities of cooperation in terms of increasing new trade capabilities and reducing the derogatory effects of the pandemic on both the actors.[4]
India’s endeavors to have a Free-Trade Agreement (FTA) with European Union has a history of its own. India has not signed any trade agreement with the EU since 2012 and the rejuvenation talks are in contention with the involved activity of the United States of America[5]. Not signing any trade deals involves the recent rejection of the RCEP which was witnessing the inking of trade deals with Beijing, promoting India to opt of the trade agreement. The establishment and support of the Quadrilateral Security Dialogue (QUAD) are devised on countering the rising Chinese aggression into the area. EU accounting for a total of 11.1 per cent of total Indian trade and China being 10.7 per cent coming behind the United States of America, the situation of FTAs with the EU will provide renewed economic and political interest in the region.[6] Since 2007, FTA talks with the EU have been stalled. Although the opportunity to restore its economic condition is important to New Delhi, keeping aside the differences in trade agreements and deals is not easy for New Delhi. Federation of Indian Exports Organizations hinted into a renewed model of trade talks with the EU but also emphasized that the talks should impact and consider the changing geopolitical order in the EU-India changing landscape.[7] It is important to note that India cannot ignore the rising EU interest in the ASEAN trade model, nor has been efficient or effective for New Delhi considering its dependence on Beijing’s economy. Luxembourg Summit in 2020 between Narendra Modi and Xavier Betel (Prime Minister of Luxembourg) expressed this opportunity for expanding trade and economic cooperation and enabling a new sight of economic interaction which can also fulfil India’s diplomatic concerns as well[8]. India’s primary concern and problems reside over tariff levels of wines and spirits, auto components and data security. Despite EU and India coming to an all-time closeness in terms of the agreement in 2007, in 2013 these tariff levels became major hindrances where the task was not resumed. Post-Luxembourg analysis focused on one primary thing which was the fact the new trade discussion should focus on devising new mechanisms. If tariff problems are to be continued in the future as well, this can make the trade between two countries fragile and vulnerable to economic changes and can also provide trade instabilities, which tend to be the primary concern for both parties. We can see that the EU wants to set a comprehensive FTA and wants to more of a major part of controlling the tariffs but for the EU they must recognize India’s importance as well. Seemingly as the tensions between the EU and China rise, and how the EU tends to be pro-USA on the matter of countering the Chinese threat, India becomes a crucial venture into establishing trade arrangements for the EU[9]. The financial sector was also a major part of why the 2013 talks were stalled as the EU wanted New Delhi to open the banking, insurance, and e-commerce sectors of New Delhi. These inadequacies cannot be left open as opting out of RCEP by India. If the EU considers India to be that significant, considering the Biden administration backing of New Delhi in cases of QUAD and multilateral economic and security deals, these import traffic and financial sectors demand of New Delhi should be reasonably considered dealt with. Labor laws and environmental impact was also a major cause of disruptions.[10] Despite the EU forwarding India to make these priority issues, India and the EU must come to a consensus where these issues are also be considered. Considering the fact, the recent QUAD summit in March 2021 saw India backing these issues, it is important to retain that international commitment and additional follow these agreements along with EU bilateral trade talks, it is necessary to underline that the EU stands as important leverage when we consider New Delhi’s new approach of countering the Chinese economic presence. The reason for not accepting the RCEP as backed by Piyush Goyal saying that much more interest lies in subsiding with the EU. The EU accounted for USD 92 billion worth of trade in 2019, then this proposition can be extremely lucrative in terms of expanding the economic prowess of both the blocs. Looking at the status quo, textiles and agriculture industries are the areas that make the case of a strong bilateral pact from India’s point of view but what the EU sees in the long term is a diversified trade agreement and majorly focusing on technological and data developments.[11]
The principle question stands: where are possible ventures of trade and economic advantages for both sides? Both the parties can fully focus on the trade and production of industrial goods, control agriculture tariffs and services and accessing the service sector on a more lenient basis. Committing to the 2015 Paris Climate Agreement for both the nations the new framework of investment should be committing to sustainable development and accounting much more comprehensive and broader ideas of social and labor rights.[12] Tangent of political and economical agreements should be on a balance on both sides. Politically, the EU’s perspective FTA with India should be aligned with its post- Brexit economic and political reconstruction. Adopting Looking East Suez Canal approach will validate the EU’s argument of being more multilateral in their approach and account for new trade and political alliances[13]. This will foster fast track developments of FTAs with a new emerging economy not only limited to India but opening doors into southwest Asia and possible into the African continent by strengthening with African Union. For New Delhi, the Make in India and Atmanirbhar campaign will provide them with the validation of a new leader in the Southeast and counter the rising Chinese challenges on a much more holistic basis. FTAs also come with the benefit of harnessing domestic, economic and middle-class support for global economic power, which can also assist in eradicating the classes of India prompting doe de-globalization or protectionist measures in the region[14].
Despite the trades and tariffs that have been a center of dispute for both the nations, trade dispute in World Trade Organization over pharmaceuticals involvement and India imposing high restrictions on FDI are still a bone of contention between the parties. Case in point that EU has expressed anxiety over the fact that 15 categories of Information Technology as mentioned under the India-EU BITA companies need to be registered in the country to continue with FTA[15]. EU regulations and standards are also required to be adjusted especially on agricultural exports as that stands primary for New Delhi. Example Alphonso mangoes were banned in May 2014 after “non-European fruit flies” which was lifted in 2015 but stands as a crucial example of India’s reluctance over the proposition over the FTA with EU and India[16]. Data security is a mutual concern for both EU and India. As per the current EU legislation, India is not yet considered to be a data- secure country and despite India’s amendment in the Information Technology Act in 2000 and new information technology rule in 2011 which are associated with safe labor principles in the United States of America, the flow of data and its protection is not yet accepted by the EU legislation.[17] This need to either be amended or the EU should strongly suggest India how efficiently maximize its security management. How should the talks between India and the EU be moving forwards? Certainly, the Portugal Summit in May 2021 between EU and India stands crucial considering the economic and political gains both the parties are looking forward to. Three mega initiatives are under contention during the revitalized talks of trade initiative: Transatlantic Trade and Investment Partnership (TTIP), Trans-pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP). These agreements have pressured India and the EU into fast-tracking its negotiations for FTAs. Along with the added pressure of these agreements, Europe should be able to abide by some of the suggestive regulations proposed by India to start accessing the Asian and Southeast Market as well because Looking ‘East of Suez Canal’ approach needs the EU to build new bilateral agreements. Investment flows and technical cooperation from both of the parties require an optimum level of determination and negotiating dedication. As per the current proposition, the ministry of finance believes that European assistance in India economy will also fast-track the manufacturing and working of many smart cities in the country as well. These tough climate actions may not have necessarily forced EU and India to search for new partners but looking at the context of both the parties, the status quo sees EU and India taking part in this new formulation of regional agreements. A full-fledged trade agreement with greater market access having broader convergence stands as the principal objective of both parties. The EU and New Delhi's political and economic directives must be broader, and multilateral as compared to the 7th India- EU summit in Helsinki in 2006 which led to the stagnation of previous trade talks. EU-India Strategic Partnership: A Roadmap to 2025 is the meta-narrative of the EU–India trade talks[18]. Global cooperation and solidarity on transforming better diplomatic and economic relations with Europe, since India signed the Treaties in 1994, will require newer and more relevant high-level talks between both. India and Europe share common democratic and ideological philosophies. Subsiding the previous altercations, the sub-continent and EU has real potential to integrate and formulate a new market between both. This potential must not be wasted for the benefit of both parties.
Notes
[1] ANI (6th March 2021). “Free trade agreement (FTA), India- EU will be negotiated at aggregate level says Swedish envoy Klas Molin”. The Economic Times
[2] E. Roche(18th March 2021). “India- EU trade talks may see progress at Portugal Summit”. Livemint
[3] Ibid.
[4] K. Srinivasan (8th February 2021). “An India – EU trade pact may still remain elusive”. The Hindu.
[5] A.Bhutani (10th February 2021). “India’s reluctance in joining the RCEP- A boon or a bane in the long run? ORF.
[6] Ibid.
[7] K. Mali (15th April 2021). “India- EU trade deal negotiations to re- start from next month”. Techgraph.
[8] R. Singh (25th March 2021). “What India can learn from Britain’s post- Brexit foreign policy roadmap.”. fcroll.
[9] Ibid.
[10] ET (13th April 2021). “Negotiations on India- EU trade deal to resume next month: F”. The Economic Times, ET Prime
[11] I. Bagchi (9th February 2021). “India- EU interim trade deal likely at May summit”. The Times of India.
[12] (6th February 2021). “India, EU discuss re- initiating talks on bilateral free trade pact starting with interim agreement”. The Hindu Business Line.
[13] (13th April 2021). “Negotiations on India- EU trade deal to resume next month: FM Sitharaman” Financial Express
[14] S. Gupta (16th April 2021). “April 29 meeting shores up hopes on India- EU trade, investment talks next month”. The Hindustan Times
[15] B.Pattanayak (14th April 2021). “India, EU to resume formal FTA talks in May”. Financial Express.
[16] X. Hua (9th April 2021). “Can India capitalize on China- EU frictions?”. ET Global Times.
[17] D.R. Chaudhury (19th April 2021). “India- EU Porto Summit to see progress on FTA”. The Economic Times.
[18] (11th February 2021). “UK, EU meeting in bid to calm post- Brexit trade turbulence”. The Economic Times
(The views expressed are personal views of the author and do not represent the views of CESCUBE.)
