EUROPE ASIA FOUNDATION - INSIGHTS
Trade as a new dawn for EU-India relations?
This year, India and the EU celebrate 60 years of bilateral relations. Since 2005, India has been a strategic partner of the EU. In 2007, India and the EU opened negotiations for a Free Trade Agreement but this was put on hold in 2013 as no real progress was made. Can new negotiations deliver what proved to be impossible 9 years ago?
I would argue in favour. Since then, the world has changed. The pandemic demonstrated numerous problems on the multilateral scene and kick-started a reflection on the need to diversify supply chains and become strategically independent. There is a war on the European continent, which re-shuffles the geopolitical order. The energy crisis and food crisis hit the world. The climate emergency is omni-present. Both for economic reasons as for geopolitical reasons, closer ties between the EU and India are crucial.
Following the EU-India summit in May 2021, negotiations on an EU-India trade agreement, an Investment Protection Agreement and a Geographical indications agreement started in June 2022. This reflects renewed political will from both sides to strengthen political and economic relations. This should be welcomed.
For the EU, it is only logical to pursue closer relations with India. India is the world’s largest democracy and an important like-minded partner. It is centrally located in the strategically important Indo-Pacific region, close to both Russia and China. India’s geopolitical relevance can hardly be overestimated.
It is also the fastest growing emerging economy, with a large and dynamic market and an annual projected GDP growth rate of over 8% according to the IMF. India is the EUs 10th largest trading partner and the EU is India's third largest trading partner. Some 6,000 European companies are present in India, providing 1.7 million jobs directly and 5 million jobs indirectly in a broad range of sectors. However, India is hardly integrated into the value chains of European companies. There is a lot of untapped potential.
The European Commission and India hope to conclude the Investment Protection Agreement, the Free Trade Agreement and the Agreement on Geographical indications by the end of 2023. This is an ambitious goal as many of the issues that hampered the 2007 - 2013 negotiations, remain unsolved. The level of ambition on both sides diverges. The EU is looking to conclude a comprehensive agreement while India would be in favour of quick partial agreements. It will be challenging to find agreement on the chapter on Trade and Sustainable development, essential for the EU. India would prefer this not be so much in the EU’s focus.
On market access, there are divergent expectations on both sides. Currently, India imposes tariffs of between 60% and 100% on important export products for the EU, like wine and cars. The EU will push for lower tariffs to gain greater market access, including for a wider range of agricultural food products, like cheese. For India on the other hand, closer trade relations with the EU are part of their ambition to become a global manufacturing hub and a regional leader. They want to use the FTA to showcase what they can manufacture. India is keen to boost its export of IT services and will be seeking a solution for the ongoing visa issues for its IT professionals.
Understandable, but a difficult issue, as this is a member state competence. Reaching an agreement on agriculture will be challenging, as it is a sensitive sector for both parties. Divergences are also to be expected on Intellectual Property rights, with the EU aiming at strengthening the IPR protection and India wanting to protect its important pharmaceutical sector specialised in generic drugs. Finding a solution to meet both goals, will be challenging. However, it is important to keep in mind that the TRIPS waiver discussion has shown that in the EU too, views on the trade-off between intellectual property protections and access to medical treatments are diverging.
Like in the trade negotiations with the Mercosur states (Argentina, Brazil Paraguay and Uruguay), a compromise can be found that protects access to generic medicines.
In June, the negotiations started and appear to be promising and constructive although not a lot of progress has been reported. This week a new round of negotiations will take place. The outcome of this week’s negotiations will be telling for the chances of a positive result. Progress needs to be made. Although negotiations will remain challenging, the geopolitical context can be an accelerator. Both India and the EU are looking for ways to diversify their supply chains and be less dependent on Russia or China. The fact that mid-September, Prime Minister Modi spoke out against Russia’s war and voiced concern over the nuclear threat, can enforce the momentum for closer ties with the EU.
However, every deal needs to be in line with the EU’s values. A Free Trade Agreement without an enforceable chapter on Trade and Sustainable development will not be acceptable. The core ILO conventions need to be ratified and - more importantly - implemented. India still has important problems with child labour and forced labour. These need to be tackled as consumers in the EU want to be sure that the products they buy are not linked to child labour or forced labour. Currently, India is the fourth largest emitter of greenhouse gas, after China, the US and the EU, with an economy still largely dependent on coal. Although it does not have the best track record on an ambitious climate approach, recently it has stepped up ambitions. At the COP 26, India pledged to become a net-zero economy by 2070 and has set a 50% renewable energy target by 2030. This is a step in the right direction and can be an opportunity to strengthen EU-India cooperation on clean technology, knowledge sharing and green financing.
The momentum for closer EU-India relations is clear; the political will is there. If the negotiations are conducted in a spirit of compromise, taking into account each other’s sensitivities, it should be possible to reach a good result before the end of 2023 and thus delivering on what proved to be impossible 9 years ago.
Kathleen Van Brempt, MEP