Brexit and US trade protectionism: catalyst for India-EU FTA

With the India-EU Free Trade Agreement (FTA) failing to reach a conclusion for a decade now, changed geopolitical circumstances could infuse a sense urgency in striking the deal. Brexit and trade protectionist policies of the US are beginning to play in favour on the deal, according to top representatives of the European Union Parliament in charge of relations with India.

Last week, at the fourth India-Germany Intergovernmental Consultations in Berlin, both Prime Minister Narendra Modi and German Chancellor Angela Merkel, reiterated the need for a successful dialogue for an India-EU FTA. Unlike previous discussions, the call for an FTA this time was more than a rhetoric.

“Since 2007 there has been efforts of FTA between EU and India. There has been a lack of vitality on both sides. Now, there is a bit more willingness to get things moving. One of the incentives has been Brexit. There are a lot of vital interest at stake,” Geoffrey Van Orden, Chair of The European Parliament Delegation for relations with India, told Business Standard.

Notably, Orden, a member of the European Parliament, belongs to the Conservative Party in the UK and is also batting for an India-UK FTA. However, an India-UK FTA is unlikely to be without hitches, for the UK is likely to maintain a tough stand on issues like the movement of people and outsourcing of jobs, hinted Orden.

We will have a UK-India trade relationship based on what we have negotiated with the wider EU. In UK India FTA, India places a lot of importance to transfer of personals. I feel quite sure this will continue, but it will be more controlled as the UK would like to see more highly-skilled people. There will be a reluctance to have unskilled labourers,” said Orden.

One of the demands of the British government was deeper cuts on tariffs on wines and spirits, particularly Scotch Whisky. Even with a tariff of close to 150 per cent, India is the third-biggest export market for Scotch at 41 million bottles, according to data from The Scotch Whisky Association (SWA)

Germany, by far the strongest leaders of the EU, has been pushing for an FTAs at the regional levels in the face of protectionist policies of the US government, as evident from the US pullout from Trans-Pacific Partnership and Paris Accord.

“All of a sudden one realises that global trading architecture should not be taken for granted. India-EU FTA is important, not specifically due to Brexit, but in the Trump environment. One need to look beyond the US and beyond multilateral trading framework, Jakob von Weizsäcker, member, of The European Parliament Delegation for relations with India, told Business Standard.

On on the Indian side, the need for an India-EU FTA has been further accentuated by the rising economic clout of China in the recent days, as exhibited by the One Belt and One Road' (OBOR) initiative in Beijing on May 14-15. While India had boycotted the summit, several European countries had participated in it but did not sign the trade declarations due to lack of transparency. Under OBOR, China plans to build a grand trade corridor, through sea and land, connecting Asia, Africa, the Middle East and Europe.

Germany has shared its concerns over OBOR for its China-trade centric features. Recently, German ambassador to India Martin Ney, had said, “If both the EU and India have certain hesitations about it, it should give us extra incentive to sit down and resume negotiations on a free trade agreement.”

India's interest in the proposed FTA lie in areas like the export of information technology enabled services (ITES), business process outsourcing (BPO), and knowledge process outsourcing (KPO), and movement of skilled professionals like software engineers. This apart, India is also seeking a wider access to the agriculture market in the EU.

EU, on the other hand, is eyeing sectors like multi-brand retail and insurance, accountancy and legal services, banking space, and lower tariffs in assembled cars among other things.

(The writer is on a fellowship, Media Ambassador, India-Germany, sponsored by the Robert Bosch Foundation.)