A new urgency

New Delhi must move forward on FTA with EU

The conventional wisdom that globalisation has gone into reverse and that the world is turning against trade agreements and openness was delivered a major shock last week. The world’s largest trading entity, the European Union, came to an agreement with four of South America’s biggest economies — Brazil, Uruguay, Paraguay, and Argentina — the four surviving full members of the trading bloc Mercosur, which was till recently the world’s fourth-largest of such blocs. (Venezuela, which was also a member, has been suspended for over two years.) Once free trade begins between these two blocs, they will form by far the largest free-trade area in the world. It took the EU and Mercosur 20 years to strike this agreement; and both sides have had to make compromises. Brazil’s combative right-wing president has had to temper his plans to ignore past climate change agreements in order to keep the Europeans on-side; and the powerful European farm lobby, in turn, had to make a few sacrifices. These represent, in a way, the importance that political and bureaucratic leaders on both sides attached to this trade agreement.

 
There are major lessons for other players in this development — not least for New Delhi. The biggest losers are perhaps in London and in Washington, DC. The United Kingdom is, of course, supposed to break with Brussels on the assumption that it will be able to negotiate such deals for itself in the future. The complexity of the EU-Mercosur deal reveals this as hubris. The United States, under Donald Trump, meanwhile, has been markedly sceptical of the possibility of gains from freer trade — but the EU and Mercosur, both large trading partners of the US, have demonstrated through this deal that they do not intend to follow where the US leads.

But among the countries that should take note is India, which also has been noticeably unenthusiastic about concluding new trade agreements. Meanwhile, many of its trading partners are finding new ways to integrate their markets — while other preferential trading norms are increasingly closed to Indian exporters. Indian textile exporters, for example, were already at a disadvantage in Europe compared to those with tariff-free access from countries such as Bangladesh. Now there is additional competition from Mercosur to consider. The United States just ended the tariff exemption for several Indian imports under the Generalised System of Preferences scheme; that too will mean that Indian exporters are disadvantaged as compared to those from, say, Mexico. It is time for India to revive, in particular, its stalled negotiations with the European Union on a free-trade agreement.

 
The EU has shown a willingness to compromise on agricultural issues, and India should take advantage of that — even if it means that powerful interest groups such as dairy, automobile manufacturers, and pharmaceutical companies are not happy. The cost of not moving forward with the EU trade deal — and, for that matter, of allowing the Regional Comprehensive Economic Partnership to move forward without India — will be an ever-increasing isolation for India on the world trading stage. Labour-intensive sectors, crucial for employment generation, such as leather and textiles, will suffer the most. India cannot afford such isolation at this stage of its development.