No quick fix

A free trade agreement between India and the EU by the end of this year is unlikely to materialise

British Secretary of State for Business Peter Mandelson’s plea at the recent 15th CII Partnership Summit to put in place a free trade agreement (FTA) between India and the European Union (EU) by the end of this year, though well-intended, is unlikely to materialise. The negotiations for such a deal have been on for quite a while, but without making much headway in view of sharp differences over a large number of key issues. Mr Mandelson, being a former EU trade commissioner, cannot be unaware of the sharply divergent positions taken by the EU and the bloc of developing countries led, among others, by India on tariff cuts, subsidies, special and differential treatment and other issues at the stalled Doha round of trade talks. It is doubtful that the two sides will decide to take a different view of them at bilateral trade talks despite realising that the need for bilateral and regional trade accords is relatively greater now due to the dim prospects of a multilateral trade deal in the foreseeable future. In fact, the India-EU talks have tended to touch upon some of the areas which have been put aside in the Doha parleys, such as the so-called Singapore issues which include government procurement and competition policies. Also on the agenda are several non-tariff trade barriers relating to intellectual property rights (IPRs), transparency, and environmental, social and human rights issues. Though India has already created a WTO-compatible IPR regime through a cautiously-crafted law, the EU has been demanding some TRIPs-plus flexibilities, like data exclusivity for European companies. On the main question of tariff reductions itself, the differences seem difficult to surmount as any FTA to be worth its while will have to bring down duties to zero on at least 90 per cent of the traded items. This may be difficult for India to accede to on livelihood security grounds. Equally important, from the Indian viewpoint, is the further opening up of EU markets for products of export interest to India, such as textiles, apparel, leather goods, chemicals and architectural services, besides, of course, employment opportunities for medical and information technology professionals. In the agriculture sector, the high subsidies doled out by the EU countries to their farmers and the unwillingness of France to agree to the EU’s proposal for even some cosmetic reduction in them are likely to stand in the way of thrashing out an FTA. India’s dairy sector, critical for millions of small milk producers and a vibrant dairy industry, will be seriously threatened because of the EU subsidies on dairy products, which were raised further last week.

That said, it cannot be denied that the EU, already India’s largest trade partner and accounting for over 20 per cent of its international trade, is important as a major market. The asymmetry lies in the fact that for the EU, trade with India accounts for no more than 2 per cent of its global business. The relative importance of an FTA is therefore radically different in New Delhi and in Brussels, although the EU will have to be conscious of the fact that the fastest-growing component of India’s trade is with China. It may be a good idea, therefore, to expand the domain of the proposed trade accord to make it a comprehensive economic partnership agreement that will provide an investment-related route for boosting trade, rather than confining it to trade liberalisation alone. Since India is committed to economic reforms, the environment for two-way investment flows is going to increase in the days to come.