Why India and Europe must deepen their partnership beyond just trade

India must not allow the negotiation process to lose momentum

A recent visit to Brussels, at the heart of the European Union (EU), brought home to one, how much needs to be done in order to deliver on the promise of the India-EU Free Trade Agreement (FTA) and the pursuit of a closer economic and technological partnership in the age of artificial intelligence (AI). 

What remains intact and compelling is the geopolitical driver of the partnership. Both India and Europe feel threatened by the prospect of a US-China duopoly. In Europe, there is fear of abandonment. In India, there is apprehension that the strategic glue that has held the country and the US in a 25-year partnership is now coming unstuck. But while New Delhi takes sovereign decisions on how best to respond, Europe is still not a coherent political entity and it is apparent that there are significant differences in each major member country’s approach. While there is a shared perception of an abiding Russian security threat and the need to build up European defences, it is not clear whether the EU will have a role to play in this as long as the North Atlantic Treaty Organization remains the only credible deterrent against Moscow and this is unlikely to change in the foreseeable future. On re-engaging diplomatically with Russia, again there is no consensus on who should represent Europe in the dialogue and what would be the agenda for the talks. On bringing peace in the Iran War, Europe has been a marginal player. This is a major contrast from the negotiation on the Joint Programme of Action in 2015, where European participation was active and consequential. 

On China, there is similar lack of coherence. There is a growing fear that Europe is losing competitiveness in relation both to the US and China, but that it is unable to come up with an effective strategy. Mario Draghi’s report on Europe’s competitiveness was unusually blunt in its assessment of the continent’s weakness and the need for greater integration and greater levels of investment. But it has not spurred the scale of transformation which the report envisaged, though it continues to be cited as the blueprint for European revival. Even the Draghi report presented a conflicted approach to China. For example, was it not better to work together with China to catch up on electric vehicles and advanced battery technologies? Would it not be better for Europe to benefit from cost-effective renewable energy technologies and equipment if Europe had to meet its ambitious climate change goals? Some major European countries like Germany are more invested in the China connection than say France is. This means a continuing inability to fashion a China strategy. 

I have in the past pointed out that India does not figure even once in the Draghi report but hopefully after the conclusion of the FTA this may change. Certainly, the rhetoric in Brussels suggests that. What does India need to do? 

One, it must not allow the negotiation process to lose momentum. The FTA should be ratified as early as possible. 

Two, the pending Investment Protection Agreement and the Geographical Indications Agreement should be finalised and concluded at an early date; and three, the India-EU Trade and Technology Council (TTC) should be reactivated and made an integral component of the partnership. 

Judging from conversations in Brussels, one suspects that the EU’s Carbon Border Adjustment Mechanism (CBAM) is likely to be a pain point. The calculation of the carbon content in imported goods has not been fully worked out. The so-called measurement, reporting and verification procedure is ambiguous on the EU’s part, and it is unclear whether the MRV established by the Indian side would be accepted by Brussels. Would there be common benchmarks on which the MRV of the two sides may be reconciled and, in effect, made inter-operable? 

Further, who will carry out the verification and who will bear the cost of such verification carried out by designated agencies? Onerous compliance procedures will discourage trade, particularly exports from India’s small and medium enterprises.

It is also not clear how the EU will deal with US opposition to the CBAM in its trade agreement with Washington. Clearly, one should not have to accept an onerous and perhaps costly requirement from which the US is exempted. This requires further probing. The temptation on the part of the EU to treat this as a non-tariff barrier would be strong at a time when protectionist trends are becoming more acute. 

India needs to promote capital flows from Europe. It has had more success in bilateral relations with major countries like France and Germany. 

A great deal of stress was laid on the defence and security partnership concluded between the two sides during the last India-EU summit. Europe will be investing very large sums of money in building up its defence capabilities over the next several years. A long-term partnership with India could bring together capital and technology from Europe and skilled manpower and scale from India. There is a natural fit here that remains to be fully exploited. However, there is no European defence industry and it is unlikely to come into existence. But Europe can provide capital and create the regulatory framework for technology transfer. There are concerns about possible leakage of sensitive technology to Russia with which India continues to have a significant defence hardware relationship. This has not affected Indian collaboration with the US and individual European partners and should reassure the EU policymakers. 

One finds that at the level of the EU and civil society in general there continues to be widespread ignorance about India and its economic and technological capabilities. Indian diplomacy must address this drawback as early as possible. 

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The author is a former foreign secretary