You might be forgiven for not noticing that a trade delegation from the European Union recently descended upon India’s capital to give the attempts of concluding a comprehensive free-trade agreement a much-needed boost. Perhaps because it was around the same time as the world leaders’ forum in Davos, India-EU free trade negotiations flew firmly below the radar screen of the world’s media.
The recent visit by the EU’s new trade negotiator Karel de Gucht was by comparison more high profile. He believes negotiations can be concluded by the end of the year if some of the remaining sticky issues can be resolved.
Over the last one and a half decades India has concluded over a dozen free trade agreements with countries or regional blocks such as ASEAN, Sri Lanka and South Korea. Others with Japan and New Zealand are on the anvil.
With the WTO’s Doha round still in a state of hibernation this flurry of bilateral deals is perhaps not surprising. The EU is also no sloth in strengthening its trade ties and has concluded trade agreements with the 78-member group Africa, Caribbean and Pacific countries, the Gulf Cooperation Council, South Africa, Mexico, Chile, South Korea. More with India, ASEAN and Mercosur are in the pipeline.
With many economists speculating that a double-dip recession is around the corner, trade liberalization could give a much needed fillip to the global economy. As it is India’s most important trading partner, a bilateral agreement with the EU would undoubtedly represent a beacon for both economies.
Negotiations between the two partners started in June, 2007 and looked promising at first but subsequently lost steam. Last November’s annual India-EU Business Summit in New Delhi was a turning point. Leaders on both sides seemed to rediscover their enthusiasm, declaring that a deal should be concluded by the end of this year.
This is to be strongly welcomed not just by the business communities in India and the EU but the world over. By definition bilateral agreements can be far more ambitious and far reaching than multi-lateral talks involving many countries.
The current WTO negotiations were kicked off in November, 2001 and seek to address a host of sensitive issues such as reductions in tariff and non-tariff measures, agriculture, labor, environment, transparency, services and intellectual property. It is easy to see why a conclusion of the WTO’s Doha round remains elusive.
The EU’s attempt to include politically-sensitive issues in its FTA negotiations with India has led to considerable resistance from the New Delhi which views climate change, intellectual property rights or child-labor as “extraneous” non-trade issues that should be tackled elsewhere.
Whether such issues should indeed be part of bilateral free trade negotiations is debatable, particularly since they are already discussed in many other multilateral forums. However with growing concern amongst the European electorate about loosing jobs to Indian outsourcing companies, the EU cannot but deal with its own internal political constraints. The EU has such clauses in all its bilateral FTAs and without them any agreement is likely to get rejected by the European Parliament.
India also has many areas where it needs to tread carefully due to domestic political sensitivities. With serious moral concerns in parts of India’s body politic and society, reducing import tariffs, lowering internal levies and easing restrictions on alcoholic beverage imports will take some political courage.
Clearly the newly found momentum should be seized to bring the negotiations to a successful conclusion. Both sides recognize that an awful lot of work remains to be done before the year is up. Trade organizations such as the European Business Group in India, FICCI and CII have been lobbying to push governments towards a comprehensive agreement.
The EU and India have set an ambitious goal of more than doubling their bilateral trade to $200 billion dollars in the next four years if a free trade deal is concluded. That would be an impressive increase in trade from the $82 billion achieved in the fiscal year ended March 31, 2009.
India should be less concerned about the inclusion of “extraneous” issues in the FTA as most of the provisions are in any case either covered by domestic legislation or non-binding.
But more than propping up flagging economic growth and international trade statistics in Europe and India, a successful FTA might even help reenergize the WTO talks.
—Ansgar Sickert is the New Delhi Based managing director of Fraport India and a council member of the European Business Group in India.