Expiring bilateral treaties holding up Indo-EU trade talks, says official

India’s expiring bilateral investment pacts with many European Union (EU) member nations was one of the main reasons why trade and investment talks were on hold, a senior European Commission official said on Friday.

Speaking at an industry roundtable organised by the Confederation of Indian Industries, EU vice-president Jyrki Katainen said the lack of a suitable agreement in place of the earlier treaties was a serious concern.

In an effort to attract and safeguard foreign investment while protecting public interest, India is pushing a new model bilateral investment treaty (BIT). It is expected to provide the framework for new negotiations with trading partners.

In addition, India will use the model treaty to renegotiate existing treaties, including with several European countries. The country has reportedly terminated several agreements already.

“Companies from the EU need protection and are worried about the period between the two treaties,” Katainen told Business Standard. A time vacuum will result in higher capital costs for companies operating in the country, he added.

A number of countries, including the United States and Canada, have issues with the Investor State Dispute Settlement (ISDS) mechanism in the new model as it allows companies to seek international arbitration only when all domestic legal options have been exhausted. On the Bilateral Trade and Investment Agreement (BTIA) — the official free trade pact with the EU — which has been pending since 2007 on account of a number of bottlenecks, Katainen said the EU is waiting for India’s signal on the issue.

Negotiations on BTIA had seen 16 rounds of talks at the level of chief negotiators till 2013, after which talks had stopped till July this year. The deadlock continued over growing differences regarding greater market access sought by both sides for merchandise exports. However, commerce ministry officials said the EU has consistently sought lower import duties on a range of commodities such as automobiles and wine products. Other than being one of India’s largest trading partner and its biggest export destination, the bloc has also been New Delhi’s ‘strategic partner’ since 2004. Two-way commerce reduced to $88.4 billion in 2015-16, from $98.52 billion in the previous year.

The EU’s share in India’s total trade has also progressively shrunk in recent years. Indian exports to the bloc have shrunk from 21.84% in 2004-05 to 16.04% in 2014-15. 

Imports have witnessed a similar slide over the same period, going down from 17.30% to 10.98%.