The fate of one of the world’s most crucial economic engagements will be at stake next week, when the 27-member European Union (EU) and India hold talks in New Delhi to thrash out the details of a free trade agreement (FTA) that could potentially boost bilateral trade to hundreds of billions of dollars.
The ongoing FTA negotiations cover a gamut of trade-related areas from tariffs on goods, to market access for services, intellectual property rights protection, customs, competition policy, sanitary and phyto-sanitary standards and technical barriers to trade.
These talks will thus determine outcomes as varied as the cost of a bottle of wine in Bangalore, the recognition of an Indian architect’s credentials in Belgium and the availability and price of innovative life-saving drugs in both India and the EU.
But against the greater consumer choice, of say mobile phone service providers or models of cars, that a successful FTA will facilitate, the negotiators must weigh the political and developmental costs of angering special interest groups that are clamouring for the continued protection a trade agreement would whip away.
In Europe, the spectre of an army of relatively cheap but well qualified Indian professionals relegating the local population of architects, IT professionals and engineers to unemployed purgatory has the services section of the FTA in trouble.
In India, business lobbies running scared of being rendered uncompetitive by an offensive of high-quality manufactured European products, has the goods chapter of the FTA bogged down in a quagmire of disagreement.
Next week’s talks, which kick off on January 25 and conclude on January 29, will be the eighth full round of negotiations to have been held since discussions on the trade agreement began in 2007. They will also be the first to take place following an explicit deadline by both sides for a hoped-for conclusion to the negotiations by the end of 2010.
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They come at a time when India has recently concluded FTAs with South Korea and Asean, dispelling doubts in the EU as to India’s seriousness about trade deals. The EU, in its turn, has also finalised an FTA with South Korea, in the face of vociferous opposition from auto-manufacturing lobbies.
But despite the propitious context and renewed commitments made to the process, the cold fact is that the discussions on almost every chapter of the FTA continue to come up short ahead of a seemingly inflexible set of red lines.
A source on the EU negotiating team said that the protracted nature of the negotiations has led to a “loss of focus” on the India FTA in Europe. With new FTAs with Central America and Canada now on the cards for the EU there is an “attention diversion” away from India said the source.
Other negotiators on the EU team disagreed, insisting that the momentum had not been lost.
As matters stand both sides have made offers on the goods chapter of the agreement, putting forth initial lists for the items they are willing to scrap tariffs on over a period of seven years. Ninety per cent of all traded goods are included on these lists, in accordance with the pre-FTA agreement. But Brussels remains unhappy with both the scope of the list as well as its composition.
While the details of the offers are not public knowledge cars and wines and spirits are believed to be on New Delhi’s list. Both items have tariffs of over 100 per cent at present.
Brussels is also keen to press India to increase the percentage of goods included in the list to over 90 per cent. This is something India wants the EU to do as well, while insisting that it should itself be exempt from any similar increase in percentage.
The logic is that given the fact that the EU already has close to zero tariffs on most goods an asymmetry in percentages is only fair.
The EU claims that were India to “improve” the composition of its 90 per cent offer, Brussels might be persuaded to accept the percentage asymmetry.
It is likely that this content-versus-percentage trade-off will be in focus in next week’s talks.
The services side of the discussions, however, is at an even less developed stage, with neither side having made any formal offers.
While Brussels wants India to further open up sectors like retail, banking, legal services, postal and courier services and insurance, New Delhi wants the EU to help facilitate visas for professionals offered jobs in Europe.
Brussels points out that visas are not a competence of the EU with individual member states retaining their own say on the matter.
But although visas are seemingly off the table, Brussels says it might be able to work on getting EU member states to agree to a mutual recognition of qualifications agreement (MRA) as part of the FTA.
If an MRA is indeed worked out, it would mean that an Indian architect’s qualifications for example would automatically be recognised by all 27 EU countries. But the EU has thus far never negotiated an MRA with a country outside of Europe. And there are doubts on whether it can deliver.
These doubts are exacerbated by the as yet unclear implications of the new institutional arrangements put in place by the EU’s recently ratified Lisbon Treaty.
Under the Treaty, the European Parliament — the only directly elected European institution — gets more supervisory power over matters related to trade, that were hitherto under the exclusive purview of the European Commission.
The Parliament is also the European body keenest to link trade agreements with “non-core” issues like environmental protection and human rights, a red-line for India.
With Brussels’ new trade chief Karel de Gucht having recently affirmed his belief that all trade agreements must be linked to human rights concerns to the Parliament, it is likely that the chapter on “sustainable development” will emerge as the single biggest sticking point in next week’s negotiations.
In fact, the chapters on sustainable development and government procurement are the only ones in the FTA under discussion that do not even have legal texts on the table as yet.
The Indian government has rejected these outright. But the EU says that without their inclusion in some form, there can be no FTA at all.
The result, according to an EU source, is the worry that far from achieving completion, talks might break down altogether by the end of the year.
Other negotiators say this claim is over stated.