Modi in Germany: Will India's FTA pragmatism bring EU out of its shell?

Trade in general and FTAs in particular are increasingly playing an important role in India’s diplomatic landscape at a time when its benefits are being questioned in several capitals. Prime Minister Modi has displayed a clear inclination for leveraging external sector for domestic economic growth.

It is therefore not surprising that even before the reports on RCEP (Regional Comprehensive Economic Partnership) negotiations have ceased, talks about India-European Union (EU) Free Trade Agreement have begun to surface. The issue is simple. Can the EU really come out of its shell and move for a deal. The context is provided by Brexit which has spurred UK to push for a separate trade deal with India and so is a competition for EU and the victory of Mr Macron as President in France, that would be expected to tame the insular lobby within the EU.

Political Commitment

It is these developments which provides the excitement about a deal when Prime Minister Modi leaves for a visit to Europe. Would there be a significant progress on a free trade deal with the EU? The six-day tour will begin on May 29 with PM Modi travelling to Berlin, where he will meet German Chancellor Angela Merkel. There has to be a note of caution, though. The expectations for discussions on India-EU FTA were high even during the last trip of the PM to Brussels; commerce and industry minister Ms Nirmala Sitharaman was also part of the delegation but her counterpart did not turn up at the summit meeting. In fact, later the Minister tweeted, “We in India want that talk to resume. We wanted to resume it at the earliest, we want a talk.’ 

As one noted above, the environment has changed this time. The European political leadership seem to be extremely open to the idea of FTA with India. The recent visit by Ms Sitharaman to Italy and an earlier visit of a delegation from Germany are pointers to this political commitment. Given the way EU’s other partnerships with the rest of the world has not shaped up too greatly for the continent, there is a good indication that it would want a deeper cooperation with India. But of course there are worries? Some of them are the EU concerns about whether larger integration with India would help its economies where the best of them are growing at only 1.9 per cent.  Is the EU anxious about currencies being so volatile particularly the Euro? These are tough questions, made more significant as its bilateral trade with India has grown quite impressively. It has increased from $ 55 billion in 2006 to $96 billion in 2016. With these in mind, one can examine the two specific areas of strain holding up the FTA.     

Financial Services and Investment

First among them is the proposed EU-India Bilateral Trade and Investment Agreement (BTIA). Since 2015, India has come up with a new template on BTIA, which includes a strong provision on tax liabilities in accordance with India’s laws. The new FTA talks would have to factor in these provisions for the BTIA. 

A connected concern is banking services where conflicting positions have already emerged. The EU has been pressing for more liberalization of FDI in multi-brand retail and insurance. Yet even as EU makes the case for liberalization of Indian banking and financial sector and opening up of FDI in multi-brand retail, India has countered it with a demand of greater market access in Mode-1 and Mode-4 (ie movement of labour and people). None of those have not made much progress so far.

IPR and Public Procurement

Launching of new IPR policy by India may have addressed several of the European concerns.  Apprehensions still abound on exclusive rights over clinical trial data and avenues available for redressal. Since several Indian bio-pharmaceutical companies have also entered in drug development, a fresh look may be required in this sector.  It is also important to point out here that within the ambit of IPR issues related to geographical indications, bringing in enhanced market access for spirits and wines is also being pressed for by the EU. 

In this case a greater degree of discussion would pave way for some solution.   Any such would have to factor India’s demand at WTO for extension of geographical indications to products other than wines and spirits, for instance, Darjeeling Tea and other products. 

Similarly the new initiatives in public procurement signed on by India may play an important role in reassuring several European partners in New Delhi’s abiding faith in principles of transparency and the Ease of Doing Business.  A Procurement Policy Division in the Department of Expenditure, Ministry of Finance has been created to facilitate greater uniformity and harmonization in public procurement process.  The creation of public procurement portal and GEM-market place reflects continued commitment in this area.

Agriculture and Fisheries

In the realm of agricultural trade, EU’s peak tariff rates on dairy products, fruits and vegetables, sugar and confectionary, continue to be extremely high. Similarly, the fisheries subsidy is also a major point of botheration for India.  Those subsidies that contribute to overfishing, is estimated to be as high as $35 billion. Just last month the European Parliament voted in favour of a resolution to allow for the construction of new fishing boats to extend fishing to the outermost regions, in addition to the assistance being extended through European Maritime Fishing Fund (EMFF) funds. According to a recent EU report monitoring the performance of the Common Fisheries Policy, Europe’s precious fish stocks are still being destroyed for a quick profit, while European citizens are being fed a raw deal by both the big end of the fishing industry and national governments. This naturally has spill over effects on the markets of other countries including India.  One hopes that this time, when Ms Sitharaman is there, there would be a resolution of this concern.

India-EU FTA thus makes strong sense. Yet as both of them are strong economies with a decentralised structure which spawns powerful domestic lobbies, getting to allow more market access in each other’s territory is not easy. How far the FTA moves, is therefore going to be tricky.

The author is Director General, of RIS, a government appointed think tank.