Trade can be a powerful force for economic and social good if the terms on which it is conducted are negotiated fairly. Theoretically, genuine free trade would eliminate borders and boundaries, inviting us to imagine a world where goods, peoples and ideas could flow unimpeded in beneficial symbiosis.
This would be a world where visa queues had lost their power to terrorise. Where Indian architects could, should they so desire, work on projects in Florence and Spanish lawyers argue cases in Mumbai. Where a Belgian postman might slurp at an Alphonso mango on a Sunday afternoon out at the Grand Place, even as a techie in faraway Bangalore opens a fizzy can of Belgium’s famous Lambic beer, both without breaking the bank.
This week, another attempt to try and inch towards realising some semblance of this ideal is taking place in the bureaucratic sprawl of the European Union’s (EU’s) headquarters here. The chief negotiators of the ongoing India-EU free trade agreement (FTA) discussions are meeting here on Monday and tomorrow. The two sides continue to circle each other like weary, but still-wary pugilists.
Deadline after deadline for concluding the deal have been missed since negotiations were launched in 2007. And, despite encouraging noises by trade ministers as to the imminent signing of an agreement, negotiators privately admit to a deadlock.
With Manmohan Singh’s United Progressive Alliance (UPA) government besieged by hunger strikers and charges of corruption on the one hand, and an EU beleaguered by fiscal crises and internecine squabbling amongst member states on the other, the India-EU FTA appears to have run out of political steam. A source close to the negotiations on the Indian side reasons that if talks are left to bureaucrats, they will argue till hell freezes over without a result. A political push is what is needed to kick-start what is a politically complicated deal for both parties.
Grinding gears
But, given the current environment in India and the EU, politicians are wont to step cautiously and the political capital that may accrue long-term from an FTA is outweighed by the political risk it will engender in the short term.
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As a result, the talks are floundering, with the positions of both sides known, but few compromises in sight. Cars are a particularly sticky point. The Europeans claim they want a 100 percent elimination of tariffs in the auto sector. Indians scoff that this is a fantasy.
“How can we be expected to come down to zero, when our tariffs are as high as 60 per cent? If we are being asked for the impossible, it shows they (the EU side) are not serious,” said one source. Hope had centred on a proposal whereby tariffs on high-end, luxury cars in India are abolished, while small and medium car makers retain a degree of protection. While this might be acceptable to some of Germany’s upscale auto manufacturers, small car makers in France and Italy are reportedly loathe to agree. The Indian auto industry is unlikely to acquiesce easily, either.
It’s not only the chapter on trade in goods that is at an impasse. Formal offers have not even been exchanged when it comes to the arguably more complicated chapter on trade in services. The EU is asking for greater access to a range of sectors, including insurance, banking, legal services and retail. But Delhi is firm that any demands necessitating legislative changes in India, as greater access in the insurance and legal services sectors would, are a red line that cannot be crossed.
‘Substance’
Then, EU officials huff in response, there is no point in negotiating an FTA that lacks “substance.” “Substance” has emerged as the mantra of choice for the EU side, the argument being that Europe is only interested in an “ambitious” agreement.
India’s free trade deals with Japan and Korea, where cars were kept off the table, are held up as examples of agreements lacking in substance. The India-South Korea pact for instance, only included the phasing out of duties on 85 per cent of Korean goods and 93 percent of Indian products.
In contrast, the recently concluded EU-South Korea FTA banishes duties from 99 per cent of Korean imports in Europe and 96 per cent of European exports to Korea. The Europeans say they want a similar level of ambition with the India deal.
The Indians argue that given their high levels of existent tariffs, this is unrealistic. Since the EU’s tariffs are already much lower than India’s, any agreement will of necessity pinch India more. Delhi, therefore, insists that Brussels accept an asymmetry in the level of tariff reduction.
EU officials counter that while this might, in principle be acceptable, what is important is what sectors are included in the tariffs that are in fact scrapped. In other words, cars, once again.
Meanwhile, the Europeans have yet to make clear their position on one of India’s major demands, relating to the temporary stay in the EU of highly skilled Indian service providers like information technology and financial services professionals, architects and so on. An offer to facilitate the movement of Indian professionals within the EU has been the expected trump card that Brussels will play in exchange for concessions from the Indian side.
However, Indian officials say there is still little clarity on what the EU will be able to deliver in this respect, given that visas and immigration are a member-state competency rather than one that the European Commission can directly negotiate. The spectre of an army of “cheap” Indian labour marching into Europe and taking away local jobs is often raised by critics of the FTA which makes it politically very sensitive, given the high levels of unemployment experienced by many EU nations.
An India-EU FTA would not only boost trade — Federation of Indian Chamber of Commerce and Industry estimates that bilateral trade could touch $572 billion by 2015 if the deal goes through — but would also have geo-strategic implications as Europe looks to strengthen its relationship with strategic partners in a new world of emerging economies.
The reality is that despite all its putative benefits, in the absence of a strong political patron on either side, the deal between the world’s largest economy and one of its fastest growing competitors looks set to languish in negotiating limbo.