India-EU chalk out realistic blueprint in search for the FTA

It may yet be a case of waiting patiently before a free trade agreement (FTA) is hammered out but the recent spate of discussions between representatives of India and the European Union showcases the intent that the two parties have been illustrating on what could be paving the way for exciting times ahead.

In many ways, it was a buy-one-get-one-free scenario when Indian Commerce minister Piyush Goyal met European Commission executive vice-president and trade commissioner Valdis Dombrovskis last week, for a High Level Dialogue on Trade and Investment, while Union finance minister Nirmala Sitharaman met her UK counterpart Liz Truss the same day.

Commerce minister Piyush Goyal has always evinced separate investment and ‘early harvest’ deals between the EU and the UK as a stepping stone to a comprehensive FTA and in staying true to this principle, given that the FTA could still need to be approached in a more measured manner, talks with the EU represents were positive and geared towards resolving the pain points around immediate trade and investment-related issues.

India’s principle aim was to ensure that it addressed the issues related to its higher costs of investments amid uncertainty among a few European investors given that New Delhi’s investment agreements with most of the 27 member EU states had expired during 2017-2018. To that extent a clear path forward has emerged after the conclusion of last week’s discussions.

India’s ties with the EU are strengthening by the day. German chancellor Angela Merkel’s phone call to Indian prime minister Narendra Modi last month carried a lot of import. The two leaders discussed a number of issues which included the response to Covid-19 pandemic, bilateral ties, regional and global issues particularly India-EU relations. Merkel’s reachout to Modi came after a comprehensive investment agreement was signed with China and given that she is scheduled to retire from office this year sewing up an FTA with India would ensure that she leaves a lasting impact to her already significant legacy. Germany is India’s biggest trading partner in the EU. And an FTA for India with the EU, its largest trading bloc with total bilateral trade of over $91.4 billion in 2019 – accounting for 11 percent of India’s overall trade – needs to be the logical step forward given that it has been in the balance for well over a decade.

According to sources, both parties have agreed to a “monthly progress review of discussions by senior officials and quarterly review by the ministers for providing guidance.”

New Delhi has been focusing on particular issues in its engagement with the EU. The pain points that Indian apparel exporters are facing in the Eu and UK markets is a case in point. The issue is one of higher duties, when compared to the charges levied upon Pakistan, Bangladeshi and Vietnamese exporters. The Apparel Export Promotion Council (AEPC) has been asking for a speedy resolution to this problem. The duty imbalance that India faces when compared to its competitors is 9.6 percent and exports are naturally falling behind.

India exporters are facing a handicap thanks to the application of the Generalised System of Preferences (GSP) to 47 least developed countries (LDCs) even after Brexit. It would be to their advantage if an FTA is fast-tracked or, alternatively, a comprehensive economic partnership agreement (CEPA) is concluded.

The global pandemic has forced countries to introspect and focus on its priorities. Self-reliance is the operative mantra and India, under the stewardship of prime minister Modi, has pulled out all the stops towards realizing this goal and ensuring that it works not just for its internal mechanisms but feeds into global progress and well-being as well. To that extent the revival of India-EU trade talks after a lapse of seven years is a step in the right direction and a tremendous endorsement by the EU of India’s international influence.

The recent union budget has shown that India is willing to walk the talk as far as facilitating international investments into the country is concerned. Protecting the interests of foreign investors will be a top priority for the government and ease out the concerns of the past. The ensuing three months, before the next India-EU summit, should ensure that a rapid momentum is achieved for quick deliverables and for New Delhi to show demonstrated action and impress the EU community.

The check list will focus on items such as investment facilitation mechanism, working on regulatory cooperation, removing trade barriers, deepening research and promoting innovation, addressing multilateral issues of mutual interest, continuing the IPR dialogue and sharing experience in building resilient value chains.

It is evident that the EU is excited and pro-active about reenergizing discussions with India. The FTA is the pot of gold at the end of the rainbow for both parties. The pandemic has ensured that it is time for the global community to take a long, hard look at their existing strategies and stress test them against the current realities that exist today. A new approach which focuses on agility and adaptability is the priority. As prime minister Modi had correctly observed at a virtual summit, “After COVID-19, new economic problems emerged globally. For this, we feel the need for more cooperation among democratic nations. Today, both the health and prosperity of our citizens are facing challenges. There are different types of pressures on the rules-based international order. Thus, the India-EU partnership can play an important role in economic reconstruction, and in building human-centric globalization.

“We must adopt a long-term strategic perspective. An action-oriented agenda should be created, which can be implemented within the stipulated time frame. India and the EU are natural partners. Our partnership is also useful for peace and stability in the world. This reality has become even more evident in today’s global situation.”

Bilateral trade between India and the EU, if an FTA is signed off, could treble in a decade. That is the veritable pot of gold that New Delhi and Brussels are jointly set to profit from.