An effective economic diplomacy to move forward on EU-India relations

The chief executive of Brussels-based trade group Eurochambres analyses whether the traditional trade agreement format is viable any more when it comes to India's relationship with the European Union (EU). India has become the world's fastest-growing large economy. It is the world's seventh-largest economy in terms of gross domestic product (GDP), overtaking the G7 members Canada and Italy as well as Brazil. In 2015 India's economy expanded despite agriculture facing a second consecutive drought year, with the Asian Development Bank (ADB) estimating in July 2016 that the Indian economy was on track to meet its projected growth target of 7.4 per cent in 2016-17, supported by brisk consumer spending and an uptick in the rural economy. India has embarked on a process of economic reform and progressive integration with the global economy that aims to put it on a path of rapid and sustained growth. Indian Prime Minister Narendra Modi has launched more than 30 schemes to modernise India since taking office. Among these, several touch upon key sectors in both countries, including climate change, urbanisation, innovation and technology transfer, energy and water management. Europe enjoys great expertise in these sectors, as demonstrated by its SMEs' continuous development of new technologies. EUROCHAMBRES' experience shows that much of this know-how, in various forms of cross border collaborations, trade and technology transfer, can be highly beneficial to Indian enterprises in the same sectors. Moreover, during the past years, India has liberalised its investment regime. The country has experienced large foreign direct investment (FDI) inflows in 2015: an increase of 28 per cent amounting to $44.2 billion. In this regard, several steps have been taken, including the liberalisation of caps on FDI inflows in several sectors (e.g. railway infrastructure, construction, defence and insurance). Additionally, in June of this year, the government liberalised further FDI norms in a number of sectors, providing a new path for global multinational enterprises to establish retail operations. The long-awaited rules reinforced the government′s plan to develop more business-friendly policies. Additionally, at the 2016 EU-India Summit, India stated its readiness to establish a mechanism to facilitate investments of all EU Member States in India - the largest investor in India with stocks totaling €38.5 billion in 2014. The European Union is India′s largest trading partner, accounting for 13 per cent of India′s overall trade, ahead of China 9.6 per cent and the United States 8.5 per cent. The EU is also India′s most important export destination and the Union′s second-most source of imports. However, India′s trade regime and regulatory environment remains comparatively restrictive as also witnessed by the recent Doing Business report of this year, despite noticeable improvement such as reduction of days to start a business, or the elimination of minimum capital requirement. With its combination of rapid growth, complementary trade baskets and relatively high degree of market protection, India is an obvious partner for a free trade agreement (FTA) for the EU. As such, EUROCHAMBRES is very favourable to the conclusion of this agreement which should cover over 95 per cent of tariff lines and have the ability to create one of the world′s largest free-trade zones by population, covering 1.8 billion people, or nearly a quarter of the world′s people. Additionally, it is a necessary vehicle to ensure a more favourable business environment for European companies in India, particularly in services, public procurement, and in the field of IP protection. However, while the European Commission remains committed to negotiating a broad-based FTA with India, as outlined in the EU's new trade strategy, Trade for All, the negotiations came to a de-facto standstill in the summer of 2013 due to a mismatch of ambitions and expectations and have yet to catch speed again. This, however, does not mean that European and Indian business should decelerate in deepening their relations. Drawing from our management experience of the European Business and Technology Centre (EBTC) assisting European companies and research institutions in entering into and working with the Indian market, EUROCHAMBRES can testify that European small and medium enterprises (SMEs) are not waiting for a trade and investment agreement before doing business with India. None the less, a conclusion of the Agreement would ensure a more conducive environment in which companies can operate. In the field of Intellectual Property Rights (IPR) protection, EBTC has established an IPR helpdesk with the support of the European Patent Office (EPO). The main aim of the EBTC IPR Helpdesk is to facilitate and assist European companies in protecting invention in India, identify issues related to market access, public procurement, competition law and coordinates with other European organisations to build IPR capacity in India including advocating with the relevant authorities on IPR issues and challenges. The so-called Brexit will not change the important relationship that India currently holds with the EU, despite the stock markets' initial reaction in the aftermath of the Brexit hitting some Indian companies that have a significant revenue exposure to the European markets. Of course, Indian companies play an important role in the UK economy, being the third largest source of foreign direct investment (FDI), but it is too early at this point to speculate on the future development this may have on the EU's agenda, given Article 50 has not yet been triggered. Where we do not have to speculate at this point, and in view of the uncertain times we currently experience, is the certainty that business needs an effective European economic diplomacy. This will strengthen the links between trade policy and trade promotion, is demand-driven, focuses on non-duplication of existing structures and is planned for the long term. This becomes even more important when dealing with strategic partners such as India, a rising economic power for the next years to come. So looking ahead, we should be thinking of a new dimension of an international trade relationship with India, one that involves economic diplomacy - a parallel track to the ongoing negotiations as a way for business to move the bilateral agenda ahead with a strategic partner for the EU.

Arnaldo Abruzzini is the CEO of EUROCHAMBRES - the Association of European Chambers of Commerce and Industry representing over 20 million enterprises in Europe - www.eurochambres.eu