Are EU and India sleepwalking their way to another lost decade on FTA?
India and EU today need innovative new ideas to enhance their trade and economic cooperation, this being the key component for stronger partnership promoting economic growth in these troubled times, writes Sunil Prasad for South Asia Monitor
Given the state of flux in the free trade negotiations between the European Union (EU) and India, India’s road to a free trade agreement (FTA) looks bumpy with a lot of potholes. Some of these are the product of domestic political and economic exigencies that have come in the way. With the dawn of the new year, it is hoped that trade negotiators from the EU and India will take a harder look and evaluate the economic benefits the two continents have lost on account of their failed negotiations.
The EU and India have been negotiating an FTA since 2007 and, despite several rounds of negotiations, the proposed EU-India Bilateral Trade and Investment Agreement (BTIA) covering trade in merchandise, services and investment is far from concluded. During the 15th EU-India Summit last year, the leaders committed once again to restart trade negotiations; they did not spell out a roadmap on how to break the seven-year-old logjam in talks that stalled in 2013, and if there is a sense of flexibility on either side to conclude the negotiations.
In this respect, the statement by Indian Commerce Minister Piyush Goyal that the country is open to the idea of a Preferential Trade Agreement (PTA) with the EU to get faster outcomes before hammering out a more ambitious FTA is significant. A potential PTA seems like the recognition of the fact that instead of waiting for resolution of all the contentious issues to ink a full-fledged FTA, it’s better to clinch a limited deal on the points of convergence and then move on to a more ambitious one. The EU seems receptive to this idea and, if this is true, both the EU and India have lost precious seven years of intense and enhanced trade prospects since 2013. While I welcome this new thinking, in my view all opportunities should be availed for a comprehensive trade agreement within a time frame.
FTA a must
Despite the disruptions caused by the pandemic to the global economy, the EU-India relationship is set to witness an extraordinary momentum. Although the impact of the pandemic knocked off India and has pushed it back to being the world's sixth-biggest economy in 2020, India is set to regain its position as the fifth-largest economy by 2025 and emerge as the third-largest economy by 2030 in dollar terms. Therefore, it makes a lot of economic, businesses and strategic sense for the EU to secure a trade agreement with India and integrate the economies of the two largest democracies and a combined market of 1.8 billion people.
In the post-Covid world, the economic and social challenges India and EU face are daunting, but this moment should be recognized as an opportunity to take hard political decisions. With world governments increasingly resetting their approach to trade agreements in the post-pandemic world, it is important for EU and India to proactively step up their efforts to rejig their trade relations by overhauling their FTA negotiating strategies.
The health pandemic has shaken the basic foundations of the balance of power and the existing world order, and has also changed global political trends. In this emerging new world order stakes are high for EU and India and they need a transformative change in their relations to play a larger role in the global trade and development. India and EU today need innovative new ideas to enhance their trade and economic cooperation, this being the key component for stronger partnership promoting economic growth in these troubled times.
I believe strongly in the wisdom of the strategic investment both EU and India have made in each other’s shared future since their strategic partnership agreement, and for India and the EU to maximize the return, both must take a longer-term view, keeping in mind the challenges of emerging broader geopolitical and economic world order post-Covid, and their commitment to intense bilateral trade and investment relationship. The sooner both recommit themselves, and their partnership, to bring the 14 years of trade negotiations to a fruitful conclusion, the better for their economic prosperity.
Need for new thinking
As is evident from 14 years lost in discussions, the present consultative structure and negotiating mechanism need a visionary approach and diplomatic strategies. Both the EU and India have reached a crucial point where old paradigms of negotiating practices should be replaced, and new ideas brought on board. EU-India FTA negotiations have come to a stage where it needs to adopt some of the most efficient parts of the process followed during the Brexit negotiations. Even though they were far more complex than the EU-India FTA, the Brexit talks reached a conclusion within a timeframe for two main reasons.
Once, both sides had agreed to a deadline by which the negotiations had to end and the second, perhaps even more crucial element, was the constant presence and supervision of the negotiations by the top leadership of the EU and the UK. Both the sides appointed a senior person with just one mandate – to conduct the negotiation and to reach an agreement before the deadline. The seniority of the persons as well as very close supervision by UK Prime Minister Boris Johnson and the EU President Ursula von der Leyen ensured that the negotiations were complete in time and to the broad satisfaction of both sides. This is exactly what is needed for breaking the deadlock of EU-India trade talks as well - a 'marathon' trade discussion at the ministerial level with a definite timeline and framework.
China's diplomatic victory
Last week Brussels and Beijing have jointly crafted a new trade deal and New Delhi cannot afford to ignore this. The European Union's investment treaty with China, which is seven years in the making, should be seen as a major diplomatic victory for China as the agreement will be of major economic significance for EU-China relations and for future EU-US relations. With Joe Biden's election victory in the US, the Chinese diplomacy quickly reassessed the incoming US administrations’ future policy to re-build relations with the EU, the Chinese negotiators went into overdrive keeping strategic interest at the core of their trade diplomacy and offered various concessions on market access to European companies. China, which is at the core of global mistrust for its aggressive lies on the handling of COVID-19, which led to its diplomatic isolation, has proved that it can "boil egg even in the refrigerator". The agreement is bound to create friction between the EU and the incoming US administration, and it would be interesting to see the US policy.
The deal is also a blatant recognition that democracy and human rights matter to the EU as long as it does not clash with trade and economic benefits. Also, by entering the investment treaty with China, the EU has given Britain a message "we are smarter than you" and we have recovered from Brexit.
The tragedy for India is that it sees trade agreements from a weaker point of view and shies away from transforming the disadvantage to an advantage. India urgently needs strong and visionary trade policies without which any trade agreement will keep haunting it. India deciding against joining RCEP has not gone well with several trade partners. It is true that India runs a large trade deficit with RCEP countries, and was expecting specific protection for its industry and farmers from a surge in imports, especially from China, but it important for India to climb the wall than to have a wall around itself.
(The writer is the Secretary-General of the Brussels-based Europe India Chamber of Commerce. The views expressed are personal. He can be contacted at sunil.prasad@telenet.be )
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