Niti central | 28 March 2015

Narendra Modi goes to Europe – Economic Priorities

Jhinuk Chowdhury

Can an FTA with EU really help India counter the TPP and TTIP impact or would it – if not treated with caution – further trap India into strict IP regimes and undue market access wherein India is expected to completely open up while Europe continues with its protectionist measures? Can closeness with France and Germany – Modi’s Europe stopovers – help creating counter pressure on EU?

As Prime Minister Narendra Modi prepares for his European tour sans Brussels, covering only France and Germany; there’s a growing discontent in the European Union (EU) about a lost opportunity to reinforce vigour in bilateral relations with a rejuvenated India that is going all out in the global scene forging ties with major nations of the world including the US, Australia, Japan and even China, apart from courting its neighbours.

The disgruntlement was echoed by the Member of EU Parliament, Neena Gill, who retorted the cancellation as “incredibly unfortunate, given that India is leapfrogging towards major importance on the global scene”.

The stopover, cancelled owing to no response from the EU to India’s proposal for a visit, is quite ironical especially after the much vocal ‘political push‘ sought by the EU to resume the long stalled talks on the Free Trade Agreement (FTA).

Indeed the FTA will be quite significant for India too with the expected change in global trade as mega deals like the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) — a US led 12 countries bloc that together account for around 38 percent of global GDP and 25 percent of global trade — get sealed.

These two trade deals seek to elevate the standards for market access, emphasise on sustainable development and social standards apart from bringing in higher level of stricter intellectual property provisions.

To compete in those markets India – not a part of these trade deals – would need to implement meet these higher standards or lose market access due to trade diversion faced by TPP non-members.

The Economic Survey recently corroborated that India’s exclusion from the TPP and TTIP will retard its export buoyancy further.

Observers advocate an FTA with the EU to help India come in terms with the new market realities.

As EU seeks to conform to the standards of the US market conditions, India, in a bid to meet EU’s standards in terms of adherence to labour laws and sustainable development, will benefit indirectly.

An EU commissioned report on Sustainability Impact Assessment indicates how FTA will positively impact India’s welfare gains resulting in an additional growth up to 1.6 per cent.

For EU too India is one of the key focus countries with a bilateral trade at USD 101.5 billion in 2013-14 and USD 57.25 billion during April-October this fiscal

India became an EU ‘strategic partner’ in 2004. A joint action plan (JAP) was signed the following year.

Later in 2007 both initiated negotiations for Broad-based Trade and Investment Agreement (BTIA). The two sides had 15 rounds of talks till April 2013 when differences crept up.

Interestingly it is this incongruence that warrants the question whether an FTA with EU will really help India counter the TPP and TTIP impact or would it – if not treated with caution – further trap India into strict IP regimes and undue market access where in India is expected to completely open up while Europe continues with its protectionist measures.

Take for instance the demand by EU insisting India adopts an intellectual property regime (IPR) more stringent than that of World Trade Organisation’s (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) which India currently follows.

For India any commitment over and above the TRIPS will impact its healthcare affordability especially with protectionist measures like data exclusivity allowing pharmaceutical companies to exclusively retain rights to their test results for a certain period.

European pharmaceutical companies want India to lift its patents laws which prevent “ever greening” – a provision that allows companies to renew patents on old drugs.

India has already had its share of taste with the famous Novartis v. Union of India & Others case where Novartis obtaining the Exclusive Marketing Rights (EMR) Novartis from Indian Paten Office set the price of Gleevec drug at USD 2666 per patient per month while generic companies were selling their versions at USD 177 to 266 per patient per month – hugely impacting the affordability of access to the medicine.

Ultimately the Indian Supreme Court passed the landmark decision upholding the Indian patent office’s rejection of Novartis’ patent application.

Impact of healthcare affordability in Vietnam – one of the TPP countries – as a result of the IP regime of the trade deal has been a cause of concern for many healthcare experts.

Even if the EU has expressed its ‘flexibility’ in ironing out differences, India needs to be cautious on how much concessions can it offer and at what cost.

The other issue is India’skeenness on liberalization of services to access European market pursuing which it is seeking ‘data secure’ status to rid itself of the stringent EU contractual obligations that countries providing outsourcing service to Europe have to follow. It is also seeking work permits, wage-parity conditions, visa formalities for skilled professionals like software engineers.

Now EU does not have a single market for labour mobility. Regulations related to work permits and visas differ between members. Additionally, owing to EU’s unemployment problems it has also adopted certain ‘safeguard clause’.

Given this India needs to estimate even if it budges on certain demands of the EU to close the FTA deal how much of a concession would it get in return given EU’s own condition. This is quite a risk especially when a high value industry such as the service sector is concerned significantly contributes to the country’s GDP.

Automobile tariff is another obstruction. The EU contends that while tariff on Indian cars to Europe are less than 10 per cent the same on European cars to India are 130 per cent.

There are reports that India is likely to take a “flexible approach” on tariffs on auto with a possibility of reducing duties on high-tech auto components as that will bring down import cost for Indian companies and customers, and not pose a threat to domestic industry. The tariffs on low-tech components may be kept high to help the domestic industry.

This is an essential step that the Modi Government has to baton on with its ‘Make in India’ campaign. After all India’s automobile industry contributes to about 7% of GDP and employs about 7 to 8% of total employment in the organized sector.

On a positive note, Modi has included Germany and France – two of EU’s most powerful countries in his Europe tour.

Both have remained India’s strong trade partners. Trade with Germany is expected to increase further with Modi’s focus on wind power, science, technology and engineering.

Germany will be one of the major stopovers for him where he will attend the famous Hannover Messe 2015 – of which India is a partner country.

It will be an ideal platform for the government to showcase India’s potential and desire to emerge as a manufacturing hub.

France is another formidable pillar for India in Europe with mega deals like the $23-billion Dassault Rafale fighter contract in the offing.

Additionally, with FDI in the insurance sector up from 26% to 49%, reports have it that France may invest $5 billion in the sector.

So while the stakes of the two major European nations are high, India could use this to create counter pressure on EU while negotiating the FTA with the major western bloc.

(Author: Jhinuk Chowdhury is a freelance journalist based in India who writes on South Asian affairs. Follow her @jhinuk28. She can also be reached at jhinuk.cchowdhury@gmail.com.)