Money Control - 12 July 2021
Centre hopeful of beginning FTA talks with EU in coming weeks
By Subhayan Chakraborty
The enthusiasm of both sides to negotiate lower import duties, market access and custom rules may get a rude reminder on the issue of investment protection, which remains unsolved. Europe’s earlier demand of first signing an investment pact offering legal protection to its companies in India, may play spoilsport.
Talks on India’s much anticipated trade pact with Europe is set to begin in the coming weeks after a hiatus of more than five years.
Officials say tentative dates for the first few sessions have been set before the month end.
They state that introductory talks on the Broad-based Trade and Investment Agreement (BTIA) will be predicated on initial recommendations from industry groups. The Trade Policy Council of India has said the deal will be beneficial to the country.
Earlier in May, India, and the European Union (EU) announced the resumption of FTA (free trade agreement) talks, eight years after they were suspended.
They agreed to launch negotiations for two key pacts on investment protection and geographical indications.
However, the first few rounds of talks may again see old fissures on investment protection reappear to slow down proceedings, sources admit.
In early 2020, before the global COVID-19 pandemic changed priorities, India had reached out to the EU to restart the stalled BTIA talks, signalling its willingness to slash tariffs on wines and automobiles.
New Delhi had been keen on signing the pact after it decided not to join the proposed Regional Comprehensive Economic Partnership (RCEP) in November, 2019.
But EU trade policymakers had rebuffed the offer arguing that the pact could not be discussed until India agreed to equal level discussions on investment protection, a key concern for European companies in India. "The EU has demanded India sign an investment pact first before trade talks continue, a position it continues to maintain," a New Delhi based diplomat of an European nation said.
Back and forth
After being proposed in 2007, the BTIA saw 16 formal rounds of talks till 2013. But they hit a wall after India decided to terminate the existing bilateral investment treaties (BITs) with 23 European countries in 2016.
The EU had criticized the move while asking India to keep individual agreements in force until a new pact was signed.
However, the government has maintained that all future investment pacts will be negotiated under the framework of the model BIT issued by the government in 2015. This was meant to form the basis for individual deal agreements to be negotiated with other nations.
Among EU nations, the Netherlands has historically been the fourth biggest source of foreign direct investments (FDI) in India, pegged at $36.6 billion since 2000. Germany ($12.8 billion) and Cyprus ($ 11.1 billion) also figure in the list of top 10 FDI nations, apart from the now Brexited United Kingdom.
“There was a major push to restart the talks back in October 2017 during the 14th India-EU Summit in New Delhi. An offer by India to identify areas for tariff reduction was made then as well but no commitment on investment protection was made,” he added.
Back then, European Commission President Jean-Claude Juncker, after meeting Prime Minister Narendra Modi, had said that any discussion on trade would only be held once the terms of engagement had changed.
Eyeing more trade
India’s main focus in the talks with the EU is to secure more market access for its exports, as the continent is the second-largest destination for Indian exports (14 percent of the total) after the US.
The EU is India’s third largest trading partner, accounting for 11.1 percent of total Indian trade, after China (12 percent) and the US (11.7 percent).
India, meanwhile, is the EU’s tenth largest trading partner, accounting for 1.8 percent of the Union’s total trade in goods in 2020, well behind China (16.1 percent), US (15.2 percent), and the UK (12.2 percent).
After maintaining a trade surplus over the bloc for long, exports to Europe have fallen below imports for the first time over the past few years.
Since 2018-19, goods from the continent have surged, competing strongly with their American counterparts.
Before the pandemic disrupted normal trade flows, exports stood at $44.9 billion in 2019-20 while imports were $45.04. However, last year exports were pegged at $41.3 billion while imports clocked $38.95 billion.
On tariff reduction, New Delhi remains hopeful that its concessions, especially on alcohol, may sway the bloc.
In October, 2019, Donald Trump-led United States had imposed 25 per cent duties on European whiskies and wines from France, Britain and Spain, among other nations.
After constant talks of doubling tariffs further and adding more alcohol items to the list, both sides finally reached an understanding and suspended the added tariffs for the next five years in April, 2021.
“One never knows when the issue will rise again and European winemakers remain under pressure. Meanwhile, demand for European wine, whiskey and liquor is growing fast in India,” a senior official said.