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EU/India: Commission in new free trade push with New Delhi

Europolitics | Monday 26 October 2009

EU/India: Commission in new free trade push with New Delhi

By Sébastien Falletti

Following the successful conclusion of a free trade agreement (FTA) with South Korea, the European Commission is shifting its attention towards India, with the aim of providing a new impetus to bilateral talks that have made little progress since their launch in 2007. Over the past few weeks, the Commission’s Chief Negotiator, Ignacio Garcia Bercero, has stepped up efforts to reinvigorate the trade negotiations, paying two visits to New Delhi, where he made “good progress”. However, two key contentious issues are standing in the way of further progress, namely tariff liberalisation and public procurement, Europoliticshas learned. Indian requests regarding these two points do not meet the expectations of several member states and therefore curtail the Commission’s room for manoeuvre.

Fresh start

Following the completion with Seoul earlier in October of the most ambitious bilateral FTA ever negotiated by the EU, DG Trade is now focusing its resources and energy on achieving a similar result with the second target country identified in 2006 in the ‘Global Europe’ strategy: India. Two factors have given new hopes for a fresh start: the formation of a stable and strong government in New Delhi following the elections held at the beginning of this year and the successful conclusion of the EU-Korea FTA. The latter has shown that the Commission was able to deliver an ambitious deal while releasing human resources that can now engage more intensively on the Indian front. Since his appointment, the new Indian Trade Minister, Anand Sharma, has expressed more willingness to push the liberalisation agenda than his notoriously tough predecessor, Kamal Nath, raising hopes for progress in Brussels.

Against this backdrop, Ignacio Garcia Bercero has been exploring ways to move ahead since last summer. However, he has hit two snags. First is the level of tariff liberalisation. His Indian counterpart advocates for an ‘asymmetrical liberalisation’ that would require the EU to cut more tariffs than New Delhi. This request does not go down well with several EU member states, such as Germany or Hungary, which point out that the EU already imposes lower customs duties than India and see no reason why it should be asked to do more than its negotiating partner.

Public procurement

The second sticking point is public procurement. This is linked to the federal nature of the Indian political system. New Delhi has accepted in principle to liberalise the juicy public procurement market but only at the federal level. It stresses that it cannot impose such liberalisation on the twenty-eight states and seven union territories of the subcontinent. Such a position falls short of the expectations of the EU’s negotiators, who had faced a similar problem in the past when they attempted to negotiate a liberalisation deal with Canada. One other sensitive area is services, where India is requesting EU visas for its IT services providers.

Under the pressure of the Council, the Commission is walking the tightrope and his now hoping for a fresh political push to help the process move forward. With the support of the Swedish EU Presidency, it is pushing leaders to give a new political ‘impulse’ to the talks on the occasion of the upcoming EU-India summit, scheduled for 11 November. This could pave the way for progress during the next round of negotiations that could take place next January, a Commission source told Europolitics.Sweden, one of the most free trade-oriented member states, is pushing hard for rapid progress: its Trade Minister, Ewa Björling, set the goal of concluding a deal by 2010. However, the Commission is more cautious, mindful of the complexities of negotiating with India. “There is no target date,” said a source.

The market of the emerging Asian giant will be a tremendous business opportunity for EU exporters and investors in the decades to come, experts believe. The emergence of a new class of consumers as well as the huge needs in terms of infrastructure are certain to whet the appetite of European firms. Moreover, India has not negotiated any trade agreement with the US and therefore the conclusion of the FTA would give an edge to European exporters vis-à-vis their US competitors.

However, trade experts expect the talks with New Delhi to be much more challenging than those with Seoul. They point out that India has a poor track record in terms of liberalisation and keeps relatively high tariffs as well as numerous non-tariff trade barriers in place. Although the country has concluded several bilateral trade deals with its Asian partners, those FTAs are poor in substance and do not match the ambition of the EU, according to Razeen Sally, co-director of the Brussels-based think tank European Centre for International Political Economy (ECIPE). Indeed, the negotiations have achieved little progress since their launch in 2007. The last round was held during the summer but both sides are still discussing internally the level of ambition of the FTA.

Less ambitious

The ‘Global Europe’ strategy sets the goal of concluding ambitious, WTO-compatible ‘new generation’ FTAs that would provide tangible new market access to EU exporters in three of the most dynamic Asian economies (South Korea, ASEAN and India). The agreements must tackle not only tariffs but also non-tariff trade barriers. Although the Commission intends to use the FTA with South Korea as a template, its negotiators are well aware that they will not be able to achieve the same level of trade liberalisation with India. While the deal with Seoul will eliminate duties on 98% of the tariff lines, the level of liberalisation with India is likely to be around 90%, according to a European diplomat.

 source: Europolitics