New York Times | 22 June 2010
Europe and India push to seal free-trade deal
By RAPHAEL MINDER and TOM REDBURN
With global trade negotiations stalled, India and the European Union are pressing to complete a bilateral free-trade agreement in the autumn that is intended to triple their 53 billion euro ($66 billion) trade flow within five years.
After nine rounds of negotiations, India and Europe are closing in on such a free-trade agreement, Anand Sharma, the Indian minister of commerce and industry, said in an interview. Mr. Sharma said that he would meet with the European trade commissioner, Karel De Gucht, in September and that “we hope that both of us will be able to reach an agreement.”
Both sides are aiming for a framework agreement in time for a Europe-India summit meeting in Brussels, scheduled for October.
Europe and India started their trade negotiations in 2007, but talks initially made only slow progress. Given the impasse in the Doha world trade talks, however, countries have renewed their focus on bilateral deals as a less ambitious but useful proxy for increasing trade flows. Europe signed separate free-trade agreements last month with a group of Central American countries, as well as Peru and Colombia.
Mr. Sharma was speaking on the sidelines of an India business conference in Madrid sponsored by Horasis, a global networking group based in Geneva.
His speech coincided with the start of a visit to India by Catherine Ashton, the European Union’s new foreign policy chief, also meant to prepare the ground for the summit meeting in Brussels.
“The willingness is definitely there, and both sides are now putting a lot of effort into completing the work on the remaining issues so that the E.U.-India summit in the autumn can give the final push for concluding this deal, which we do think is possible,” said John Clancy, a trade spokesman for the European Union.
“We won’t reach a multilateral agreement this year, but the E.U.-India bilateral agreement is much advanced,” Rajan Bharti Mittal, president of the Federation of Indian Chambers of Commerce and Industry, said at the Madrid conference. Such an agreement, he added, would be “beneficial to both sides.”
European companies are increasing their presence in emerging markets like India in part to offset sluggish domestic growth. That is also true for Spanish companies that have traditionally focused on former Latin American colonies rather than on Asia.
“If an industrial group thinks that it doesn’t have to be in India, it’s making a real strategic mistake,” said Germán Lorenzo, the Asia-Pacific managing director of the Mondragon Corporation, a Spanish conglomerate that recently bought land in India. “Our domestic market is shrinking so our boys have to go for Asia, particularly India.”
Silvia Iranzo, the Spanish secretary for trade, conceded that her country’s trade and investment exchanges with India had so far “not been at the height of our economic scale.”
She added: “Spain is going through economic difficulties so we are putting in place policies of internationalization to help our companies overcome the crisis, and these policies inevitably involve India.”
India is expected to spend as much as $50 billion in the next five years to modernize its military equipment, but barriers to foreign investment in this sector were underlined recently. The Indian government blocked an electronics joint venture between European Aeronautic Defense and Space and Larsen & Toubro, an Indian engineering company. The concern was that EADS would breach the 26 percent equity ownership limit for foreign investors in the sector.
But Thomas Homberg, vice president of EADS, insisted Tuesday that “definitely we haven’t given up” on the joint venture. Facing such hurdles in the “sensitive field” of military contracting did not preclude EADS from developing commercial aircraft manufacturing in India, as EADS has done in China by setting up an Airbus assembly line. “I would not say that this is impossible in India, not at all,” he said.
European and other investors also want India to loosen foreign ownership curbs in sectors like insurance and retail. Other concerns include India’s manufacturing of counterfeit drugs and its unwillingness to include procurement in a trade deal.
Among outstanding issues for India is greater access to Europes’s highly subsidized agricultural market, which also was a major obstacle in the Doha talks. India also wants to make it easier for its work force to work temporarily in Europe.
When asked whether the euro’s decline could influence the pace of Indian corporate investment in Europe, Mr. Sharma said, “I don’t think these decisions are taken because of currency fluctuations.”