logo logo

India-EU FTA suffers the ennui of vested interests

Business Standard | July 08, 2009

India-EU FTA suffers the ennui of vested interests

Pallavi Aiyar / Brussels

Imagine a world where visa queues no longer have the power to terrorise; where a lawyer in India can practise in Spain, were she to prefer it; where after a long day’s work one could sit back in Delhi and enjoy a buttery glass of French wine without spending a month’s wage on it.

The possibility of realising this almost Lennonesque utopia is currently in the unlikely hands of a group of bureaucrats who will be meeting in Brussels next week for the seventh round of the free trade agreement (FTA) negotiations between India and the European Union (EU).

But even the most optimistic amongst those involved in the process admit the talks to be in a deadlock that neither side has the political will to break. Domestic considerations like the economic crisis in Europe and elections in India have sapped the negotiations of urgency. And powerful constituencies on both sides remain determined to obstruct progress.

Depending on their interests, they paint dystopic pictures of tsunamis of Indian professionals washing over Europe, rendering the local population jobless or conversely of waves of high-quality manufactured European goods drowning home-grown Indian businesses into oblivion. And so the politics of business intersects with the business of politics to create a quagmire from which the negotiators are currently failing to free themselves.

Yet, in many ways, it is upon this beleaguered FTA that the future of EU-India ties hinge.

Europe is already India’s largest trading partner, with bilateral trade (including goods and services) in 2007, worth ¤67.8 billion. The FTA could lead to an exponential increase in this figurem making for a formidable engagement between India, one of the world’s fastest growing economies, and the EU, the world’s largest economy.

Ideally, the FTA would see liberalisation of tariffs on goods on the Indian side matched by the liberalisation of service sector rules on the European side to make for a win-win situation.

On trade in goods, New Delhi and Brussels have already exchanged initial lists of items they are willing to scrap tariffs on. Ninety per cent of all traded goods must be included on these lists, according to the pre-FTA agreement. But given the fact that the EU already has close to zero tariffs on most goods, India wants Brussels to include at least 95 per cent of goods on its list, less than it is willing to offer itself.

Clearly India, with its high tariff levels, will feel the greater pinch on the goods side of any FTA with the EU. But Brussels remains unhappy with the composition of the 10 per cent of goods that New Delhi wishes to exclude from the list. While the details are not public knowledge cars and alcohol are believed to be among the items not on offer, to the chagrin of auto heavyweight Germany and wine-exporting major France.

It’s therefore the negotiations on trade in services that are potentially the most interesting with both sides standing to gain. But these are also emblematic of the problems at the heart of the talks – the hijacking of the agenda by a handful of vested interests as well as a lack of clarity regarding the actual competence of the negotiating authorities.

On services the EU is primarily focused on gaining concessions in what is called the Mode 3 category within the General Agreement on Trade in Services (GATS) treaty of the WTO which deals with cross-border investments in services while India is more interested in Mode 4 or the cross-border movement of people to provide services. The presence of a foreign bank in India for example, would be covered by Mode 3 whereas the migration of an Indian software professional to the EU for a job would come under Mode 4.

The main service sectors the EU is attempting to open up in India include retail, banking, legal services, postal and courier services as well as insurance. But negotiators on the European side say there are scant signs that New Delhi is willing to move on these. The legal sector for example is one that UK law firms have long been pushing to enter. What European law firms want is an arrangement of the kind they already have in China whereby they are allowed to set up representative offices that offer advice to clients. Court appearances are not something they are after at present. However, legal lobbies in India are up in arms at the prospect of any opening up of the sector at all.

An increase in the number of licences issued to European banks to set up branches (at the moment 18 new licences are given annually) and foreign investment in multi-brand retail outlets are other demands on the EU side that have meet with lukewarm response.

An Indian negotiator revealed that talks on services have not even proceeded to the stage of making offers. Very basic facts are still being clarified such as the actual competence of the negotiating bodies. While India wants the EU to help facilitate visas for professionals offered jobs in Europe, Brussels says this is outside its purview, visa issues being a competence of individual member states. Again while India wants the EU to harmonise the recognition of the qualifications of its service professionals like architects, and doctors, the EU is struggling to meet these demands.

The Europeans complain that India is yet to come to terms with what the EU (as a supra-national body) can and cannot do. They say that by linking the talks on services to a range of issues surrounding the core substance the Indian side is obstructing any real progress.

For the Indians on the other hand, the distinction between core and “surrounding” issues is disingenuous. If the EU is unable to deliver on behalf of its member states on the very issues of fundamental interest to India like visas and the recognition of qualifications then the whole purpose of the negotiations is moot they say.

Moreover, the EU is not beyond linking the FTA to non-core issues. The European Parliament has in the last two years repeatedly sought to connect the negotiations to non-trade matters like labour standards, child welfare and even animal welfare.

Predictions for the future of the talks are divided. Some foresee a major crisis and a possible breakdown in negotiations by early next year. Others are more optimistic. The return of the Congress-led government in the Indian elections has ignited hopes. In addition, India has successfully concluded FTA talks with Korea and ASEAN. Since both are more directly in competition with India than the EU, this is seen as another good omen.

But what the pessimists and optimists agree on is that next week’s talks are unlikely to yield any breakthroughs. For the foreseeable future visa queues will remain as terrifying and foreign wines as expensive as ever.

 source: Business Standard