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An unfinished business

With or without an agreement in place, trade between India and the EU will keep growing.

india Updated: Feb 17, 2013 22:35 IST

Visiting French President Francois Hollande has promised to nudge the India-EU (European Union) free-trade agreement (FTA) towards conclusion. The assurance, coming six years after the two sides started negotiating for a trade and investment pact, may be too little and too late. Too little because what the EU is asking India to do — lower tariffs on European cars, protect the intellectual property of European drug makers, allow European insurers higher stakes in local ventures and open the market for European wines and spirits — are all tough decisions for any government in New Delhi. Too late because the election season will make these decisions even tougher at home and the recession in Europe makes it all the more difficult to push India’s demand that the EU allow in more software engineers.

India’s approach to regional trade agreements before this was to free up trade in goods, then services and eventually investments. This was the pattern of the pact with the Association of South East Asian Nations (Asean), the most significant one signed in the recent past. The EU is India’s largest trading partner and the scope of negotiations, launched in 2007, were naturally ambitious. It incorporated trade in goods as well as services and went beyond into investment and government procurement. Unlike the Asean FTA, where the political opposition was scattered across the country over agriculture products that would become freely tradable, the EU agreement faces entrenched positions at the national level. The government has been facing resistance in Parliament over increasing foreign equity caps in the financial sector, states stand to lose a big revenue stream if liquor duties are lowered and cheap medicines are a stated objective of public policy. On the other hand, immigration brings out deep fissures among the EU members.

Some of the sticking points in our talks with the EU are the reasons why multilateral negotiations at the World Trade Organisation stalled — agriculture, services and non-tariff trade barriers. India and the EU were on opposite sides of the table at the WTO and a comprehensive regional trade agreement between them would have to thrash out fairly contentious issues. Naturally, the United Progressive Alliance is treading gingerly. Despite several missed deadlines, commerce minister Anand Sharma sees a possible conclusion as early as April, in echo of Mr Hollande’s hope. The EU is about to embark on discussions with its largest trading partner, the US, and the unfinished business with India may linger. With or without an agreement in place, trade will keep growing so long as India remains the world’s largest arms buyer and aerospace remains the EU’s biggest export.