- India Matters
- Nov 03 2017
The recent EU-India Summit, held in New Delhi on October 6, has revived hopes regarding signing of the EU-India BTIA (Broad-based Trade and Investment Agreement) or the EU-India Free Trade Agreement. Even though the two parties concerned failed to fix a date for the relaunch of negotiations, EU Ambassador to India Tomasz Kozlowski stated recently that the talks would be resumed in mid- November 2017. When Prime Minister Modi visited Germany last summer, Angela Merkel posed the important question of protection of EU investments in India which is seen as an integral part of the FTA. The keenness to conclude the FTA is more from the EU side today as was clear from the Summit with President of the European Commission Jean Claude Juncker saying “it is time for an FTA between India and the EU”.
The EU economy is slowly reviving and time is ripe for concluding the 10-year old FTA negotiations which have been stagnating since 2013. India and EU trade volume was at 77 billion Euros in 2016.
A recent Policy Brief prepared by German think tank Bertelsmann Stiftung clearly points to the number of sectors in which India will gain, like business services and textiles and a few sectors in which it will lose like motor vehicles and minerals. It also points out the areas in which the EU will gain and where it will lose. Overall, according to the report, the EU-FTA will bring about a win-win situation.
Today the mood, however, is different regarding free trade agreements in India and elsewhere in the post Trump era. If the US can question the benefits of freer trade policies with partners and whether they are for Americans first, India too can question the long term gains which may accrue from the EU-India FTA . Past FTAs that India has signed with various countries have shown that there has always been a surge in imports and not much gain for our exports. Various problems have been identified regarding the fulfilment of the FTA according to the wishes of the EU. That is why there has been such a delay.
Some of the contentious issues are EU’s insistence on India improving its labour standards. The EU’s labour standards are higher than India’s where employers have to give several benefits to workers.
Imposing similar labour standards like EU’s as part of the conditions for the signing of the FTA is welcome, but it is not feasible in India because the employers will not be able to abide by them as it will reduce their competitiveness. This is because there are no welfare benefits for an ordinary worker from the state, especially in the informal sector and if the onus is on the employers to provide them, it will not be possible for them to bear that burden alone.
Opening up the agricultural/dairy sector is also a problematic because Indian farmers cannot compete with EU farmers in productivity. The EU gives huge subsidies to its farmers so that they can remain price competitive. Opening up will not increase productivity through competition as the EU thinks because Indian agriculture comprises millions of small and marginal farmers who have huge problems. They need domestic and structural reforms like consolidation of fragmented farm holdings, better inputs and credit before they can face competition from EU farmers.
Opening up the automobile and auto-component sector will bring about losses to indigenous producers because of the advances made by EU members, especially Germany in this sector.
Reduction of tariffs across the board will also not be possible given the problems that the Indian economy is facing and the financial needs of the government to finance infrastructure and recapitalisation of banks. Government procurement through open bidding is also not possible because of the various incentives government gives to NGOs, certain special industries like Khadi and Women’s organisations. Tariff reduction on wines and spirits will also not be possible as these are considered ‘sin’ goods from which the States derive substantial part of their revenues.
The main sore point of the BTIA, however, is the investment guarantee that India has withdrawn for all countries. A new Model Investment Guarantee Act has come into force since 2017. The Modi government does not want India to be dragged to any international arbitration court by a multinational company before it has gone through a domestic judiciary process for at least 5 years. The EU is not in agreement with this provision for dispute settlement. Without investment protection, there will be a big problem in the EU-India FTA.
India has many contentious issues in opening up its services sector like legal and accountancy services. It does not want foreign accountants and lawyers to practice in India.
Today job creation is the biggest challenge and we want to protect our jobs. Also as a big service exporter, India seeks temporary free movement of its IT personnel in the EU when they go to work in a member country which means a change in the EU visa regime which may cause problems in the face of the present deluge of migrants the EU is facing.
To do IT business in the EU, India has to have data secure status. Otherwise, it will create problems for member countries outsourcing services to India. Even though India has enacted legislation towards data security, the EU is yet to recognise it. According to Juncker, India’s standards of data protection have to converge with those of the EU. Only then will the EU be in a position to recognise the adequacy of India’s rules. This will be the precondition for exchanging personal data freely and securely.
Without the UK in the EU, perhaps there are better chances of the EU India BTIA being signed because the UK was insisting on duty reduction on its whiskies and also did not want to liberalise its visa rules for skilled Indian workers. On the whole, the EU, comprising an advanced group of countries, has to relent more and understand the constraints of its less developed partner. The important areas of dissent should be identified and negotiated to arrive at a faster solution when both parties meet in November. The secrecy surrounding the negotiations should also go and controversies surrounding the negotiations should be made public.
The views expressed above belong to the author(s).