Originally Published 2012-02-28 00:00:00 Published on Feb 28, 2012
There is need for greater transparency in the Free Trade Agreement negotiations. There could be more information sharing with civil society groups and the general public so that the content of the negotiations would get public approval faster, making it easier to conclude the FTA.
Challenges ahead for the India-EU FTA
The EU-India Free Trade Agreement negotiations were launched in July 2007 and even though there have been 13 rounds of negotiations, it has not been signed. EU is one of India’s biggest trade and investment partner and simulation models have shown that there would be an increase in overall exports and imports for both EU and India and bilateral trade would grow to €160.6 billion by 2015. Clearly, there are advantages to be gained by both EU and India. But the main fear from the Indian side is that the FTA would bring about an import surge that would affect the livelihood of farmers as heavily subsidized European agricultural products would flood Indian markets. Greater market access for goods and services forms the core of any FTA in which tariffs are removed among members but are maintained against the outside world. The other specific areas covered by the FTA are also problematic from the Indian perspective. They include trade in services, goods, investments, trade facilitations, public procurement, technical regulations, intellectual property rights and geographical indication, competition policy and dispute settlement.

Core Issues

India advocated an asymmetrical deal with the EU in which the EU would eliminate 95 percent of tariffs, and India would reduce 90 percent of the tariffs. It was a fair request reflecting the different levels of development between the two parties. EU is far ahead of India in terms of per capita income, level of industrialization, social indicators and standard of living. Yet, in the past, India has faced Non Tariff Barriers in the EU, especially in agricultural goods. India wants them removed first.

The EU has also brought out an ’exclusion’ list that includes 226 products, mostly chemicals, petrochemicals, plastics, ceramics and glassware. India has also proposed an exclusion list of about 150 agricultural goods and 250 manufactured products. The agricultural goods include processed goods, dairy products, sugar, fruits and vegetables, meat products including poultry, maize, honey, mushrooms, egg products, fish and fish products, coriander seeds, vanaspati and cocoa powder. The manufactured goods include some textiles and clothing, textile machinery, rubber, cars, commercial vehicles, two wheelers, paper and paper board, furniture, chemicals, machinery and appliances, and wines and spirits.

Though India has reduced tariffs to a considerable extent already, the EU wants a bigger reduction and has pointed out that India’s average tariff for Non Agricultural Market Access (NAMA) is now at 10.1 percent as compared to an average EU rate of 4.1 percent. India’s average tariff for agriculture is 31.8 percent as compared to the EU average of 13.5 percent. That India wants to protect its manufactures from the high skill based EU products is understandable, and India hopes that the EU will concede.

India’s Concerns

On the Indian side, there are apprehensions regarding many of the legally binding clauses on human rights, social and environmental as well as labour standards, which India may not be able to meet due to the current political and socio-economic conditions prevailing in the country. Indians have been worried that the EU is pressing too hard on the IPR (Intellectual Property Rights) issues, which may curtail the production of cheap generic drugs, especially AIDS drugs which India exports to Africa. EU’s demand for stronger IPR protection through ’data exclusivity’ requirement would force drug companies seeking approval from national health authorities to produce a generic copy of a medicine, but not use their previously existing data on its safety and effectiveness. It would require the generic drug companies to conduct expensive clinical trials before producing generic medicines every time, a limitation that could significantly curb the number of generic products.

EU’s insistence has been based on the fact that it takes companies a long time to develop new drugs. Enhancing generic production can undermine the incentive for original research, and though the supply of cheap medicines can be increased in the short run, in the long run, it will be curtailing innovative research. India has argued that the availability of cheap medicine is important for the poor as most of the rural indebtedness is due to borrowing by families for treatment of serious illnesses. It would also further limit the ability of the government to issue compulsory licensing of medicines. Fortunately, in July 2011, data exclusivity was dropped from the EU-India Free Trade Agreement.

India has also insisted that there should be a freer movement of Indian skilled labour on a temporary basis within the EU. But the EU has raised fears of competition in the EU labour market from Indian IT and other service personnel. The EU is also seeking liberalization of legal, accounting, banking, insurance and retail services, but for India to do so would be difficult considering that there has been political opposition to opening up multi-brand retail recently. From the EU’s point of view, services need to be opened up as the EU is exporting only 1.9 percent of its total service exports to India, while India’s share of its service exports going to the EU is at 11.6 percent. From the Indian point of view, various apprehensions exist about opening up banking, legal and accounting services to the EU.

The automobile sector and automotive parts is also a problem area. According to the EU, India has remained inflexible on the abolition of automobile tariffs. It applies peak import tariffs of 60 percent on cars but 10 percent on trucks and buses and 7.5 to 10 percent on parts and components. India is anxious that if it lowers duties on cars and automotive parts, Japan and South Korea would press for similar concessions. There are also problems in the area of wines and spirits and India is reluctant to lower duties on wines and spirits as they are regarded as ’sin goods’.

India is also concerned about the Singapore issues which focus on government procurement, investment and competition policy. These three issues were insisted upon by the EU for inclusion within the WTO in the past. But developing countries, including India, objected and these issues were finally removed. Now these issues have again been introduced in the FTA with India. Insistence on competition policy may lead to creating a favourable climate for EU-based multinational corporations which Indian companies may not like. The EU may want to attempt to harmonize India’s competition law with EU competition law, which may not in be in sync with India’s own development requirements and priorities. Also, the investment clause is controversial, as it would enable private foreign companies to acquire land, minerals, water and other resources freely which may create problems.

In general, there is need for greater transparency in the negotiations and there could be more information sharing with civil society groups and the general public so that the content of the negotiations would get public approval faster, making it easier to conclude the FTA. The secrecy surrounding the negotiations has become counterproductive. There is still hope for EU-India FTA to be signed in 2012, especially if the Eurozone crisis is also more or less resolved. The EU will have to be more generous in its negotiations with India to calm the fears of Indians who see themselves at a disadvantage vis-a-vis the EU on many fronts.

(Jayshree Sengupta is a Senior Fellow with Observer Research Foundation)
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David Rusnok

David Rusnok

David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany

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