A Sustainability Impact Assessment, commissioned by the EU, indicates that an extended (broad) FTA (including further non-tariff barriers to trade harmonization) would result in significant benefits to both parties in terms of welfare gains, production, international trade, wage increases and productivity increases. The welfare effects amount to an additional 0.3 per cent growth for the Indian economy in the short run and 1.6 per cent growth in the long run.
India and the EU have a substantial trade relationship that is growing rapidly. In 2002, India was the EU’s 15th-largest trading partner; by 2012, it was the 8th. If trade between India and all EU member-states is totalled, the EU is India’s largest trading partner. Given this context of growing trade and benefits to be had all-round, it is odd that the two powers have not made more progress towards an FTA. So what are the issues of contention between India and the EU that stand in the way of an FTA?
First, India’s trade policy is influenced by demographics. More than half of India’s population is under the age of 25, necessitating a growth strategy emphasizing job creation and not just export promotion. These demographics and its education system have provided India with a skilled, competitive, English-speaking work force, something which Europe will be short of in the near future. Making gains from this workforce through trade requires more than tariff reduction, which is why tariff reductions alone will not make the EU-India FTA sufficiently interesting for India. Consequently, negotiations included provisions for the abolition of non-tariff barriers such as standards and mutual recognition or licensing requirements.
India is particularly interested in the liberalization of services under Modes 1 and 4 of GATS. As India’s skilled services labour force is growing very fast, India emphasizes better market access for services suppliers through Mode 4 liberalization over market access for goods in trade negotiations.
Second is Agriculture, a key sector for India from the perspective of ensuring equity and growth from the FTA. The EU has a highly protected agricultural sector and India has strong defensive interests in negotiating an FTA with the EU. At the moment, European agricultural imports from India are over five times larger than its exports to India, even though EU tariff rates on such imports are relatively high. India wants the EU to cut tariff and subsidy support to its agricultural products for fear of EU exports displacing Indian agricultural products once an FTA is signed. This issue could prove a significant stumbling block in the ongoing negotiations.
The third issue is the reluctance of the Indian government to negotiate government procurement issues. This is a priority issue for the EU and a bone of contention between the parties. The EU has complained that the ‘Indian government procurement practices are often not transparent, discriminate against foreigners and often give preferences to the locals’. But given government procurement accounts for nearly 13 per cent of India’s GDP, the Indian government insists it will not include public procurement in the EU–India FTA agenda. India is also discussing a ‘data secure’ status for the country. At present, India is not considered data secure by the EU. This obstructs the flow of sensitive data, such as information about patents, under data protection laws in the EU. The EU law mandates that European countries doing outsourcing business with countries that are not certified as data secure have to follow stringent contractual obligations, which increase operating costs and affects competitiveness.
Finally, there is a range of smaller matters that could derail negotiations if not managed well. These include further opening up India’s insurance sector and increasing the foreign direct investment limit to 49 per cent. A call from the EU for India to reduce its import duty on passenger cars is also contentious.
Negotiating a resolution to these issues is in the interests of both India and the EU. But the hurried pace of negotiations is becoming a cause for worry. In negotiating any bilateral trade agreement with the EU the Indian government should tread cautiously so as to safeguard domestic concerns and the public interest. The FTA will be the first of India’s large trade agreements with a western bloc, with 27 economies. If structured well, the agreement could push India’s growth for the next decade. If structured poorly, it could derail it for just as long.
Geethanjali Nataraj is Professor and Senior Fellow at the Observer Research Foundation, New Delhi.
There are several different issues w.r.t. data protection that are possibly mixed up in this piece:
1. data security of personal data, in which NASSCOM on behalf of the Indian IT sector is up against EU’s Data Protection Directive and its newer 2012 version, which restricts transfer of personal data to locations outside EU if they are not ‘safe harbours’
2. protection of pharmaceutical data against disclosure which is submitted to obtain a marketing authorisation and linked to the interpretation of WTO TRIPS Article 39(3)
3. likewise protection of undisclosed information in the context of plant protection products (ref. discussion on India’s Pesticide Management Bill)
4. the security of data bases or digital libraries that contain relevant information for patentability examination of inventions related to genetic resources and associated traditional knowledge, which are under negotiation under a draft Article 10 in the IP Chapter of the proposed EU-India BTIA.
Free trade decisions usually become a power struggle between countries wanting free trade and countries wanting protectionism. When FTA negotiations are to be approved in the European council of Ministers, there is need to maximize the number of countries supporting an FTA if there is to be approval to go ahead.
As a Danish citizen it seems strange that India believes there is a need to establish a FTA with Europe (EU28 is the worlds largest economy) when taking into account that India has been busy doing what it can to damage commercial ties with one of the most free trade friendly North European countries with high current account surpluses and low debt(Denmark). That is not going to make it easier for India to make progress with an FTA
An FTA with India would become a hard sell in Europe compared to some of the other FTA’s that are being negotiated:
a) Between Europe and USA
b) Between Europe and Canada
c) Between Europe and Japan
With these FTA’s, there would not be the same kind of opposition to the deal from people fearing outsourcing to low salary countries
Cases a and b would also help revitalize historial alliance ties
Cases a, b and c would also be with countries with regulations enjoying much higher credibility among European consumers and countries having much better human rights records
Cases a and c would seem to have a much higher economic impact compared to a FTA with India
It appears to me that India risks being left behind in trying to establish FTA’s with other regions.
Additionally:
The Eurozone current account surplus has improved to 1.6 per cent of GDP while
China’s current account surplus has declined to 1.7 per cent of GDP
The entire EU is also running a current account surplus even though not so high as the Eurozone’s since Britain and Poland have high current account deficits.
The net public debt of the Eurozone countries is less than the net public debt of USA (market value of fiscal liabilities minus fiscal assets) and national budget deficits in the Eurozone are a lot lower than US deficits (measured as a percentage of GDP)
We still need additional reforms in Europe
1) A banking union with shared deposit guarantee schemes in order to break the link between weak banks and weak sovereigns
2) Additional labour market reforms in Southern Europe in order to expand labour market flexibility and size
3) Additional re-prioritizing of public funds. More money for investment in infrastructure, science, education and tax cuts, less money for social transfers and public employees.
4)Focus on getting Europe to work on the federal level. More initiatives like the recently decided EU patent court and the ongoing attempts to establish a shared airspace in order to obtain a more efficient air control system
5) Additional focus on improving European competitiveness and European connectivity with the rest of the world
I strongly disagree with you. With the other markets you have FTA already which sells in EU. Now EU manufactorers need market to sell. Thatis how they want to work with India with huge population and world’s high number middleclass in one country. So it is now more needed for EU than India.
Need yourself udpate the facts.