JOIN USNew momentum
India and the European Union (EU) continue to struggle to conclude a bilateral Free Trade Agreement (FTA) six years after the negotiations were first launched in 2007.
There’s a new momentum in the talks after the visit of the Prime Minister, Manmohan Singh, to Germany a few days back where he along with the German Chancellor, Angela Merkel, emphasised the importance of concluding the on-going India-European Union Broad-based Trade and investment Agreement (BTIA) talks expeditiously.
Commerce and Industry Minister, Anand Sharma, was in Brussels last week for high-level negotiations with the EU Trade Commissioner, Karl De Gucht but the two could not iron out all the differences.
India has an interest in getting a favourable package on services, including declared interests in IT and movement of Indian professionals. Market access for agricultural products, pharmaceutical and textiles is also a priority for India. For the EU, concessions in the financial services are the key. This includes opening up of the insurance sector for FDI from the present 29 percent to 49 percent. The EU is also keen on the automobile sector where it is seeking a reduction in tariffs, much to the consternation of the Indian automobile industry, as well as a strong intellectual property regime.
The BTIA will be very significant for India-EU ties as this will be the first FTA for India not merely focused on the liberalisation of trade but also of investment. The conclusion of BTIA will be important not only for India’s further integration into the global economy but also to a give a boost to India-EU ties which have failed to achieve their full potential.
Despite the well-intentioned attempts by the EU to engage India more productively in recent years, there are significant constraints that continue to limit these ties from reaching their full potential. It took the EU very long to recognize that India also matters over the long-term and should be taken seriously. For long, the EU had single-mindedly focused on China, ignoring the rise of India in Asia-Pacific. India’s rising economic profile, the US overtures to India, its growing role on the global stage from the United Nations to the WTO, all have forced the EU to make it one of its strategic partners. The EU-India relationship is getting a long-term focus with the recognition that there are enough mutual benefits to ensure that small areas of friction are smoothed over.
The EU has been lukewarm at best to support India’s bid for a permanent membership in the United Nations Security Council. This is partly because different member states have different views on this issue and partly because the EU is still testing the waters to see which way the wind will blow ultimately. This is despite the fact that the EU has been supportive of the UN attempts to reform its functioning and organizational structure to meet the changing global realities.
Full potential
Though the EU is India’s largest trading partner accounting for around 19 percent of trade and the FDI from the EU into India has also grown considerably in recent years. India’s trade with the EU reached $91.3 billion in 2010-11. Yet, the EU’s economic ties with India are yet to achieve their full potential with total FDI into India still amounting to only 1 percent of EU outflows and being less than a tenth of that into China.
Finally, and perhaps most important, there is the issue of the EU mindset which still views India as a regional South Asian power and continues to equate India with Pakistan. The tendency to equate India and Pakistan, which until recently affected Washington and marred all policy initiatives in the past, seems to be alive and kicking in Europe. Despite some belated efforts, the EU continues to see security issues through the old lens, trying to find a fine balance between New Delhi and Islamabad.
With the exception of France and Britain, other member-states of the EU have not been entirely supportive of the recently concluded US-India nuclear deal as was clear from the initial deadlock at the NSG. This granting of an extraordinary exception to India by the US has not gone down very well with the non-proliferation constituencies in various EU countries.
As the centre of gravity shifts to Asia-Pacific and the international system undergoes a profound re-ordering, the EU is trying hard to accommodate to these new global realities. The rise of China and India has presented the EU with several opportunities that it’s trying its best to harness. But while trade and economics seems to have given the EU a reference point vis-à-vis the two Asian giants, politically it seems adrift as it is finding it difficult to speak with one voice on the political issues that confront the world today. Europe is finding it difficult to formulate a coherent foreign policy across the EU nations and this has made it difficult for the EU to respond as effectively to the rise of China and India as it would like to. The US has taken the lead in defining its relations with China and India and the EU now seems to be reluctantly following its lead as opposed to acting as an autonomous political unit keeping in mind its own strategic priorities.
The EU’s lack of a strategic direction in foreign policy makes it difficult for it to respond effectively to new challenges such as the rise of India. India should leverage its growing economic and political profile in the international system to impress upon the EU that it’s time for the EU to act seriously on its promise to make India a strategic partner. An expeditious conclusion of the India-EU FTA would be an important first step.