At the seventh India-EU Summit in Helsinki in 2006, both India and the EU agreed to start negotiations. These began in 2007 based on the report of India-EU High-Level Technical Group.[1]Negotiations lasted till 2013 but seem to have broken down after fifteen rounds of meetings on multiple issues, despite intent but evident lack of will.
The differences were mainly on the interest groups issues from each side rather than on generic points of view. The EU sought the opening of the Indian market to wines, small cars, and access for their companies in insurance, banking, and e-commerce. The EU also wanted the New Issues of labour, environment and government procurement to be included. India had already refused to include these, even in WTO discussions. India seemed less demanding – focusing on work and student visas and secure data status which would allow Indian IT companies to obtain outsourcing business from the EU. On these, the EU remained diffident.
Once Indian IT companies invested in data-centres under EU laws, the commercial push from them for the BTIA diminished. Traditional Indian exports dominated by non-agricultural market access (NAMA), food, chemicals, and textiles[2]could benefit from a concessional duty structure under a BTIA since India has graduated from the Generalised Scheme of Preferences (GSP) benefits which its neighbours continue to have.
Efforts by India to carve out areas of interest for the EU were not appreciated and the BTIA became a drag on the relationship. By 2016, India decided not to extend the Bilateral Investment Protection Agreements (BIPA). The EU countries worried that the lack of a BIPA could curtail Hermes[3] and European Investment Bank (EIB) guarantees[4], which provided trade and investment insurance to EU companies.
The investment part of the partnership with the EU has a better chance of success. EU companies have already invested $91 billion[5]in India and Indian companies about $59 billion in the EU since 2000.[6] 6000 EU companies operate in India with about a quarter from Germany. These create close to 1.7 million jobs and need to be encouraged. The India-EU Strategic Partnership Roadmap to 2025 provides for optimal use of the Investment Facilitation Mechanism (IFM) established in 2017 to promote and facilitate EU investment flows into India.[7]
India and the EU were in favour of globalisation and as per the joint statement at the India-EU summit in July 2020, are still committed to it.[8]Another key paragraph in the statement dealt with trade-related issues, emphasising a post-COVID-19 focus on sustainable development and employment. A high-level ministerial dialogue was set up to tackle hurdles and update economic engagement and cooperation.[9]Trade experts are elated that India finally has a political-level trade interface with the EU.
The intention is laudable but what is in doubt is the ability of both sides to wean themselves off exclusivist and protectionist domestic sentiment.
In the last decade, India has pursued Free Trade Agreements(FTAs) and put geo-politics and strategic partnerships on an even keel. Thus, the Comprehensive Economic Partnership Agreement (CEPA) with Japan (2011), the FTA with Association of Southeast Asian Nations (ASEAN,2007) and the entry into negotiations for BTIA (2007) and the Regional Comprehensive Economic Partnership(RCEP,2012) came from a competitive mindset where economic engagement was seen as a part of strategic partnerships. The failure of the India-Japan CEPA and the India-ASEAN FTA to get better trade results and improve access to services has led to a rethink and review. The approach now is to protect industry and the economy by receiving assurances on investment and access to markets before allowing imports. Thus, with an Act-East Policy[10] in place India had no compunction in taking a hard-nosed decision to pull out of the RCEP.
India is now seeking to improve the economic dimension of its relations with the US, EU, Japan, Australia and the like, where it believes its strategic interests are better synchronized.
Will these provide for strategic level value chains which may then generate their own beneficial trade and investment agreements? Theoretically, this sounds possible; but if after seven years of engaging in the RCEP, India could not get its friends to see its point of view, then India must do more.
As protectionism becomes rampant, it is for India to improve its investment climate and attract strategic value chains in new areas that will focus more on services and technology and let manufacturing take its own course. If Vietnam is grasping the manufacturing route through courageous actions including an FTA with the EU, India needs to focus on what it needs to achieve on the ground and push harder for it. An analysis of Foreign Direct Investment (FDI) coming in even after COVID-19 will point to brown field and service sector FDI.
High-Level Trade dialogue with the EU needs to focus on new areas of collaboration, seek reciprocity beyond current discussions and try and obtain a modern partnership based on common values. India must employ the dialogue to overwhelm existing differences, use a new strategic engagement paradigm based on multilateralism and the maintenance of international rules, and work out a matrix focusing initially on the Investment Protection Agreement to attract more EU FDI.
Gurjit Singh is a former Indian Ambassador to Germany. He is currently the Chair of the CII Task Force on the Asia Africa Growth Corridor and Professor at the IIT, Indore.
This article was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.
For interview requests with the author, or for permission to republish, please contact outreach@gatewayhouse.in.
© Copyright 2020 Gateway House: Indian Council on Global Relations. All rights reserved. Any unauthorized copying or reproduction is strictly prohibited.
References
[1] Ministry of Commerce & Industry, ‘India-EU Broad Based Trade and Investment Agreement (BTIA) negotiations’, Government of India, https://commerce.gov.in/international_nextDetail_WTO.aspx?LinkID=32&idwto=34
[2] Directorate-General for India, ‘India’, European Commission, https://webgate.ec.europa.eu/isdb_results/factsheets/country/overview_india_en.pdf
[3] ‘Hermes Guarantees: Export Credit Guarantees of Germany’, agaportal.de, https://www.agaportal.de/en/exportkreditgarantien/grundlagen/grundzuege
[4] European INvestment Bankl, ‘EIB Guarantees’, https://www.eib.org/en/products/guarantees/index.htm
[5] Ministry of External Affairs, ‘Transcript of Virtual Special Media Briefing on India-EU Summit by
Secretary (West) (July 15, 2020)’, Government of India, July 17, 2020, https://www.mea.gov.in/media-briefings.htm?dtl/32835/Transcript_of_Virtual_Special_Media_Briefing_on_IndiaEU_Summit_by_Secretary_West_July_15_2020
[6] European Commission, https://ec.europa.eu/trade/policy/countries-and-regions/countries/india/
[7] Ministry of External Affairs, ‘India-EU Strategic Partnership: A Roadmap to 2025′, Government of India, 15 July 2020,
[8] Ministry of External Affairs, ‘Joint Statement of the 15th India-EU Summit (July 15, 2020)’, Government of India, https://www.mea.gov.in/bilateral-documents.htm?dtl/32827/Joint_Statement_of_the_15th_IndiaEU_Summit_July_15_2020, Para 2
[9] Ibid Para 5
[10] Ministry of External Affairs, ‘Question No. 4062 Act East Policy’, Government of India, 23 December, 2015, https://www.mea.gov.in/lok-sabha.htm?dtl/26237/question+no4062+act+east+policy#:~:text=ACT%20EAST%20POLICY,-December%2023%2C%202015&text=(a)%20India’s%20Act%20East%20Policy,mechanisms%20for%20dialogue%20and%20cooperation