Recently India and European Union (EU) resumed negations of a proposed Free Trade Agreement (FTA) that was started in 2007 but was stalled since 2013 after 16 rounds of negotiations.[i] The discussion was stalled primarily because the EU asked for higher market access for their wine, auto and a few other sectors, while India expected the EU to accommodate more of its citizens as professionals and offer greater market access..Along with trade issue, human rights, labour standards, and environmental standards were prominent issues of disagreement. India opposed the proposed non-trade norms claiming that EU is using human rights issues, environmental and labour standards as a protectionist ploy. Since then, a lot has changed, both in the EU and in India and also in their relations between these two. Shifts are noticeable in their respective positions with respect to both domestic and global political economy. Given the current context, it is more important and urgent than earlier for both to seriously explore the possibilities of a trade agreement. This article takes stock of some of the pertinent factors that will play a leading role in shaping the negotiation process in the future.
India and EU are significant trade partners for each other. Currently, the EU is India's third-largest trading partner, sharing11.1% of total Indian trade which grew by 72 percent in the last decade[ii]. Pertinently, the EU is also one of the largest sources of Foreign Direct Investment (FDI) inflows to India. Around 6000 European companies operate in India with a huge volume of investment.A large number of Indians are studying in EU universities and also working in EU.
This mutual importance has grown further in the recent past. Geo-economic events affecting both nations have led to major changes. One such incidence change is the exit of United Kingdom (UK) from the EU. UK was the biggest trading nation in the regional bloc, and hence its exit affected the group negatively. Exports to UK from other EU membershave become expensive as UK is not part of the common market anymore.The market has shrunk to a large extent for EU.(UN Comtrade[iii]) Goods exports plunged by 41% and imports by 29% as the UK's departure from the EU's single market[iv].
Recently the EU refused to ratify the EU-China investment deal citing the human rights violations in Uighur,and Chinese policy in Hong Kong. China is accused of violating human rights by detaining and torturing millions of Uighur Muslim in the name of re-education in the Xinjiang Uyghur Autonomous Region (XUAR).[v]Earlier EU had imposed sanctions on four Chinese diplomats and China responded by imposing counter-sanctions on several EU officials. These political differences also came as an obstacle in the investment deal[vi].
After several rounds of negotiations, India refused to join RCEP in 2019. The prime reason of India’s refusal was the fear of dumping of Chinese goods in Indian market which could lead to a further erosion of its domestic industry.[vii]While protecting a small group of industries, India lost a great opportunity to get preferential market access in some of the lucrative markets in the world. The EU FTA is another opportunity for India to associate with a large group and maximise benefits for its economy.
The rise of China in the last decade has threatened European supremacy in many parts of the world. Chinese companies are increasingly investing in India in diverse sectors. In many cases Chinese companies are growing at the cost of EU firms. For EU, this is a good opportunity to check the competition. In diplomatic perspective, China's rise from a small trading partner to a rival economic power with a growing military presence has alarmed the West and its allies in the Indo-Pacific, where Brussels wants more influence. India will play a crucial role here.[viii]
The uncertain US policy towards both EU and India and a strained relationship under former US President Donald Trump has not improved under the current regime[ix]. The trade war between China and the US and the former’s disrespect for the multilateral order has necessitated countries to unite both economically and politically. It is thus beneficial for EU and India to explore opportunities and resume the dialogue.
Finally, the outbreak of Covid-19 has shrunk economic growth globally. It is difficult to revive economies by relying on only domestic activities or existing partners. Countries are looking towards global market and exploring new opportunities. In this perspective, resuming a stalled dialogue with a long-time trade partner is definitely an idea whose time has come. In addition, India’s growing economic potential combined with recent reformists diplomatic relevance is further compelling reasons from the EU’s perspective.
The proposed agreement is politically and economically important for both sides. In political terms, for EU it will be its first trade agreement with an emerging economy, which will foster EU’s aim of employing FTAs to strengthen partnerships. This will help it to further deepen its economic integration and will strengthen its role in global trade governance. For India, it will open a new door of opportunity to deepen its trade and diplomatic engagement with its long-time associate. Deeper ties with EU will also be supportive in India’s growing ambitions in economic diplomacy. Thus the engagement into this trade practice expectedly to bring win-win situation for both the partners.
*Dr. Rahul Nath Choudhury, Research Fellow, Indian Council of World Affairs
Disclaimer: Views expressed are personal
[i]IndraniBagchi (May 6, 2021) India, EU to resume formal free trade agreement talks.The Times of India.available at: https://timesofindia.indiatimes.com/india/india-eu-to-resume-formal-free-trade-agreement-talks/articleshow/82433505.cms accessed on 13.05.21
[ii] Information available at Europa.com accessed on 14.5.2021
[iii]UN COMTRADE is a database provides trade data
[iv]Alasdair Sandford(April 11, 2021) 100 days on, what impact has Brexit had on UK-EU trade.Euro News. Available at:https://www.euronews.com/2021/03/31/brexit-three-months-on-uk-eu-trade-trouble-deeper-than-teething-problems-say-producers. Accessed on17.6.21
[v] BBC (March 26, 2021) Who are the Uighurs and why is China being accused of genocide?BBC. Available at:https://www.bbc.com/news/world-asia-china-22278037 Accessed on 17.6.21
[vi]Vincent Ni (4 May 2021) EU efforts to ratify China investment deal ‘suspended’ after sanctions. The Guardian. Available at: https://www.theguardian.com/world/2021/may/04/eu-suspends-ratification-of-china-investment-deal-after-sanctionsaccessed on 14.5.2021
[vii] Choudhury, Rahul (2019) Why did India betray RCEP? The East Asia Forum, 21st December 2019. https://www.eastasiaforum.org/2019/12/21/why-did-india-betray-rcep/accessed on14.5.2021
[viii]Robin Emmott and Jan Strupczewski (May 8, 2021) EU and India agree to resume trade talks at virtual summit. Reuters. Available at: https://www.reuters.com/world/europe/eu-india-re-launch-trade-talks-virtual-summit-2021-05-08/ accessed on 13.5.21
[ix]Pant Harsh V (December 01, 2018) Together in an uncertain world. The Hindu Available at:https://www.thehindu.com/opinion/op-ed/together-in-an-uncertain-world/article25637457.ece Accessed on 21.05.2021