ISSN 2330-717X

Finding A Way Forward On EU–India Trade Negotiations – Analysis

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By Hosuk Lee-Makiyama*

Indian Prime Minister Narendra Modi cancelled most of his full-packed summit agenda with other world leaders to tend to the devastating COVID-19 crisis at home. Nonetheless, the EU–India summit in Porto went ahead on 8 May — albeit via video — at the insistence of the European Union. Some EU leaders are anxious to cultivate India as a counterweight to China’s growing political and economic influence in Asia and beyond, and willing to gloss over criticism of Modi on fundamental rights.

At first sight, the summit conclusions did not disappoint. To start, Europe is jumping on to the ‘connectivity’ bandwagon with a new EU–India infrastructure partnership that promises to bring the European Investment Bank into projects in India. The European Union and India also promise to cooperate on building resilient medical supply chains, vaccines and their ingredients.

Both Brussels and Delhi have been intensely criticised for mismanagement of the COVID-19 emergency and inclined towards blaming external and foreign powers. India has demanded a waiver on pharmaceutical patents and other intellectual property, while EU leaders like German Chancellor Angela Merkel voiced clear disapproval of any such move, citing concerns of impeding innovation.

What has caught attention is the decision to restart EU–India negotiations for a free trade agreement. After an eight-year ‘stocktaking exercise’ (a diplomatic euphemism for failure), the talks have long been deemed a lost causeCritics are querying EU wisdom in starting trade negotiations with India at a time when the government faces growing criticism at home.

While both the European Union and India agree on the merits of a free trade deal, they have very different ideas about its content and how to proceed. India wants the European Union to immediately slash tariffs and increase purchases of Indian farm produce and other goods in an ‘early harvest’ as a token of good faith. By contrast, the European Union has proposed an investment deal as a stepping stone and reforms to protect geographical indicators like Champagne, Parma, and Assam tea.

What the European Union is asking for is essentially the package of concessions it recently negotiated with Beijing. EU demands are unsurprising given India’s restrictions on foreign investments are similar to China’s, especially in key EU export sectors.

For Brussels, a lot has changed since 2013. To start, the European Union has signed a string of high-quality trade agreements, and India is Europe’s last stop. After opening negotiations with South Korea, Canada, Japan, Mercosur (the Southern common market in South America), Australia and most ASEAN countries, EU exporters have very few markets left to negotiate with. Aside from India, only duty-free access to China or the United States could make a tangible impact on Europe’s macroeconomic growth prospects.

Meanwhile, much less has changed in New Delhi. India has adopted a policy to localise manufacturing through its Make in India program. Its Ministry of Commerce has some of the world’s most skilful or hard-nosed negotiators. They have no qualms about walking out of decade-long negotiations, as they did when India left the Regional Comprehensive Economic Partnership in its final rounds. India has even turned down a trade and security pact offered by the United States, objects to other countries liberalising and has challenged the legality of voluntary agreements in areas like e-commerce within the World Trade Organization.

India and Europe may disagree about who ought to be making the first down payment to move the process, but they also share some similarities. Both are complex and federalised democracies, consisting of states with vital vested interests. The European Union is well known across Asia for its defensive position on steel, cars, textiles, the digital economy and agricultural commodities. Meanwhile, Indian states have vested interests across farm goods, beverages, retail, textiles, services, pharmaceuticals and industrial machinery. In the EU–India talks, the domestic vested interests that overlap on one side match almost perfectly with the market access demands on the other.

The similarities between India and the European Union don’t end there. Both sides are also entrenched by their convictions about the justness of their cause. India is a champion of developing countries who rightly expect an equitable share of the world’s wealth and respect for its democracy and self-determination.

Meanwhile, some European countries are increasingly overconfident about the normative power of their trade practices — the so-called Brussels effect — believing trade negotiations should be used as leverage on a range of issues from ending forced labour in China to addressing deforestation in Brazil. Looking at the uncertainties in ratifying an agreement with the European Union, New Delhi is unlikely to put its best offer on the table. Modi will also have to develop thick skin to accept EU conditions or scrutiny of India’s labour standards.

Despite dreams of striking gold, both sides must prepare to lower their expectations. As neither the European Union nor India has a political mandate to offer deep concessions of the kind demanded from the other, they may end up settling for something less than the deal they walked away from in 2013.

*About the authors:

  • Hosuk Lee-Makiyama is Director of the European Centre for International Political Economy and a Fellow at the Department of International Relations at the London School of Economics.
  • Shada Islam is a Visiting Professor at the College of Europe, Natolin, and a Solvay Fellow at the Vrije Universiteit Brussel.

Source: This article was published by East Asia Forum

East Asia Forum

East Asia Forum is a platform for analysis and research on politics, economics, business, law, security, international relations and society relevant to public policy, centred on the Asia Pacific region. It consists of an online publication and a quarterly magazine, East Asia Forum Quarterly, which aim to provide clear and original analysis from the leading minds in the region and beyond.

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