Authors: Sarthak Mehrotra, Shiv Bhatia, Yashaswini Patel
Historical perspective
Diplomatic relations between India and EU date back to the early 1960s, with India being amongst the first nations to establish diplomatic ties with the European Economic Community. A cooperation agreement signed in 1994 took the bilateral relationship beyond trade and economic cooperation. At the 5th India-EU Summit at The Hague in 2004, the relationship was upgraded to a ‘Strategic Partnership’. The two sides adopted a Joint Action Plan in 2005 (which was reviewed in 2008) that provided for strengthening dialogue and consultation mechanisms in the political and economic spheres, enhancing trade and investment, and bringing peoples and cultures together.
In the 1990s India – CEE relation was at the most routine if not adrift. India’s hesitant and half-hearted maneuvers stand in sharp contrast to the aggressive way in which China moved into these countries with its 16+1 platform. In India’s foreign policy jigsaw, the CEE did not seem to meaningfully figure. India should not lose sight that these countries strongly and unequivocally support India’s UN Security Council membership bid and have also voted for India’s NSG membership. Poland was one of the sponsors of UNSC Resolution 1267 which was to impose sanctions and restrictions on Jaish-e-Muhammad (and its leaders Masood Azhar), a Pakistani organization responsible for the terrorist attack in Pulwama in Indian Kashmir in February this year. Recently in August when the Indian government abrogated Article 370 of the Constitution which accorded special status to Kashmir, Poland, which held the presidency of the United Nations Security Council unambiguously stood by India’s position that Kashmir was a matter to be resolved bilaterally between India and Pakistan defeating Pakistan’s bid to internationalise the issue. A former Polish Ambassador to India has rightly pointed out that India is well known in V4 countries. The old traditions of Indology in these countries as mentioned means that India’s culture, civilization, art and literature are a story that does not need to be told.
The current government under Modi has moved determinedly to showcase India across capitals in the world by prime ministerial visits. However, the Central European capitals have been given a miss. A prime ministerial visit to the region is long overdue and would send an encouraging message to these countries that India values their partnership. In 2019 the first European trip for Indian Foreign Minister S. Jaishankar was to Russia with add-on trips to Hungary and Poland. This was an Indian foreign minister’s official visit to Budapest after 6 years and to Warsaw after 32 years. India-CEE relation has thus been characterized as suffering not just from ‘trade deficit but visit deficit’. India could do well to look at CEE through the V4 platform that is readily available. An oft-repeated argument in discussions is that the Indian foreign desk of 7 looking after 29 European countries is woefully understaffed. For a country, which harbors great power ambitions, this cannot remain unaddressed without causing substantial damage to its aims and objectives. The CEE countries are today eager to build a long-lasting partnership with India, it is for India to reciprocate by seizing the opportunity and sealing it.
The end of Cold War led to the disintegration of former Soviet Union which led to creation of 15 republics- Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Tajikistan, Turkmenistan, Ukraine, Uzbekistan and Russia. India had followed the policy of non-alignment throughout the period of the Cold War but this major change had put India into a dilemma about the foreign policy in future. Despite the economic hurdles faced by the nation, attempts were made to build relations with South-East Asia by Look East policy. The Central Eastern Europe was more interested in building relations with Western European countries, European Union, NATO and CIS states because of which India was largely neglectful about the Central Eastern Europe. In the current times, India has become more vibrant in pursuing relations with all the nations in the world which has led to convergence of interest.
India-Central Eastern Europe is a road that is less travelled
India and Eastern Europe relations were largely determined by the prism of Soviet Union and limited to the commercial ties. India has maintained strong relations with the V-4 group, Poland, Hungary, Czech Republic and Slovakia, the diplomatic relations were established in 1954, 1948, 1954 and 1993 respectively. Visegrad 4 are the fastest growing economies in the EU which are quickly meeting the economies of the western European countries. The economic projection of these nations according to the report of the European commission stand at 4.1 percent for Poland, 4.6 percent for Hungary, 2.7 percent for Czech Republic and 2.5 percent for Slovakia which is higher than the projection of UK, Germany and France whom India has stressed to maintain the relations since the independence. Economic interest is the most important aspect of India and CEE relations.
In 2014, India had organized the ‘India Show’ at Poznan in Poland where more than 100 Indian engineering companies participated. In 2015, India launched the ‘Make in India’ campaign which was launched in Warsaw. To encourage this relationship Poland announced the ‘Go India’ programme for investing and developing business in India. Incredible India Road shows were organized for the developing tourism sector. India has been recognized as the top largest export market of Poland and twelve areas are prioritized- fashion, cosmetics, construction, automotive, aerospace parts, building materials, boats, furniture, machinery equipment, medical equipment, biotechnology and pharmaceuticals. Poland is the largest trading partner of India in central Europe. In 2018 Polish Investment and Trade Agency was launched in Mumbai to strengthen the entrepreneur investment between both the nations. Polish delegates have visited states of India such as Gujarat and Karnataka for promoting business.
Czech Republic is laying an effort to establish a strategic partnership with India. It was announced by the Prime Minister of Czech Andrej Babis at the Vibrant Gujarat Global Summit in Gandhinagar. India is identified as one of the top priority nations to promote economic activities due to the size of the market India offers. There is a strong bilateral relation in terms of defense cooperation. India has been using Tatra trucks, Surveillance systems and the Radars. Czech has its automobile company Skoda hub in Tamil Nadu which is widely purchased by Indians. Indian companies such as Infosys, Alok Industries, Tata Tea, Glenmark pharma and various other companies are present in Czech.
Hungary is one of the nations where Indian Investment has hiked in Pharmaceuticals, IT, food processing industries and automobile components. Indian companies such as Sun Pharma, GenPact, Orion and TCS have made a strong presence, companies such as Apollo Tyres and SMP-Group have made Green field investment. Hungary is willing to offer incentives to companies which are willing to invest in Hungary.
Slovakia has made progress in the automobile industry and machinery which is a keen interest area for India which will help in ‘Make in India’. Indian companies such as Tata and Jaguar Land Rover have invested in Slovakia. Memorandum of Understanding has been signed between the ministry of railways and Slovakian government for production of train coaches and to modernize Indian railways. All the countries are facing acute shortage of labour, the vacancies are not filled. They either face shortage of labour or unskilled labour. It is a huge employment opportunity for Indian who are skilled, Central Eastern Europe makes a good destination for employment for a labour surplus nation like India.
Challenges for India in Central Eastern Europe
India was surprised to witness the immense support for China by the Southeast Asian nations post 1991. India started to look at East policy to strengthen relations with the ASEAN. It is necessary to maintain a balanced relation with all the countries. China is forging its attempts to build relations with Central and Eastern Europe in the ongoing project by increasing the investments. In 2012, a 16+1 mechanism was launched by China which consists of 16 European nations. The EU members part of this initiative are Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia, but the grouping also includes five non-EU states i.e., Albania, Bosnia and Herzegovina, Macedonia, Montenegro and Serbia and China. This project aims to expand cooperation in the field of investments, transportation, infrastructure and technology.
Europe and India have seen similar concerns because of the Belt Road Initiative (BRI). This has given an opportunity for strategic cooperation between the both. 35 Chinese cities are now being connected to 34 European cities which makes Europe the largest recipient for BRI. Chinese investment through BRI projects has created financial instability in countries such as Djibouti, Maldives and Laos. The development of dual-purpose ports has become a worry for India in South Asia which is geopolitically called ‘String of Pearls’. One-Tenth of European ports in Spain, Italy, Greece and Belgium are owned or developed by China. There is a need to work on the combined strategy for economic cooperation and strategic partnership. This is also a new avenue to improve and build better relations.
Initially with the countries becoming a part of the EU and proximity of Russia was never a concern. New Delhi has been alarmed with the investments made by China in the region. India has a strategic partnership with the western European countries such France, United Kingdom and Germany. The visit by the Prime minister is largely to the western European countries, countries such as Poland have supported India in every platform. India should acknowledge the contribution of these nations. Central Eastern European countries have been the strong supporters of India for the UNSC permanent seat. They have voted in favor of India for Nuclear Supplier Group Membership. Poland has backed India in UNSC resolution 1267 which led to imposing sanction on Jaish-e-Mohammad (JeM). India-CEE is not just ‘trade deficit but visit deficit’ too.India has initiated India-Nordic summit which has been a success in bringing nations together. India-Europe 29 Business Forum is a diverse platform for engaging the whole of the region. India’s engagement with Visegrad-4 is very dynamic, similar kinds of engagement can be extended to other countries in the region. Bilateral relations can be another way of building strong relations. This would also pave a way for India-EU Free Trade Agreement for the commercial benefits.
The possibility and viability of FTAs between India and the CEE
India and Europe have been closely associated with each other since the last hundreds of years. Both of them have been in economic ties from the time when India saw the intervention of Portuguese, Dutch, French and English East India Company in the country. The relationship-based economy was completely evolved with the occurrence of British colonialism. The world has witnessed major evolution of world order starting from the beginning of the 1990s. Where multilateral trade negotiation as well as the proliferation of regional blocs for trade has been very assertive in order to gain certain benefits. In 1995, due to development of the World Trade Organisation, trade became a very essential component of a country’s growth. This organisation enabled countries to have a multilateral approach in trade. Some argued that because of the coming up of WTO, the world would witness the reduction of regional trade. But this was not the case. It was witnessed that there has been an increase of regional trade agreements (RTAs) after 1995. Today more than half of the world’s trade has been done by RTAs as well as preferential trade agreement (PTAs).
Necessity of FTA
In case of European Union-India FTA negotiations have gained a lot of attention. Even though India being considered one of the developing countries, it has more “supply side capacity” which means if India compensation is a result of any bilateral deal, the state can start increasing their exports to European Union. Due to which European Union might start increasing imports from India and decrease imports from the other developing and developed countries. Hence, it is important for a country like India to reach FTA which would give them an advantage of exchange tariffs. A free trade agreement is a pact between two or more nations to reduce barriers to imports and exports among them. Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange. In the modern world, free trade policy is often implemented by means of a formal and mutual agreement of the nations involved. However, a free-trade policy may simply be the absence of any trade restrictions.
It is imperative to note that India has viewed FTAs as an important tool to enhance its trade and investment, and signed a number of trade agreements with various countries or groups. In fact, India is one among top countries in Asia with the maximum number of FTAs either in operation or under negotiation or proposed. According to the Asian Development Bank Institute, as of now, India has 42 trade agreements (including preferential agreements) either in effect or signed or under negotiation or proposed. Out of this, 13 are in effect, one is signed but not yet implemented, 16 under negotiation and 12 are proposed/under consultation or study. Most of India’s existing FTAs are with Asian countries which are quite different from each other in terms of the level of their economic development. This shows that India is making fast and serious attempts to promote free trade with most countries. However, even after signing so many FTA’s, as of now India does not have any Free Trade Agreement with the European union. India is amongst the world’s fastest-growing large economies and is an important player in global economic governance. India is an important trade and investment partner for the EU. It represents a sizable and dynamic market, with an annual GDP growth rate of around 6% (pre-Covid-19). The EU is India’s largest trading partner, accounting for €80 billion worth of trade in goods in 2019 or 11.1% of total Indian trade, on par with the USA and ahead of China (10.7%).It is also the second-largest destination for Indian exports (over 14% of the total) after the USA. India is the EU’s 10th largest trading partner, accounting for 1.9% of EU total trade in goods in 2019, well behind the USA (15.2%), China (13.8%) and the UK (12.6%). Trade in goods between the EU and India increased by 72% in the last decade.
Trade in services between the EU and India increased rapidly from €22.3 billion in 2015 to €29.6 billion in 2018.The EU’s share in foreign investment inflows to India more than doubled from 8% to 18% in the last decade, making the EU the first foreign investor in India.EU foreign direct investment stocks in India amounted to €68 billion in 2018, which is significant but way below EU foreign investment stocks in China (€175 billion) or Brazil (€312 billion).Some 6,000 European companies are present in India, providing directly 1.7 million jobs and indirectly 5 million jobs in a broad range of sectors. Indian companies have invested over €50 billion in Europe since 2000.
A key EU objective in its trade relations with India is to work towards a sound, transparent, open, non-discriminatory and predictable regulatory and business environment for European companies trading with or investing in India, including the protection of their investments and intellectual property. The aim is to contribute to unlocking the untapped potential of two-way trade between the EU and India.
The EU uses all available channels and to work with India to ensure fair market access and predictable investment conditions, as well as to promote the full respect by both sides of their multilateral obligations under the World Trade Organization (WTO). Key instruments in this respect are the EU-India Trade Sub-Commission established under the 1994 Cooperation and Partnership Agreement between the EU and India, as well as its specialized technical working groups.
The Proposed FTA
On 28th June 2007, India and the EU began negotiations on a broad-based Bilateral Trade and Investment Agreement (BTIA) in Brussels, Belgium. These negotiations were pursuant to the commitment made by political leaders at the 7th India-EU Summit held in Helsinki on 13th October 2006 to move towards negotiations for a broad-based trade and investment agreement on the basis of the report of India-EU High Level Technical Group. India and the EU expect to promote bilateral trade by removing barriers to trade in goods and services and investment across all sectors of the economy. Both parties believe that a comprehensive and ambitious agreement that is consistent with WTO rules and principles would open new markets and would expand opportunities for Indian and EU businesses. The negotiations covered Trade in Goods, Trade in Services, Investment, Sanitary and Phytosanitary Measures, Technical Barriers to Trade, Trade Remedies, Rules of Origin, Customs and Trade Facilitation, Competition, Trade Defence, Government Procurement, Dispute Settlement, Intellectual Property Rights & Geographical Indications, Sustainable Development. After more than 15 meetings, at last the negotiations were suspended in 2013 due to a gap in the level of ambition between the EU and India. The EU remains committed to working towards an ambitious, comprehensive and balanced agreement FTA with India that responds to each side’s key interests and is a win-win.
The EU continues engaging with India to ensure that such an agreement is economically meaningful, delivering real new market openings in all sectors to both sides, contains a solid rules-based component, and includes a comprehensive trade and sustainable development chapter, notably in order to deal with social and environmental impacts
Lapse of Negotiations
The major reason for the lapse of the negotiations for the agreement that is given by most experts is that India believed the agreement to be biases in favour of the EU as it wanted India to reduce taxes on liquor (which would benefit France) and automobiles (which would benefit Germany)—overall, the EU wanted more market access with less duty interference. The last time when the negotiations struck in 2013, at that time, India offered the EU lowered duties on imports of European cars, but imposed a quota restriction—which was then rejected by the EU—demanding zero duty access to the Indian auto market. This was obviously unacceptable to India, as India is presently trying to set up its own automobile industry. Also, India’s offer to the EU was considered as exceptional as India does not provide such privileges to the other countries like Japan, South Korea, and any other Asian countries.
Nonetheless, negotiations have been languishing since 2013 when the talks collapsed over certain demands from the EU such as greater market access for automobiles, wine and spirits, and further opening up of the financial services sector such as banking, insurance and e-commerce. The major concerns for both sides can be summarized as: –
- The EU wanted labour, environment and government procurement to be included in the talks which was not acceptable to India
- India’s demand for easier work visa and study visa norms as well as data secure status, that would make it easier for European companies to outsource business to India, were also not received enthusiastically by the EU countries.
Future Of The Free Trade Agreement
Even after the negotiations for a free trade agreement lapsed in 2013, both sides have shown keen interest to re-start the talks of Free Trade agreements. In November 2019, the initial talks on the issue have started again .Speaking to The Hindu, Pekka Haavisto, Foreign Minister of Finland, who was the EU Council President for the year, however, said that the deal could take a “long, long time”.
It was also seen that both the sides realized the need for such an agreement, the same was evident by a joint statement in India-EU Strategic Partnership Review last year in which both sides realized the necessity of having a Bilateral Trade and Investment Agreement (BTIA) and agreed to continue working towards it.
Prime Minister Narendra Modi and German Chancellor Angela Merkel also pushed for the BTIA during their bilateral meeting However, it must be noted that the European Union has already closed FTAs with China, Japan and the MERCOSUR Latin American countries which shows that the European Union is also seriously working to conclude trade deals with many major economies in the world Another major problem, he explained, was that the NDA government’s decision to cancel investment treaties had slowed interest from European companies who did not want to “risk” investing until another investment protection agreement was put in place, which could be discussed at the next EU-India summit in March 2020.
India must leverage its position as a regional power to extract a better deal
India must use its economic power now to get a better deal. The EU had earlier insisted on drastic intellectual property laws in the proposed text. After much advocacy, the EU dropped this clause from the proposed text as it would have delayed the introduction of generic medicines and undermined public health. Resistance to the clauses proposed by the EU does not derail the trade agreement – it ensures that India negotiates a deal that promotes its development goals.
To agree on the FTA despite the differences between the EU’s and India’s negotiating agendas in a tough economic climate, both partners will have to show the same determination as others have shown in negotiating mega-regional agreements. The challenges and constraints are not impossible to negotiate. Given both sides’ reluctance to agree to the other’s demands, they should begin by negotiating less difficult sectors. This will demonstrate willingness to get back to the negotiating table and send a clear signal that both sides want to talk further. It is important for India to overcome its siege mentality, commit to institutional reform, and confront domestic vested interests. Reaching an agreement that will bring mutual benefit to both the EU and India will be a long journey, but, despite several missed deadlines, it is not out of reach.
https://www.theigc.org/blog/india-is-getting-a-raw-deal-on-the-eu-india-trade-agreement/.
https://www.ecfr.eu/what_does_india_think/analysis/the_fta_a_strategic_call_for_the_eu_and_india
