In what seems to be a sudden switch in policy, Indian and the European Union recently decided to resume negotiations and discussions for a free trade agreement after the talks had come to a standstill for nearly a decade. Experts suggest that this move may have been motivated by an “unprecedented urgency”. Even though the decision to restart negotiations was made a year ago, current geopolitical concerns appear to have compelled both parties to resolve their disagreements and pursue a trade deal.
“I don’t believe these negotiations will be simple. However, necessity sometimes leads to inventiveness. Intensifying relations between India and the EU is in fact urgently needed”, according to Amrita Narlikar, professor and head of the German Institute for Global and Area Studies (GIGA). She went on to say that the threat has now directly reached Europe’s border as a result of “the authoritarian advance on the borders of both EU and India.” She was referring to Russia’s conflict in Ukraine.
It is the growing military tensions between India and China along their shared border, which reached a peak in 2020 when soldiers from the two countries engaged in combat and more than a dozen people were killed. We require more dependable value chains, according to Narlikar, who is also an honorary fellow of Darwin College at the University of Cambridge. “The seriousness of new geo-economic threats, which have most recently involved the weaponization of energy and food supplies for strategic purposes, reveal that we need more reliable value chains,” Narlikar said during an interview with CNBC.
“India and the EU can and should engage in the FTA, not just for commercial gains but also for security reasons and sharing political ideals of democracy and pluralism,” she added. According to the Economic Intelligence Unit, the agreement will increase commerce between India and the EU from a projected $115 billion in 2021 to $215 billion in the following five years. In June, Piyush Goyal, the Minister of commerce and industry for India, and Valdis Dombrovskis, the executive vice president of the European Commission, formally reopened the negotiations in Brussels.
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India’s Ministry of Commerce and Industry notified that “both partners are now beginning the FTA talks after a gap of approximately nine years after the last negotiations were cut off in 2013 due to difference in the scope and expectations from the pact.” In September, Brussels will play host to the following round of talks. Between June 27 and July 1, the first round of negotiations was held in New Delhi.
Why the “Urgency” for India?
A clearer plan for the trade negotiations appears to have resulted from high level sessions, which appear to have sped up the discussions. Ursula von der Leyen, President of the European Commission, travelled to New Delhi in April, while Indian Prime Minister Narendra Modi visited Germany, Denmark, and France in May. However, India is known for being skeptical of trade agreements and has pulled out of similar agreements in the past. Nevertheless, necessity sometimes leads to inventiveness. In fact, there is an unparalleled urgency for closer connections between India and the EU.
The main reason for this is worries that such agreements might hurt domestic producers because they would have to compete with substantially less expensive goods entering from foreign markets. Modi made a dramatic move in 2019 by pulling India out of the Regional Comprehensive Economic Partnership. The Association of Southeast Asian Nations, which has ten members, was joined by China, Japan, South Korea, Australia, and New Zealand in the largest free trade agreement in history.
Rahul Mishra, the senior lecturer at the Asia-Europe Institute at the University of Malaya in Kuala Lumpur, claims that recent trends and current events appear to show that the “Modi government is gearing up to be a member of the regional and global framework.” The IPEF seeks to form an “economic alliance” with China: former trade secretary for India “The level of urgency with which the Modi government is approaching trade pacts indicated by India’s determination to join the U.S.-led Indo Pacific Economic Framework in May 2022 and trade talks with the UK, in addition to the recently inked trade pacts with Australia and the UAE,” he said.
Benefits of Free Trade Agreements-
India’s commerce ministry had informed that the European Union is the second-largest trading partner behind the United States for the country, and if the deal goes through, it will be one of the most important trade deals for India. It may result in several advantages for both parties, including improved business market access, reduced tariffs, and facilitated movement of people and things for employment-related purposes.
The EU represents 2.1 per cent of all goods trade and is the tenth-largest trading partner of India. According to figures from the European Commission, bilateral trade in services between them was worth €30.4 billion ($30.68 billion) in 2020. Commerce in goods between India and the EU reached an all-time high of $116.36 billion in the fiscal year that ended in March, an increase of 43.5 per cent from the previous year, as per the Indian government. According to the ministry, India’s exports to the EU increased 57 per cent to $65 billion for the entire year.
Although a deal with the EU is more complicated than one with a single nation, Arpita Mukherjee, professor at the Indian Council for Research on International Economic Relations, said that the trade agreement will enable businesses in the 27-member bloc to access the sizable Indian market and diversify their supply chains. The chief economic advisor claims that the Indian economy is still “pretty strong.” Indian businesses may not necessarily lose out, she noted that compromise is necessary.
She continued, “India can leverage an EU-style agreement to launch domestic reforms, and strengthen standards, and processes, which will increase our firms’ overall global competitiveness.” Any trade agreement will result in some winners and some losers. The domestic sector needs to get ready for broader liberalisation if a country engages in trade talks with a market like the EU. “From what I can see, the [Modi] government is motivated to negotiate and complete the trade agreement. But for an agreement to be finalised, all parties’ expectations must be fulfilled. And certain concessions from each side are required,” Mukherjee remarked.
How quickly can India & EU negotiate?
India and the EU both currently show optimism over the negotiations and want to reach an agreement by the end of 2023. But some analysts warned it won’t be simple to reach that goal. The discussions may fall apart due to many delicate problems. When both parties are strict in their approaches to trade negotiations, the target of next year seems overly ambitious, according to Mishra from the University of Malaya.
“I think they would need at least another two years to complete the agreement. The non-tariff barriers, labour, and phytosanitary standards of the EU will be difficult, and India’s agrarian sensitivities may pose obstacles to the deal’s speedy advancement, he noted. According to Narlikar from GIGA, the deadline “is a huge order” because of the numerous sticking issues, which range from tariffs on vehicles and wine to visa requirements for workers moving to provide services.
The speaker continued, “Both sides will be well advised to consider these negotiations as being not ‘just’ about trade, but as a crucial opportunity with broader geo-economic ramifications. This is not always an easy assignment for European trade technocrats; commitment at the highest political level and cross-agency consultations will be crucial. Understanding the bigger picture will “urge both sides to make the necessary trade-offs in the interest of problems of national security,” the speaker continued.