India and EU revive stalled FTA talks as global tensions cause urgency

Indian Prime Minister Narendra Modi meets with European Commission President Ursula von der Leyen in New Delhi, India on April 25, 2022.

Press Information Bureau of India | Anadolu Agency | beautiful pictures

In an astonishing turn of events, India and the European Union recently revived talks on a free trade agreement after talks halted nearly a decade ago – and officials observers suggested that it may have been fueled by “unprecedented urgency”.

Current geopolitical concerns appear to have forced both sides to resolve their differences and pursue a trade deal, although the decision to resume talks was made a year ago. .

“I don’t think these negotiations will be easy, even now. But necessity can be the mother of invention. There is indeed an unprecedented urgency to deepen the relationship. between India and the EU,” said Amrita Narlikar, professor and president of Germany. Institute for Global and Regional Studies (GIGA).

The new impetus is mainly due to the “authoritarian advance on the borders of both the EU and India”, she added, referring to Russia’s war with Ukraine, which has brought a direct threat to the borders of Europe. .

For India, it’s growing Military confrontation with China along their common border, escalate in 2020 when soldiers from both sides clashed and more than a dozen people were killed.

“The severity of new geo-economic threats, most recently related to the weaponization of energy and food supplies for strategic purposes, suggests that we need value chains more reliable,” Narlikar, also an honorary fellow of Darwin College at the University of Cambridge, told CNBC.

Sharing the political values ​​of democracy and pluralism, India and the EU can and should invest in FTAs, not only for commercial interests but also for security interests.

The deal is expected to double trade between India and the EU over the next five years, from an estimated $115 billion in 2021, according to the Economic Intelligence Unit.

Indian Trade and Industry Minister Piyush Goyal and European Commission Executive Vice President Valdis Dombrovskis formally restarted negotiations in Brussels in June.

“Both partners are currently resuming FTA negotiations after a gap of about nine years since previous negotiations were halted in 2013 due to differences in scope and expectations from the agreement.” India’s Ministry of Trade and Industry said.

The next round of negotiations is scheduled to take place in Brussels in September. The first round of negotiations will take place from June 27 to July 1 in New Delhi.

India ‘sense of urgency’

But necessity can be the mother of invention. There is indeed an unprecedented urgency in deepening the relationship between India and the EU.

Amrita Narlikar

German Institute for Regional and Global Studies

Mainly due to concerns that such deals could be detrimental to domestic producers, as they will have to compete with relatively cheaper goods coming from other markets.

In 2019, Modi took a decisive step and withdrew from India Regional Comprehensive Economic Partnership Agreement. It is the world’s largest free trade agreement, bringing the 10-member Association of Southeast Asian Nations, along with China, Japan, South Korea, Australia and New Zealand.

But recent trends and current developments seem to suggest that “the Modi government is moving towards becoming part of a regional and multilateral architecture,” according to Rahul Mishra, senior lecturer at the Institute of International Studies. Eurasia at the University of Malaya in Kuala Lumpur.

“India’s decision to join US-led Indian Ocean Economic Framework in May 2022 and the trade talks with the UK, in addition to the trade treaties already signed with Australia and the UAE, show the sense of urgency that the Modi government is approaching trade agreements.” , he said.

“That said, it must be remembered that both India and the EU are tough negotiators.”

Win-win trade

The deal, if signed, will be one of the most important trade deals for India as the European Union is the second largest trading partner after the US. according to the Ministry of Commerce of India.

It can lead to many benefits for both sides such as greater market access for businesses, reduced tariffs, and easier movement of goods and people for the sake of employment.

The EU, India’s 10th largest trading partner, accounts for 2.1% of total merchandise trade. Bilateral trade in services between them reach €30.4 billion ($30.68 billion) by 2020, data from the European Commission shows.

Trade in goods between India and the EU hit an all-time high of $116.36 billion in the financial year ending March – up 43.5% year-on-year, according to the Ministry of Trade and Industry. Indian industry. The ministry said India’s exports to the EU grew 57% to $65 billion for the full year.

Arpita Mukherjee, a professor at the Council of India, said that while an agreement with the EU is more complicated than an agreement with an individual country, the trade deal will help companies in the 27-member bloc gain market access. large Indian market and diversify their supply chain. Research on international economic relations.

Indian companies may not necessarily lose, but compromises are needed, she said.

She added: “India can use an EU-style deal to initiate domestic reforms, improve standards and processes, which will lead to the global competitiveness of our companies. I”. “In any trade agreement, there will be some winners and losers. If a country enters into trade negotiations with a market like the EU, the domestic sector needs to prepare for the liberalization process. deepening.”

“As I understand, [Modi] The government has strong will and intention in negotiating and concluding the trade agreement. However, to close an agreement expectations must be met from both parties. And both sides need to make some compromises,” Mukherjee said.

Deadline ‘too ambitious’

Currently, both India and the EU are expressing optimism about the negotiations and aims to close the deal by the end of 2023.

But achieving that goal will not be easy, some analysts said. There are a number of sensitive issues that could derail the negotiations.

Mishra, from the University of Malaya, said: “Next year looks like an overly ambitious deadline as both sides are rigid about their approach to trade negotiations.”

“I believe it will take them at least two more years to finalize the deal. EU non-tariff, labor and phytosanitary barriers will be a challenge, while India’s sensitivity to Their agricultural sector can create barriers,” he added.

Next year looks like an overly ambitious deadline as both sides are rigid about their approach to trade negotiations.

Rahul Mishra

University of Malaya

The timeline “is a tall order,” says Narlikar from GIGA, as there are many key points – from tariffs on cars and alcohol, to visa regulations on the movement of people to supply. service provider, said Narlikar from GIGA.

She added: “Both sides would be well served to approach these negotiations not only on trade, but also on critical opportunity with broader geo-economic impacts.

“For European trade technocrats, this has not always been an easy task – commitment at the highest political level and inter-agency consultation will be key.”

Recognition of the broader context would “encourage both sides to make necessary compromises on trade issues in the interest of national security matters,” she added.

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