India – EU FTA Negotiations Get New Lease of Life

By Narendra Modi – Shri Narendra Modi with the President European Council, Mr. Donald Tusk and the President European Commission, Mr. Jean-Claude Juncker, at EU-INDIA Summit, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=48077016

The negotiations on the much-touted India-EU Free Trade Agreement had reached a dead end in 2013 after hard bargaining by both sides on some of the contentious issues. The resurrection of the stalled FTA talks after Prime Minister Narendra Modi’s recent visit to Europe has raised new hopes to push globalisation especially when more advanced nations were inclined toward protectionism triggered by global recession and mounting unemployment.. Modi’s vist to Germany and talks with German Chancellor Angela Merkel has given a boost to FTA negotiations, which is now expected to resume from July. Early conclusion of the India-EU FTA agreement is critical for both India and EU.

While Industrialists in Europe are looking for opportunity for investment elsewhere as their economies are faltering barring a few. India is among the few large economies, which is on a bright spot offering huge investment opportunity particularly in infrastructure. India also needed to become a global manufacturing hub to reverse the jobless growth so as to take advantage of the demographic dividend. The trade between India and EU is over $100 billion annually and both sides are keen on pushing it to much higher level of around $500 billion annually in the next few years. A free trade agreement between India and Eu will ensure that many of the hiccups and bottlenecks to invesstment and trade are removed. Also this will be a fillip to Make in India and Skill India initiative. FTA will be win-win for both sides as many European large economies like Germany, France and Spain are looking for investment opportunities and India is the only economy which had a potential to grow in double digit at least for next couple of decades.India also wants to push up employment growth and wants to become a developed economy to meet the aspirations of the vast 1.25 billion population.

Foreign direct investment and infrastructure development is critical for this. Europe had the expertise, technology and money to invest in India, which had traditionally enjoyed friendly relationship with them. The India-European Union free trade negotiations over the agreement, officially known as the Bilateral Trade Investment Agreement (BTIA) began as early as 2007. But it got stalled in 2013 after wide gulf emerged on some of the contentious issues. But Chancellor Merkel persuaded Modi to firmly commit to restart the negotiations as bilateral investment protection agreements of 23 european countries with India came to an end in March this year and pending India-EU FTA, European businessmen were wary of making fresh investments as there was no investors’ protection at the moment.

Germany’s ambassador to India, Martin Ney, said recently that “if you want to shape globalization, you do it by writing it into treaties as international law… This (the India-EU bilateral FTA) is an instrument by which you shape globalization. If you don’t do it (shape globalization), you leave it to other countries to do it.” This is a strong warning to India that it might miss the bus again to become a global manufacturing hub if early conclusion is not reached in the FTA negotiations and rightly Modi agreed to the resumption of the stalled talks. Despite trade-related disagreements, cooperation between the two countries has remained close, with Germany supporting India in carrying through some of Modi’s pet projects, such as “Smart Cities” and “Clean Ganges.” During Modi’s visit to Germany, Berlin also committed to financing long-term strategic projects in India in sectors like roads, railways, ports and power stations across India to support its development, which augur well for pushing the FTA.

Germany is one of the early investors in India after independence. Germany is very strong in manufacturing and several of its major companies have set up units here and were in the process of expanding in a big way. Several small and medium enterprises too have evinced interest in investing in India with opportunities for growth increasingly drying up in Europe. Anandi Iyer, head of the Fraunhofer Institute in India, said that besides smart cities, another potential area where there could be deep cooperation between the two sides relates to smart manufacturing – also known as Industry 4.0 in Germany. This is an area that brings the mutual advantages of Germany and India to the fore, Iyer said adding India has rich software capabilities whereas Germany is extremely strong in engineering skills, and a combination of these two can generate very exciting opportunities for the two countries. FTA will form a critical component. Confirming that India-EU FTA figured prominently during Modi’s talks with Merkel, India’s External Affairs Ministry spokesperson said talks between European Union and Indian negotiators are now expected to begin in July, opening the way for a treaty that would provide protection to businesses investing in India.

This announcement is expected to ease concerns of German businesses, who have been warning that potential investments in India could be at risk, unless an investment protection treaty is negotiated. Hubert Lienhard, a prominent businessman who heads the Asia-Pacific Committee of German Business, underlined the importance of the investment protection pact at a conference where both Modi and Merkel were present. “Lots of German businesses are worried about the expiry of the India-Germany bilateral investment treaty.

Tension is not good for investment. Let us join forces to push for a stable framework for future collaboration. Let us commit ourselves to globalisation.” That sums up the urgency for concluding the FTA without which India could lose out on investment. Of course there are some thorny issues on which both sides will have to adopt some given and take approach. There are more than 1,600 German companies, 600 German joint ventures operating in India, who brought in $2 billion in foreign direct investment in the last two years. But these figures are dwarfed by Germany’s relationship with China: India trade with Germany stood at €17.4bn in 2016 to China’s €169.9bn in 2016, according to figures published by the country’s Federal Statistics Office earlier this month. China is Germany’s largest trading partner, while India ranks number 24, below Romania, South Korea, Norway and Ireland.

Prime Minister Modi talked of the opportunities that India provided for investment to Germen business community and Germanny’s participation in training the 800 million Indian youth who could contribute to the global economy if they acquired skills, as well as transport and smart cities. But it is up to him now to create the necessary ambience for it. The resumption of talks is one positive step towards this end. German businssmen rightly pointed out the key to those hopes is to create necessary environment by promoting ease of doing business and removing hurdles including early India-EU FTA pact. India cancelled its bilateral investment treaties because of concerns that they were working against the country’s interests, after the government received adverse verdicts in a succession of high-profile international arbitrations.

The negotiations of a fresh treaty were further complicated by the fact that European Union member-states had ceded the right to individually negotiate new investment treaties in 2012 and thus became part of the European Union’s wider Free Trade Agreement negotiations. In 2013, negotiations on the FTA had deadlocked over disputes ranging from the access of Indian information technology workers to Europe, to European insistence on stronger intellectual property protections for pharmaceuticals.

Last year, India produced a new draft text which asks companies to seek recourse in Indian courts for five years before seeking the appointment of an international arbitrator but movement forward on investor protection cannot be separated from the conclusion of the wider FTA. Now a begening has been made things should look up for the economy. The India-EU FTA talks figured not only during Modi’s parleys with Merkel but also with his counterparts in France and Spain. In this connecting his establishment of rapport with new French President Emmanuel Macron is a positive development. France is also a major investor in India besides being an important trading partner and EU member.

Leave a Reply