Working through the unworkable: Reviving the India-EU FTA

By Sujaya Sanjay & Arkoprabho Hazra

Developments in the EU-India relationship are being more closely followed in India, following PM Modi’s recent visit to Europe. This visit was on the heels of the April 2022 Raisina Dialogue, which was co-chaired by Prime Minister Narendra Modi and President of the European Commission, Ursula von der Leyen. Talks on concluding a free-trade agreement (FTA) and a bilateral investment treaty (BIT) between India and the EU, which were revived in May 2021 after a hiatus, appear to have progressed in a positive direction. At the Raisina Dialogue, the EU underscored the common agenda between the participating nation-States – large-scale investments for sustainable modernisation and development without compromising on independence and sovereignty.

Readers will recall that India has recently concluded FTAs with Australia and the UAE, while an FTA with the United Kingdom is proposed to be concluded by Diwali, this year, hinting at India’s efficient bilateral trade negotiations over short periods of time.

On Friday, the Union Minister of Commerce and Industry, Piyush Goyal mentioned that after having sealed FTAs with UAE and Australia, India aims to conclude FTA negotiations with the EU by end of 2023.This article attempts at understanding recent developments and their key takeaways for the FTA which is currently under negotiation.

Geopolitics is Significant in the India-EU FTA

While last year’s EU-India Leaders’ Meeting hinted at resumption of FTA talks between New Delhi and Brussels, a concrete decision of resuming the talks have only recently emerged. Evidently, there is a shift in the international geopolitical landscape.

Some analysts have interpreted recent events as India’s efforts to underline heightened attention being paid by India to Europe, amidst the position taken by New Delhi on the Russia-Ukraine question. The authors do not entirely subscribe to this viewpoint, given that India has clearly articulated her position on the issue at the UNSC, the UNGA and other bodies. India’s engagement with the democracies of Europe goes beyond the binary worldview that appears to have emerged as a result of the ongoing conflict in Ukraine, and must be seen to be as such.

In any event, the EU seeks to bolster New Delhi’s efforts in achieving clean and renewable energy, in an effort to reduce India’s energy dependence on Moscow and at the same time find an alternate Asian partner for Brussels. With China now openly declaring a “no-limits” friendship with Russia, the strategic importance of an India-EU FTA is far greater than it was previously.

Sustainability, Technology and Atmanirbharta: Drivers of the FTA

A key discussion point from Prime Minister Modi’s recent meetings with his European counterparts was in regards to green partnerships and sustainable development. As these discussions took place in the backdrop of the conflict in Ukraine, both parties recognised the need for economic independence, particularly in the oil and gas sector. This ties very well into the sustainable development goals envisioned by European leaders, particularly the Nordic countries and Germany.

Given the EU is considered India’s main source of technology transfer and development, there’s no doubt that an FTA between India and the EU will have innovative technology and technology transfer as one of its salient pillars. Thus, conversations with countries like Finland around technology, especially furthering knowledge sharing and capacity building in the sector can be considered vital in taking forward conversations on technology and innovation.

Furthermore, India looks to boost its Make in India programme and atmanirbhar (self-reliant)Bharat initiative in the process of finalising an FTA with the European Union. The investments pledged by Germany and Denmark last week are a clear example of efforts to boost foreign investments in the direction of clean energy to further enable both sustainable development and energy independence in India.

Concerns and Opportunities: FTA’s Focus Areas

It is anticipated that this FTA will be an uphill task. In order to arrive at an agreement, both sides will have to revisit the reasons why negotiations were abandoned in 2013, such as agriculture and dairy, liberalisation of key goods and services, and data protection. Dairy in particular is a huge stumbling block for India, to the extent that India chose to withdraw from the Regional Comprehensive Economic Partnership (RCEP) rather than risk exposure of the domestic dairy products market to foreign competition.

Data protection is another troublesome issue. At present, India has the draft Data Protection Bill, 2021 – the third draft bill published which incorporates recommendations from the Joint Parliamentary Committee on Data Protection and is largely based on the EU’s General Data Protection Regulations (GDPR). However, issues such as wide exemptions for government agencies, data localisation and regulation of personal and non-personal data under a single legislation are bound to worry vulnerable sectors that process confidential information and rely on strong IP protections. A robust legislation is required that is centred on data privacy, to enable free cross-border flow of data.

On the investment side, it is expected that the two sides will come from opposite negotiating positions, with the EU being likely to push for greater protection of investors and their investments, and India being likely to favour terms that better protect its regulatory power and water down the scope for investment claims. This divergence is historical – Europe has traditionally favoured treaty protections over relying upon the domestic protections of states, while India due to its colonial past remains wary of any perceived intrusions on its sovereignty.

However, it is the opinion of the authors that parties may be able to find common ground, particularly in the context of introducing investor obligations for sustainability and climate consciousness as well as preserving state regulatory autonomy. India’s Parliamentary Committee on External Affairs has recommended that the Ministry for External Affairs play a more active role in facilitating the process of BIT negotiations so that more BITs could be signed “in the shortest possible time”, while being mindful of the need to balance protection of foreign investments in India (as well as Indian investments abroad) without compromising on India’s sovereign power to regulate for the benefit of national interest.

Both parties are also looking to sign a new agreement for geographical indicators (GIs) – another crucial milestone from the Indian perspective. India presently recognises about eight GIs from the EU, while China recognises over a hundred.

 It’s Wait, and Watch

Given the focus on economic sustenance and “might is right” in the contemporary global order, India has been engaging with several countries to negotiate free trade agreements, with a few setbacks (RCEP) and notable successes (UAE, Australia).An FTA with the EU will be a major boost for New Delhi in terms of receiving more foreign investment, achieving its climate action goals, and technological co-operation.

The takeaways from the Prime Minister’s Europe visit and EU participation in the Raisina Dialogue set the tone for FTA negotiations to resume in June. This time, the negotiations will be spearheaded under the aegis of stronger ties between Brussels and New Delhi, as is visible from constant engagement between India and its European counterparts. It is the opinion of the authors that geopolitical conditions favour a formal engagement between both parties. It is upto India and the EU to work through thorny issues such as agriculture and data protection while leveraging the current geopolitical situation, to make the ambitious 2023 deadline a reality.

(The authors are policy consultants at Aakhya India specialising in FTAs, investment treaties and international relations. Opinions expressed in this article are personal and do not reflect theofficial position or policy of Financial Express Online. Reproducing this content without permission is prohibited).

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