EU to open trade talks with India

The summit meeting between the EU and India in Helsinki next week (13 October) will start to fulfil the European Parliament’s wish that Europe ceases to be so obsessed with its relations with China that it treats India as an afterthought.

Not only is the summit likely to signal an intention to deepen EU-India strategic relations, it will also pave the way for the two regional powers to open negotiations next spring on a bilateral free trade agreement (FTA).

Protocol will require that the words ‘free trade agreement’ do not appear in any final text. Just like the word ‘privatisation’ (in France as well as India), such a turn of phrase is anathema to the liberal reformist Indian government’s left-wing coalition partner, the Communist Party. But the fact that Prime Minister Manmohan Singh’s government is prepared to press ahead with free trade talks is another sign that India knows that it cannot afford not to embrace the forces which are still driving the processes of global economic integration, or ‘globalisation’, even if this does disconcert its coalition partner.

Both the EU and India are well aware of the dangerous symbolism of opening bilateral free trade talks. As one of the founder members of the General Agreement on Tariffs and Trade, today’s World Trade Organization (WTO) India is, like the EU, a pillar of the multinational trade system.

With the Doha Round of global trade talks now so deeply concussed it requires exceptional sensitivity to detect a pulse, neither India nor the EU want their decision to start bilateral trade negotiations to look like they are thumbing their noses at a process and an organisation which they both believe to be part of a sane and responsible world order.

As one Brussels trade policy expert put it this week: "The [European] Commission is divided, the Council [of Ministers] is divided, even [Trade Commissioner Peter] Mandelson’s cabinet is divided about the wisdom of pressing ahead with such bilateral free trade talks at a time like this. But we are stressing that, given their content, we supporters can legitimately see such talks as complementary to Doha and not as an initiative which will undermine the global trade round."

In fact the criticism can be made that, if anything, the EU has been so concerned about defending the WTO-based multilateral trade system that it has risked falling behind the fierce pace Washington has set in negotiating bilateral trade deals.

One trade expert agrees that there is now a global competition underway to secure bilateral trade agreements, which by their very nature are discriminatory, and which, while they can be approved by the WTO if they are far-reaching enough, nevertheless run counter to the spirit, if not the letter, of the free trade mantra.

But with India, Brussels sees that it may be able to steal a march on Washington since experts believe that, given America’s lavish farm subsidy system, New Delhi will be more comfortable talking to the EU about a free trade agreement than to Washington. How comfortable is another question.

The report published last month by the joint High Level Trade Group concluded that there was "a compelling case to take the trade and investment relationship between the EU and India to a higher plane….[and] recommends an expanded trade partnership be developed". The EU is India’s largest trading partner (and source of foreign direct investment) accounting for nearly one fifth of its external trade. India is only the EU’s tenth biggest trading partner with just under 2% of its trade, but a potentially vast market with a youthful population of more than a billion and an economy which has recently been growing almost as fast as China’s.

But trade analysts wonder whether, given its still high tariff regime, its extensive non-trade barriers and the vast investment that it needs in infrastructure and in manufacturing, India is really ready to conclude the sort of wide-ranging and intrusive free trade deal that the EU has in mind. If it is, then it may be because the Singh government sees trade, like financial sector reform, as a driving force for economic modernisation.

From the EU side the argument in favour of a deal is simpler. If Washington is concluding bilateral FTAs, the EU has to as well, otherwise in two or three years’ time, when America’s agreements come into effect, European business will be facing an uphill struggle to get into markets on equal terms. Market shares once lost are hard to recover.

• Stewart Fleming is a freelance journalist based in Brussels.

The summit meeting between the EU and India in Helsinki next week (13 October) will start to fulfil the European Parliament’s wish that Europe ceases to be so obsessed with its relations with China that it treats India as an afterthought.