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EU, India prepare to launch trade, investment agreement talks

The European Parliament’s international trade committee has begun work on plans to negotiate a trade, an investment protection and a geographical indications agreement between the European Union. This comes as the European Commission and the Indian government are preparing the ground to start working on concrete legal treaty text proposals at the beginning of April.

Whether these already technically and commercially complex talks will genuinely lift off remains to be seen.

Brussels is having second thoughts following New Delhi’s decision to refrain from condemning Russia’s military attack on Ukraine at the United Nations in early March by abstaining on a resolution on this issue at the Security Council.

Brussels and New Delhi agreed to launch these negotiations at a bilateral summit in May 2021, but the parties have found it difficult to get these negotiations off the ground since then. Last May’s summit was also an attempt at reviving old plans for a free trade pact, negotiations towards which had started in 2007 but ran into the ground in 2013.

The desire of both the EU and India to diversify their trade relationships amidst rising geopolitical tensions related to China’s emergence as a regional Asian and global power and following COVID-19 related supply chains disruptions induced both sides to re-engage to boost trade ties.

Interim vs comprehensive agreement

In Brussels, New Delhi’s recent successful bids to launch trade agreement negotiations with Australia, Canada and neighbouring United Kingdom  is also focusing minds. The talks with these three countries initially aim for small ‘early harvest’ deals that would be extended into a wider trade accord.

Whether Brussels will have the political flexibility of the three other countries to take the above approach suggested by New Delhi, which sees it as more flexible, remains to be seen.

The EU traditionally aims for wide-ranging trade agreements that cover a high number of market access and regulatory topics as well as sectors. These are negotiated together in one package. The EU also generally considers that its trade accords need to be in compliance with the WTO rule-book requirement that FTAs need to cover “substantially all trade”.

The areas covered by EU trade agreements include import and export tariffs, technical and sanitary standards, intellectual property, public procurement, investment, services, raw materials, digital and e-commerce topics, and labour, human rights and environmental issues, to cite the most important areas.

The EU needs to cater to the desires of its 27 member states – and also to those of the European Parliament, which has co-decision powers in international trade.

The European Commission has wrangled internally with member states over the opportunity or need to have it table a new formal negotiating mandate – which is now a decade and a half old. The European Commission denies this is necessary.

European Parliament demands

Whether the European Parliament will come to the rescue of the EU executive body on this issue is not clear.

The international trade committee today examined an initial draft report put together by Flemish MEP Geert Bourgeois from the right-wing ECR group. The draft spells out a list of demands for the negotiation. Further amendments are expected from the other political groups, especially on labour and human rights standards.

EU labour and environment demands were among the topics that contributed to the stalling of the talks in 2013. Since then the EU – not least under pressure from MEPs – has made its demands in this field even stricter.

Geert Bourgeois’ draft report “considers that the existing negotiating mandate is comprehensive and broad enough for negotiations to restart”.

But it also “takes the view (…) that an addendum is necessary to ensure that the prospective comprehensive trade agreement contains as integral parts thereof a dedicated chapter for SMEs, a dedicated chapter on raw materials to remove all export duties on raw materials, and an ambitious and enforceable trade and sustainable development chapter aligned with the Paris Agreement”.

In practice adding new chapters would mean a renegotiation of the existing – non-disclosed – member state mandate.

Similar parliamentary ambivalence is to be displayed as to the issue of whether to slice the negotiations with India into two parts, one involving an ‘early harvest’ of mutual market access deals, followed by more extended negotiations in a second phase.

“It is imperative to find early solutions to long-standing market access issues; encourages the negotiators, therefore, to find swift solutions to the long-standing market access issues both across governance levels and sectors,” reads the draft Bourgeois report.

The report cites the following items as belonging to this category of issues: cars, car parts, agriculture, medical devices, pharmaceuticals, sanitary and phytosanitary irritants and non-tariff barriers such as quality control orders.

In the following paragraph the report also says that the parliament “encourages the negotiators to make good progress in achieving a comprehensive, state-of-the-art and WTO compatible free trade agreement, giving priority to areas conducive to sustainable growth and the digital and green transitions”.

Scope of trade agreement remains elusive

Finding the right basis to kick off the EU India commercial negotiations in conditions that the EU sees as manageable remains difficult.

India wants the talks to begin now, without there being any pre-conditions. Brussels for its part wants to ‘scope out’ the talks first before engaging in further conversations.

“The European Commission has been sending us numerous letters on narrowing areas of divergences that negotiators had during the previous phase of the India-EU FTA talks. It is also seeking newer concessions that India is extending to some of its other trade partners bilaterally,” the Indian newspaper BusinessLine quoted a source close to the process in New Delhi.

Speaking to MEPs in Brussels, the lead negotiator at the commission in charge of the talks with India, Christophe Kiener, explained that the commission was in the process of drafting legal text proposals to the Indian government related to the free trade agreement and investment protection accord.

The proposals cover 18 themes or chapters, with the aim of sending these to the Indian negotiators at the end of March and starting technical discussions in early April.

Kiener was keen to make clear that he was not having high expectations. “We have not managed to come to a common understanding with India on the key parameters that we wanted to clarify with before the start of the negotiations. So we have no joint agreement on the scope, on the baseline for the future agreements,” the negotiator said.

“There is a question mark as to India’s general positioning vis-à-vis the Russian war in Ukraine,” Kiener added. Whereas it is not for DG Trade to decide on the way forward, Kiener appeared to indicate that the matter was casting a cloud over prospects for a deal in the short term at a higher political level in Brussels.

A European Parliament delegation is due to travel to New Delhi in the week of 11 April as part of its political and trade policy engagement with India.

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