India and EU heading for new trade talks

A little more than a year ago, the EU and India suspended their talks of a comprehensive free trade agreement. But Indian reforms and British calls for trade could be enough to bring the parties together.

Change has swept across both India and Europe since trade talks between the two were suspended in late 2013. A new government with Narendra Modi as head, has slowly taken up reforms in the world’s largest democracy. However, Europe has been hit by what appears to be a British resurgence of EU-bashing over – amongst many other things – the lack of free trade possibilities.

But the free trade situation for Europe may be about to change. Earlier deals with South Korea and Chile are likely to be followed by one with the US (TTIP), and talks with India may be soon be resumed after more than a years suspension, says Nicholas Perdikis, a professor in international business at Aberystwyth University, who has done extensive research on an EU-India free trade agreement (FTA).

“It does seem more likely that these talks will come on. The EU has really wanted to move on this issue,” he explains. India will have to deal with some of it’s more sensitive sectors and regulations in order for talks to proceed.

According to Dr. Arpita Mukherjee, a professor at the Indian Council for Research on International Economic Relations, the potential for more trade between the largest trade bloc in the world, and the largest democracy is huge:

“I think something will happen in the next six months,” she says.

“The future trade situation will be even brighter. At the moment we are undertaking reforms in India, and I believe that’s what we need to do to make the future brighter. Reforms with liberalisation so we can make our industry even more competitive.”

A reforming India

The progress India has been going through both before and since Mr. Modi’s election in May is significant. A bill to allow more foreign ownership of insurance companies, railways and defence contractors is currently making it’s way through Parliament. After a meeting with president Obama in November, Mr. Modi announced India would move forward on a WTO-bill they previously blocked.

According to Dr. Mukherjee, this has all taken India in the right direction:

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While booming through the 2000’s, European trade with India has stagnated during the financial crisis in Europe.

“Ever since he has come into office, he [Mr. Modi] has made a lot of reforms, and some of the things the EU wanted in previous talks has already begun,” she says.

Mr. Perdikis agrees, that the new Indian Prime Minister may be closer to bringing India back to the table.

“Mr. Modi has taken a very pro business stand and has conducted some trade agreements with both China and Japan. That probably leads well for the completion of an EU-India trade deal as well.”

The Jewel of the Empire

At the moment India’s significance for Europe is far from it’s heyday – seen from a purely colonial European view – in the Victorian era. The former “Jewel of the British Empire” is currently the EU’s tenth biggest trade partner surpassed by countries such as Brazil and South Korea. This status, however, is still enough to make the EU India’s biggest partner on the global trade market.

A free trade agreement between India and the EU would benefit both countries. India would, according to a report to the European Commission from 2009, gain the most significant benefits of a comprehensive FTA because the different sizes of the two economies. If trades were boosted by x amount of billions, the impact on the Indian economy would simply be much greater.

One of the European countries with strong economic interests in India is, naturally, Britain. Although overtaken by both Germany and Belgium in terms of regular trade, British business invest more money in India than any other European country.

“For Britain there’s a lot in it. Britain got a very strong relationship with India both in politics and economics. And it [the Government] would like to see an opening up of trade,” Mr. Perdikis explains.

So while David Cameron has not been the flag bearer for many European projects, he may be when it comes to free trade with India. As a long time supporter of the TTIP, he has made it clear, that the British also wants to get going with India.

During a visit to India a few weeks ago, the prime minister stated that the EU-India FTA has been “sitting around for a very long time” and “we need to make some progress on this.”

Some members of Mr. Cameron’s party and the Eurosceptic party UKIP have even used the – so far – failed negotiations as a reason to leave the EU, and pursue bilateral trade agreements alone. According to Mr. Perdikis however, the UK needs the EU in order to achieve their desires for a deal.

“The issues India has a problem opening up are the very things we British would need the most to open up. I don’t see how we would conclude a deal alone [Without bringing the EU-consumers and other industries in the negotiations],” he says.

European Interests

A final thing standing in the way for an FTA between India and Europe is the big free trade agreement currently being negotiated between America and the EU. According to both Mr Perdikis and Dr. Mukherjee, those dealings are currently the EU’s main focus.

But If those dealings turn out successful, Dr. Arpita Mukherjee see all the more reason to get talks going with India:

“I think they will focus more on India then [when completed]. If they make a deal with the US, then they should make sure to agree with India also. That would make Europe a lot more competitive against China’s influence in the world,” she says in regards to the fact that China is on a fast track to overtake EU’s role as India’s main trading partner.

Whether the talks are to be resumed or not remains an open question. In the latest meeting with Parliament on december 3rd, the commissioner for trade, Cecilia Malmström, made it clear that the EU remained open to for talks:

“I would very much welcome if they signal that they want to come back [to the negotiations table] and I will meet with the Indian minister in Davos in a couple of weeks,” she said.

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