How India, EU can make FTA negotiations fruitful

John A Clarke

Ex-Director, International Affairs, European Commission

EUROPE goes through regular spasms of trade scepticism. It is happening now too as the bloc struggles to redefine its relations with China, rows back on its climate agenda due to populist protests over green policies and keeps quiet about its free trade agenda — since we mustn’t scare the horses before the European elections (whose influence, like Christmas, seems to arrive earlier and earlier each time).

Which is why commentators in recent weeks are bemoaning or celebrating the failure of this geopolitical commission’s trade policy, with its meagre harvest of free trade agreements (FTAs) in four years (Vietnam, New Zealand and Chile).

So will the free trade negotiations now underway between the European Union (EU) and India fall victim to these anti-trade currents?

To answer this question, one needs to recall the curious gestation of these negotiations. Leaders, ignoring official advice, decided in May 2021 to relaunch negotiations that had started in 2007-08 and were suspended in 2013. In the years preceding the relaunch, officials met regularly to assess if conditions were ripe to restart, but concluded that they were not. The decision to resume negotiations, therefore, was clearly for geopolitical reasons: an early sign of Europe’s Indo-Pacific tilt, a part of each region’s post-Covid recovery strategy, and a recognition of the need to diversify markets and sources of supply.

The relaunch itself was a ‘close-run thing’, as the Duke of Wellington had said in the Waterloo’s context. For 13 months, nothing happened. Each side accused the other of foot-dragging, lack of interest, etc. And once negotiations actually did start in 2022, lofty rhetoric soon gave way to haggling over the same subjects that had bedevilled 2013: agricultural and car tariffs, patent length, procurement, financial services, business visas for Indian entrepreneurs. The declared aim to conclude the negotiations in 2023 soon became a mirage. And of course, India has a poor track record of FTAs.

So, the scepticism is understandable. But the news of the FTA’s demise is premature for two reasons. First, all negotiations are difficult, including FTAs — easy to start but very hard to finish (and knowing when to stop is the hardest call of all). So it is with EU-India, which is now entering what negotiation theorists call the standard ‘mid-game’ — getting down to the basics of trade, tariffs, rules, against the sweet sound of rolling-up of sleeves.

Secondly, both the EU and India know that in today’s febrile political climate, where neither has exactly a surfeit of friends, they need to diversify. India can benefit from the stability and size of the EU market for its goods, services and professionals; the EU can make hay in the relatively untapped Indian market. The EU also needs a success story with India following multiple failures of its trade policy. The two sides — the world’s biggest, albeit flawed, democracies — could partner on an agenda straddling economic and food security, connectivity, human development and the fight against climate change.

But for the FTA to succeed, at least two things must happen. First, India will have to make tough political calls and open some procurement, allow new service sectors and improve access for cars, dairy, wines and industry, notwithstanding its ‘Make in India’ motto.

Secondly, the EU will have to reduce its ambition several notches — on procurement, access to sensitive sectors, and above all on the ‘sustainability’ agenda.

To internationalise its net-zero ‘Green Deal’ aims, the EU has tabled a broad sustainability agenda, hoping that the leverage of 450 million consumers will entice India on board. That agenda encompasses health and safety, sustainable food systems and a chapter on sustainable development, committing the parties to adopt and enforce key human rights and environmental conventions — including their respective climate pledges.

This risks overloading the Indian boat. Whilst India is ready to make sustainability pledges in the best-endeavour framework of G20, it will not do so in a binding treaty subject to sanctions or withdrawal of trade concessions. The EU’s agenda is easily painted as intruding into India’s sovereignty: not just green protectionism, but even regulatory imperialism. With elections looming, India wants to avoid a debate on “sustainability with neocolonial undertones”.

The EU has not helped itself by introducing in parallel sustainability laws applicable to both imports and domestic products — the Carbon Border Adjustment Mechanism, which taxes imports that are not subject to greenhouse emission trading schemes, regulations on corporate due diligence up the supply chain, a prohibition on imports linked to forced labour, and now a regulation forbidding goods associated with deforestation. While well meant (and often necessary to tackle global problems), India sees this suite of rules as a Trojan horse to level the playing field for Europe’s companies and farmers who face stringent environmental regulations from which ‘dirty’ imports are exempt.

At the very least, these measures are seen to impede market access. What is the value of a concession on soya or timber if the product cannot be sold in Europe at all due to its environmental footprint? Giving with one hand and taking away with the other?

So, we risk a deeply paradoxical situation whereby negotiations might stumble on an issue where India and the EU not only share the same fundamental goals, but where their cooperation in an increasingly unstable, divided world is more vital than ever. Both sides, especially Europe, need to keep the bigger geopolitical benefits of an agreement in mind, and adjust. Nobel laureate Amartya Sen, in his work The Argumentative Indian, described India’s long tradition of dialectics, self-questioning and above all its capacious tolerance for others’ views. If EU-India 2024 is to avoid repeating the misunderstandings of 2013, it is time for Europe to do the same — to reflect urgently on what is realistically possible, to try to see the world from an Indian and Global South perspective and adjust its ambitions. Perhaps the time has come for an ‘argumentative European’.

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