Economic pact with EU: India’s options

Speaking to ET last week, a commerce ministry official sought to allay the growing concerns in domestic circles over the proposed India-EU economic agreement. ���There are strong complementarities between the EU and India. After all, we have not yet reached the stage of making the trade-offs and so the fears being expressed now are unfounded,��� said the official, who was busy preparing for the sixth round of India-EU bilateral talks beginning Tuesday.

This, however, could be an over-simplistic view. There is clearly a need for greater involvement of all stakeholders in the negotiation process. The high-level trade group which had drawn the broad contours of the agreement was not representative enough.
The EU is India���s largest trading partner, accounting for a fifth of India���s total trade and also one of the largest sources of foreign investment in India. As opposed to this, India currently accounts for less than 2% of the EU���s total trade.

Clearly, as things stand now, India has much to lose (or gain) from the agreement as compared to the EU. Note that the agreement would cover a gamut of areas���trade in goods and services, IPRs, cross-border investments, competition policy, government procurement etc. So India���s policymakers ought to be more chary of the proposed pact than their European counterparts. There is a need for more transparency as well as greater involvement of all stakeholders in the negotiations.

Going by the high-level group���s report, India might need to go WTO-plus in the area of trade in goods, with no commensurate reciprocal gestures from the EU side. The agreement would, as things stand now, allow India to keep just 10% of the tariff lines���which include both agricultural and industrial goods���outside its scope.

It may be noted that India has been resisting the multilateral (WTO) trade liberalisation deal even as it did not have to cut tariffs on 5%f agricultural tariff lines and only make less-than-average reductions in another 7%, and looked close to getting the freedom to keep 5% of industrial tariff lines outside tariff reduction formula. Besides, India has already got preferential (zero) access to EU in case of several tariff lines under the GSP system, which reduces the scope for India to gain in terms of reduction in tariff barriers by the EU.

What India should focus on is therefore to use the agreement to frustrate the EU attempts to expand the horizon of NTBs, as tariffs are becoming less important as a tool for protectionism. (Witness Netherlands��� impounding one Indian drugmakers��� Brazil-bound consignment citing the local counterfeits law).

���Tariff and non-tariff issues have to be put on parallel tracks of negotiations,��� said Biswajit Dhar of Indian Institute of Foreign Trade. When it comes to services, India has a lot to bargain for��� the changing demographic mix of the EU offers tremendous opportunities to Indian professionals.

New Delhi needs to be wary about the EU demand for a special TRIPS-plus IPR dispensation. It is important for India to protect its traditional knowledge and bio-diversity from unfair patenting bids. It is also doubtful if India can accept the EU demand for ���transparent��� government procurement norms which it has rejected in the multilateral forum.

The EU is also pitching for a major relaxation in India���s banking and financial sector regulations.

Again, the pros and cons of such a policy needs to be carefully evaluated before undertaking any binding commitments. ���The perception that the entry of foreign banks in the Indian market is very restricted and the regulatory framework discriminates against the foreign banks is not correct.

Foreign banks are in the same footing as Indian banks in many cases,��� says Kavaljit Singh, Director of Madhyam, a Delhi-based non-profit policy research institute. He added, ���European banks account for 65% of the foreign bank assets in India. Despite severe crisis at home, many European banks, including BNP Paribas, Barclays Bank, Cr��dit Agricole, Deutsche Bank, HSBC, Rabobank Group and the Royal Bank of Scotland are seeking licenses to expand their businesses in India.

The liberal entry of these European banks, which are urban-centric, largely serve the niche market segments and dismissive of priority sector lending norms, may further constrict the access of banking services in the country���geographically, socially and functionally.���