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Chill this pill

Financial Express, India

Column: Chill this pill

By Biswajit Dhar

17 February 2012

Last week, the 12th India-EU Summit was held amid growing expectations that the two partners would announce the date for the conclusion of the Free Trade Agreement (FTA) that is being negotiated since 2007. This agreement was projected as “one of the new generation of EU FTAs launched as part of the Global Europe strategy”, the focus of which was market opening and stronger rules in new trade areas of economic importance to the EU, including intellectual property rights (IPR), services, investment, public procurement and competition. Importantly, the Global Europe strategy emphasised that the “FTAs must be comprehensive in scope, provide for liberalisation of substantially all trade and go beyond WTO disciplines”. While the EU had clearly stated its intent, India saw the FTA as the key to unlock the European services markets.

The EU-India FTA was seen as a complement to the multilateral trade liberalisation being pursued as a part of the Doha Round negotiations. With the Doha Round caught in a logjam, this bilateral deal became even more important for the two partners. Reflecting this sense of priority, successive India-EU Summits have pledged political support for concluding the deal at the earliest: the latest announcement made by José Manuel Barroso, the President of the European Commission, is that the negotiations will be finalised by this autumn.

Mr Barroso’s expectations need to be assessed in light of the many questions that are being raised about the proposed trade agreement, particularly regarding its impact on India. The loudest among these have been heard in the area of intellectual property rights. This seems hardly surprising, for the policies adopted in this area have implications for the pharmaceutical and the agricultural sectors. Over the past few years, India has faced the heat from the EU regarding the intellectual property regime that it has adopted in respect of both these sectors.

The EU had demanded that India must amend its laws regarding marketing approval for pharmaceuticals and bring them in line with those prevailing in its jurisdiction. The laws prevailing in the EU provide exclusive marketing rights for a period of 10 years to a firm that is first to make an application for a new pharmaceutical product. Such laws effectively shut out any of the competitors, particularly those that are in the business of producing generic medicines, thus impacting on the affordability of pharmaceuticals. The EU has also been questioning India’s patents regime that includes provisions limiting the extent to which patent rights can be exercised in the area of pharmaceuticals. These provisions seek to balance public interest imperatives with the incentives provided to innovators seeing patent protection.

Public interest groups have been quite vocal on these issues and the results of this have been clearly visible. In a significant statement made last year, the EU Trade Commissioner Karel De Gucht informed that the FTA “will not undermine the capacity of India to promote, produce or export generic medicines, including through compulsory licences”. This seems to be the strongest statement yet that the European negotiators are making attempts to understand the sensitivities of their counterparts.

Although not a great deal is known about the major sticking points in the negotiations, a European Parliament resolution on the EU-India FTA tabled some months ago by three of the top four political groups—the European People’s Party (Christian Democrats), Alliance of Liberals and Democrats for Europe (ALDE) and the European Conservatives and Reformists (ECR)—has provided a peek into the minds of the policymakers in Europe. The resolution adopted by the Parliament recommended that “an evaluation be carried out of the existing sector specificities in order to identify potential disadvantages of the FTA for sensitive EU sectors”. As always, negotiations on temporary movement of labour, the so-called Mode 4 in trade in services, have raised the hackles of the Members of European Parliament (MEP). The MEPs instructed the Commission to carry out a thorough analysis in order to avoid negative consequences for the EU labour market, while permitting temporary stays of necessary skilled professionals.

Members of these groups also spelt out the areas in which the EU negotiators could use extra leverage and bring added advantages to their industries. The MEPs appeared to redraw the negotiating contours when they stated that the objectives for “industrial goods should be reciprocal full [import] duty elimination, with asymmetry in timing, and that any possible exception to this objective should be limited and subject to review and should not involve the exclusion of sectors that are of importance to both sides, such as passenger cars”. Again, in the services sector, the MEPs asked the negotiators to explore the opportunities and scope for liberalisation of several services sectors like legal services and accounting services, banking, insurance and retail.

India should be concerned about the resolution, for it proposed inclusion of an “ambitious sustainable development chapter which reflects the common commitment to promoting sustainable development and inclusive growth on the basis of shared values”. More concretely, the resolution pushed for inclusion of “legally binding clauses on human rights, social and environmental standards and their enforcement, with measures in the event of infringement”. The issues in the wish-list of the MEPs include compliance with the eight core conventions of the International Labour Organisation and four priority conventions and adherence to internationally agreed environmental standards. These are areas that are potentially deal-breakers as far as India is concerned.

The author is Director General, Research and Information System for Developing Countries, New Delhi