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Free trade agreement with European Union in suspended animation till new govt takes over

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Times of India | Dec 5, 2013

Free Trade Agreement with European Union in suspended animation till new govt takes over

Rajat Pandit, TNN

BRUSSELS: The long-negotiated ambitious Free Trade Agreement (FTA) between India and its largest trading partner European Union (EU) will remain in the doldrums till a new government takes over in New Delhi next year.

Top EU officials now virtually acknowledge that further progress on "the few remaining contentious issues" in the proposed FTA, which has missed several deadlines in the past, is unlikely with India heading for general elections next year.

EU, which itself will undergo a leadership change in May and is busy negotiating similar pacts with the US and Japan, is willing to wait and watch. "We are waiting to see the fate of the Insurance Bill (which seeks to raise the FDI cap from 26% to 49% despite stonewalling by the BJP) in the winter session of the Indian Parliament (beginning from Thursday). Insurance is a key deliverable for us," said an EU official.

Both India and the 28-nation bloc agree that the FTA, or the Broad-based Trade and Investment Agreement (BTIA) as it is formally called, will give a major fillip to the two-way trade (currently around 78 billion euros) as well as bolster the bilateral strategic partnership.

But despite being in the works since 2007 to remove bilateral trade barriers, the BTIA is finding it tough to surmount the few remaining hurdles in its last lap with both sides unwilling to budge from their respective positions. "Both need to summon the requisite political will and change their policies," said an observer.

India wants EU to provide greater market access in the services and pharmaceutical sectors, data security status for its IT sector and liberalised visa norms for its professionals. EU, in turn, is pressing India hard for "reforms" in the banking & insurance, wines & spirits, intellectual property regime, automobile and public procurement sectors.

"The BTIA is not a traditional is much more ambitious and goes far beyond that. We have made substantial progress in the negotiations on chemicals, textiles and several other sectors. But yes, some important gaps do remain. We are waiting to see what happens in the Indian Parliament on insurance...One has to be patient in democratic politics," said a senior EU official.

Another big "gap" is the EU insistence on reduction of import duties on "cars and car parts", which India is reluctant to undertake to protect its domestic industry that provides large employment and is faced with dipping demand. "India cannot continue to have such high import tariffs (from 60% to 100% depending on engine size) on passenger cars," he said.

"We do not expect India to fully remove duties on cars. But we need to find a good compromise formula. We know it is difficult political moment for India to take a decision now. But if we can bridge the gaps, it will be a done deal," he added.

The BTIA, if and when inked, will be a landmark one as EU will for the first time seal such an agreement with an emerging economy like India. New Delhi, too, will for the first time enter into such a comprehensive agreement with an economy outside Asia.

(The correspondent was in Belgium on the invitation of the EU)

 source: Times of India