India-EU investment, trade pact in the offing

Financial Express

India-EU investment, trade pact in the offing

Study group to assess benefits and pitfalls of the pact

AMITI SEN & KG NARENDRANATH

Tuesday, September 06, 2005

NEW DELHI, SEPT 5: Despite being at odds with each other in WTO fora, New Delhi and Brussels are embracing a freer bilateral investment and trade regime. While the 5th India-EU Summit held in The Hague in November merely vowed to “address bilateral investment and issues”, the sixth summit in New Delhi on September 7 is likely to be marked by a more definite move towards clinching an investment/trade agreement with the 25-member bloc.

“We will set up a joint study group this time. The idea is to explore the possibility of a bilateral agreement that encompasses investment and trade,” said a senior commerce department official. He added that an agreement similar to a comprehensive economic cooperation agreement (Ceca) could well be on the horizon, although it was premature to speak of the finer aspects of the upcoming pact. “The study group will decide all that,” he said.

Industry leaders have demanded the two countries enter into specialised free trade agreement (FT) in services, considering that Indian IT companies find it lucrative to cater to the West European markets from bases in countries that acceded to the EU bloc lately. (Over 20% of India’s software exports are to the EU at present). The official, however, refused to comment on this proposal.

The EU is India’s largest trading partner and the biggest source of FDI. From 1991 to 2003, the total FDI approvals for the EU (15) had been $15 billion, with inflows of 6.2 billion euros ($5.6 billion). FDI flows in mainly from UK, Germany, and the Netherlands, followed by France, Italy and Belgium. EU investment in India has mainly taken place in the power/energy, telecommunications and transport sectors.

During 2004, EU-India trade jumped to 33 billion euros, registering an increase of 17%. Although, EU is India’s largest trading partner, India accounts for just 1.7% of total EU trade.

In The Hague, the EU and India had begun the groundwork for a Joint Action Plan, which, sources said would be endorsed in New Delhi. Currently, India has bilateral investment protection agreements with 16 of the 25 EU member states. It has double taxation avoidance agreements (DTAAs) with 18 EU states. IT, pharma, textiles and agro-food sectors would be the key to India’s expanding trade and economic ties with EU.

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