The Hindu Business Line : European deal

To all appearances, India-EU economic relations are comfortably placed, with bright prospects. This is indeed what must be concluded from the official statements issued after the seventh India-EU summit meeting held in Helsinki last week. Among other things, the Prime Minister, Dr Manmohan Singh, said unequivocally that he "was fully satisfied with the summit outcome", the high point of the meeting being the agreement to "commence negotiations on a broad-based Trade and Investment Agreement between India and the European Union covering over 90 per cent of tariff lines and trade volume".

There is no doubt that, as the Prime Minister said, such an accord would constitute a "very significant step that would build on the complementarities in the trade flows between the two sides whereby reduction in tariffs over a period of time will be a win-win situation for both". This would be especially true for India because the EU is its largest trading partner and the most important source of investment flows. But having said this, it would only be proper to state that though the intention is noble, implementation may be problematic. Going by reports on the negotiations that led up to the agreement to begin talks on a broader economic accord between the two sides, it is clear that Brussels is still entrenched in its views on subjects such as non-tariff barriers to trade, which are a serious obstacle to increasing Indian exports to the EU. It remains to be seen to what extent Brussels will finally give in to New Delhi's demands on this and other issues, but without such progress the proposed agreement will not be able to deliver the goods as promised. In fact, New Delhi's basic strategy would probably be to sculpt an agreement that incorporates as many of the WTO trade guidelines as possible, an initiative which Brussels may not prefer in view of the fact that such "concessions" to a country like India would have the effect of weakening its overall bargaining position at the WTO negotiating table.

Clearly, this is a serious, over-arching issue which could come in the way of the early completion of negotiations. In fact, as much was conceded by the Union Commerce Minister, Mr Kamal Nath, who indicated that the road ahead would be anything but smooth. Not surprisingly, the EU objective appears to be to conclude a free trade agreement with India, which would result in greater economic benefits for Brussels given the huge Indian market, instead of a wider trade and investment agreement including services, which would be more productive for New Delhi, given the growing international stature of the software and knowledge-based services sector. With the appropriate safeguards built in, the broader agreement could turn out to be valuable to the EU too.

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