Hopefully, EU-India free trade will aim for genuine, least-restrictive liberalisation through comprehensive coverage, strong transparency disciplines and liberal rules of origin.

Mohan Murti

German philosopher Wolfgang Goethe wrote that opportunity has to be seized by the beard, for it is bald behind. And that is what the European Union and India, considered as one of Asia's fastest growing economies, will signal in Helsinki next week by their intention to negotiate a free trade agreement. The high-level EU-India Summit, beginning October 13, will see the Prime Minister, Dr Manmohan Singh, meeting his Finnish counterpart, Mr Matti Vanhanen.

A Round Adrift

The Doha Round has finally fallen apart. Uncertainties prevail on what, if anything, can hold the World Trade Organisation (WTO) and the multilateral trading system together. While the WTO is in seemingly inexorable drift, away from the hard politics of trade liberalisation and the rules that underpin it, serious contenders are willing to switch to preferential or free trade agreements. They are tempted to flout existing multilateral rules.

In essence, the WTO suffers from severely diminishing returns. In contrast to the General Agreement on Tariffs and Trade, it has a bigger, messier, politically more controversial agenda, shot through with multiple and contradictory objectives. And decision-making is crippled in a general assembly with near-universal membership. In such a scenario, Europe finds itself in difficult waters. The economic problems of the large EU member-states Italy, Germany and France are in the forefront.

Free Trade Agreement

The October 13 summit in Helsinki will recommend that EU and India move toward negotiations for an FTA. Obviously, the talks will not start immediately. But this will be the beginning of the 500 million Europeans in a soon to be 27-nation European Union keen to negotiate free trade pacts with India, South Korea and countries of the South-East Asia.


If deliberations move slickly, the two sides will sign the scaffold agreement to move towards a CECA (Comprehensive Economic Cooperation Agreement).

This agreement covers not just trade in goods, but also services and investments. While India is interested in having greater access for its professionals in the EU market, the European Union wants India to lower duties on industrial goods.

Helsinki, next week, may also see the signing of a so-called `action plan' setting out the way forward in political, trade and investment, economic, and cultural and academic relations. The EU and India know and will show that they matter to each other more than ever before.

Such an ambitious EU-India action plan will jointly work against terrorism and build up a security dialogue. Also, it will endeavour to meet common environmental challenges and strengthen two-way trade and investment.

Strategic Partnerships

On the table are already landmark agreement between India and the EU to forge a strategic partnership and cooperate in areas such as space and energy, confirming India as a global player and a strategic partner bringing India into an elite group of countries the United States, Canada, Russia, Japan and China, which have such tie-ups with the EU.

Indian participation in the 3.2-billion euro European Galileo satellite project meant to rival the Global Positioning System run by the US Defence Department and cooperation in a fusion energy project further propels the India-EU strategic partnership. Also, the new flexibility on Europe's part to give India access to encryption codes for military-grade high-end signals, is a sure sign of trust in partnership.

India's also stands to gain from the decision to cooperate with the EU in the energy sector including fusion energy research project and in areas such as textiles, biotechnology and counter-terrorism.


Obviously, the summit will see quibbling on a number of issues. The EU will also ask India to open its markets to agricultural products like wine. The EU will want India to grant greater market access, especially in the information technology (IT) sector. The EU feels India will have much to gain from liberalising trade and services and should not feel defensive about opening up its own market in sectors such as information technology where India is a world leader. Opening up the market would bring technology benefits to India. A point of contention for India is that the EU is using non-tariff barriers to block imports from India such as shrimps and herbal remedies.

Hopefully, EU-India free-trade will avoid the temptation of political gimmickry and phony economics for quick and dirty agreements. And, aim for genuine, least-restrictive liberalisation through comprehensive coverage, strong transparency disciplines and liberal rules of origin.

It is also vital that the Indian engine of unilateral liberalisation does not stall. That depends on the fragile political conditions in India and also on a clement external macroeconomic and trade environment.

Meeting of Minds

Trade was the vital ingredient of success of the Romans. They made trade as easy as possible. There was only one currency used and there were no complicating customs dues. Most important, Romans traded without written agreements had understood the nature of commerce in an expanding world with varied and interlocking major markets. As the hoary


proclaim, a thousand cups of nectar do not suffice when true friends meet, but half a sentence is too much when there is no meeting of minds. The Helsinki meeting will be watched with interest.

(The author is a former Europe Director of CII, and lives in Cologne, Germany. Feedback may be sent to mohan.murti@t-online.de)

(This article was published in the Business Line print edition dated October 9, 2006)
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