Roadblocks to India-EU Free Trade Agreement

Roadblocks to India-EU Free Trade Agreement

India and the European Union (EU) have been holding negotiations for a free trade agreement (FTA) since 2007. Although the two economic powerhouses had originally expressed interest in developing an FTA as far back as three decades ago, it was only in 2007 that official trade talks between the two commenced. But they are unlikely to meet their target because of incomplete negotiations and several outstanding issues.

Various roadblocks to India-EU Free Trade Agreement

Mobility of professionals: The free flow of service providers is one of the core principles in the EU market and it ensures that professionals between countries can work unhindered with no restrictions. However, this principle is not realized in reality. There are many EU member states which do not have a common working visa system and an Indian professional may not be able to stay and work in a nation other than their country of origin. This restricts the free movement of service providers and is a major hurdle for India's European trade relationship. India wants its professionals to have access to the entire EU market without any hindrances, citing that they will also have an increase in trade with higher mobility of professionals.

Access to EU market: Many Indian companies have been trying to enter the European market but they are consistently facing various barriers. These barriers can be divided into four broad categories: tariff, non-tariff (NT) barriers, regulatory and macro-economic issues. Tariff barriers for the EU are already low compared to that of India. However, NT barriers in the form of technical regulations, phytosanitary measures, industrial standards that differ from those in India are hurdles for Indian businesses to enter the European marketplace.

Intellectual property issue: The EU’s demands for a stronger intellectual property regime in India and the inclusion of a sustainable development chapter with strong labor and environmental protections is one of the obstacles to an agreement. Both of these proposals will make it into the final agreement irrespective if they are looked upon favorably or disfavourably by the parties.

Dispute settlement mechanism: While India has held that foreign direct investment from the EU will not be allowed in sensitive sectors like agriculture and insurance, the EU is still seeking greater concessions. The EU’s proposal to set up an investor-state dispute settlement mechanism, which is incompatible with current Indian laws. This will allow EU investors to challenge the government in front of an international tribunal.

Legal practices: Another sticking point is that the EU wants India to liberalise accountancy and legal services. This has met with controversy as India do not allow foreign lawyers and accountants to practice in India.

Steps to be taken to improve India-EU Free Trade Agreement

Dialogue: The free trade agreement (FTA) between the EU and India is yet to be finalized after long years of negotiations because of a number of issues, including market access and visa. India should make rigorous diplomatic efforts to come to a solution to outstanding issues through dialogue. Effort must be made to make the EU understand issues related to market access and visa.

Lobbying: Lobbying in the EU must be emphasized in order to influence EU lawmakers. In order to emphasize the importance of a Free Trade Agreement, India needs to lobby in Brussels through business groupings such as the European Indian Business Council (EIBC) and the Confederation of Indian Industry (CII), through Indian diaspora and through the European Union-India Chamber of Commerce, which will be set up.

Stronger Trade ties: There is a strong possibility to strengthen India-EU's economic ties in the aftermath of the Brexit referendum. The EU as well as other countries have expressed strong interest in making agreements with India to improve the current free trade bilateral agreement between India and EU, the EU-India Bilateral Trade and Investment Agreement.

Foreign Direct Investments (FDI): There are a number of areas where India and the European Union could consider including in the agreement. Once both partners enter into an agreement, there will be more opportunities for the exchange of goods and services between the two parties. The FTA will promote equal investment opportunities, eliminate all kinds of trade barriers on the basis of security reasons and other political reasons, and streamline procedures among other issues related to trade in services, investment, and access to government procurement contracts. The overall objective is to provide a level playing field for both parties with respect to regulations affecting businesses operating within their territories.

Boost Immigration from India: The EU is experiencing a great shortfall in skilled manpower and has been trying to attract the required number of professionals from outside the region. India stands to benefit from such opportunities as an improved Free Trade Agreement (FTA) with the EU would benefit thousands of Indian businesses as their goods will receive better access in the 28 member states.