Kavaljit Singh is the director of Madhyam, a policy research institute in New Delhi.
"Since 2007, India and EU have been negotiating a bilateral trade and investment agreement. Despite much anticipation, both trading partners could not finalise the agreement before the official India-EU Summit held in New Delhi on 10 February. The joint statement issued after the summit is very ambiguous and therefore does not shed light on the progress made on several issues under negotiations.
Prepared a few weeks before the Delhi Summit, the European Commission documents assume greater significance as the trade negotiations between India and EU are being held behind closed doors.
The documents provide an overview of the current state of play in the India-EU trade negotiations. While these documents may represent the European position, one cannot deny that there would be enormous pressure on the Indian authorities to accept higher levels of commitments in several sectors.
The Commission documents contend that the minimum level of services liberalisation commitments from India are 'necessary' for EU to offer commitments in Mode 1 (cross-border service supply) and Mode 4 (movement of natural persons) in reciprocity. India is seeking a significant relaxation for the movement of its professionals under Mode 4 within the 27-nation bloc while the EU is seeking greater market access in banking services insurance, retail trade and telecommunications in India.
It is important to note that since information technology and IT enabled Services (ITeS) are of critical importance to India, the EU has deliberately linked services package to the tariff negotiations.
The EU expects the following commitments on services to be explicitly included in India’s schedule of commitments.
- In banking services, India should bind foreign ownership in the form of FDI at 74% while ensuring that 100% owned subsidiaries are not forced to divest.
- India should provide full national treatment to wholly owned subsidiaries of European banks incorporated in India, including removal of any numerical ceilings on number of local branches.
- India is expected to commit granting to European banks a number of branch licences per year which amounts to 50% of all new branch licences awarded in India in the given year, but not less than 10 licences per year.
- For single-brand retail, India is expected to bind the current opening, i.e. 100% foreign ownership in franchising.
- For multibrand retail, India is expected to bind the already decided autonomous liberalisation (allowing 51% foreign ownership) that will enter into force when published.
- For single-brand retail, India is expected to commit 100% foreign ownership for European single brand retailers.
- India is expected to submit and mutually agree with EU a roadmap for gradual opening of the provision of legal services by European companies and professionals.
- India is expected to take commercial presence commitments in accountancy and auditing services.
In the Non-Agricultural Market Access (NAMA) negotiations under the framework trade deal, the EU is seeking an ambitious outcome for its businesses through drastic cuts in applied tariff rates as well as reduction of non-tariff barriers.
The Commission documents show that the EU is not satisfied with India’s initial tariff offer and therefore seeking further improvements. In particular, EU is insisting on elimination of duties on the additional 57 tariff lines (mostly related to automobile industry) as an essential component of the overall NAMA package of the agreement.
Given the fact that India’s WTO bound and currently applied rates on NAMA are higher than EU rates, the price paid by India for the tariff concessions to EU would be much higher.
The Commission document acknowledges that the potential agreement would save nearly €1.78 billion annually on custom duties on NAMA products – based on Indian imports from EU in 2008 – once it is fully implemented. From an Indian perspective, an annual revenue loss of €1.78 billion is enormous and cannot be overlooked by the policy makers.
The Commission document indicates that the EU is not satisfied with India’s initial tariff offer on agricultural products, particularly important sectors of poultry, dairy, olive and other oils, pasta, chocolates, biscuits, confections, food preparations including infant formula, roasted cereal preparations, some processed fruit and vegetables.
The EU is very determined on the recognition and protection of its 130 geographical indications (GIs) as per Article 23 of the TRIPS which provides a higher level of protection for GIs for wines and spirits (such as Champagne and Scotch Whisky). The document states that “the situation on GIs is of growing concern. Despite commitments to take action, India is reluctant to enter into any additional political commitment on GIs.”
By taking an uncompromising position on GIs, the document contends: “The EU expects that effective registration should take place before entry into force of the agreement. Without such result on GIs, the Commission considers it is not in a position to conclude negotiations. If deemed necessary, conditionality clauses will apply, i.e. the EU will make certain trade concessions conditional on GI protection upon entry into force.”
The internal documents of the European Commission may embarrass the Indian authorities who have stoutly maintained that the economic interests of the domestic producers and service providers would be fully protected under the proposed agreement with the EU.
Given these wide-ranging demands emanating from Europe, seeking deeper tariff cuts and services liberalisation, it is pertinent for the Indian authorities to organise countrywide consultations with state governments, local bodies, and other stakeholders before inking an agreement with EU."