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Trade report
- 2. EU-Indian trade agreements Rianne van Mierlo 2017-2018 European Studies 2 Introduction After gaining independence over the British ruling on 15th of August 1947, India’s key concern was working towards becoming a stable economic nation. This economy was initially controlled by the state, until Indian policymakers recognised the benefits of liberalising the market. Hence, from the 1990s onwards, India started building on liberalisation, globalisation and privatisation, resulting in massive economic growth, and a substantial larger influence on global scale (Cultural India). Despite these improvements, state-owned institutions are yet dominating the capital markets (Heritage, 2017). It goes without saying that as for these contributing factors, the interest of the European Union rose as well. The EU-Indian trade agreements are of significant value for both parties, as will be further elaborated on in the report. Fact sheet Indian economy India is at the moment the fastest growing economy on global scale, and therefore makes an important strategic partner for the Union. On average, the country represents an economic market of 1.25 billion people (European Commission, 2017). India’s GDP consists of $8 trillion, with 7.3% growth in 2015. Its unemployment rate holds up 3.5%, and the country is known for having greatly developed technology and manufacturing sectors, as advanced as any in the world (Heritage, 2017). This highly developed technology sector is mainly due to the many international start-ups based in India – over 4.750 technology start-ups reside in the country, with approximately 1.500 entering every year (IBEF, 2017). India’s most notable success is their freedom in trade. The country’s largest trading goods consist of refine and unrefined mineral fuels, and gold. As for its services, the exports are classified under travel, insurance, transportation, and miscellaneous services. With regard to the latter, also known as ‘new economy services’, miscellaneous services have developed towards the major factor of India’s service export basket. This service includes construction, business services, communication, banking, accounting and auditing, management consultancy, advertising, and legal services (Thomas, 2016). As argued in the working paper by P. Thomas, the services in the business sector of India reaped the benefits of the economic liberalisation. The policies that aim at promoting these services will accelerate India’s economic growth (Thomas, 2016).
- 3. EU-Indian trade agreements Rianne van Mierlo 2017-2018 European Studies 3 The policies to which the working paper is referring to are the trade policies currently in existence. Prime Minister Narendra Modi’s government announced India’s new Foreign Trade Policy in April 2015, and further elaborated on it during a speech in Washington on June 2016: We will continue to strengthen the “Make in India” initiative. It is not intended for only manufacturing for the domestic market or import substitution. It is as much about making world-class products and services for the whole globe. That is why, for us, improvements towards free trade are important. It is very important for us that developed countries open their markets, not only to goods from countries like India but also to services. – Narendra Modi (Puri, 2017) EU-Indian trade agreements As of 1962, India became one of the first countries to create a relationship with the European Union. These ties strengthened when the parties agreed on a ‘strategic partnership’ during a summit in The Hague, on November 2004. And from April 2007 onwards the EU started to picture India as a part of the Free Trade Agreement, of which debates still continue until this day (Voice, 2007). This agreement is known as ‘the Broad-based Trade and Investment Agreement (BTIA). The key issues related to the negotiations concern government procurement, geographical indications, sound investment protection rules, improved market access for some goods and services, and sustainable development (European Union External Action Service, 2017). While negotiations continue, India enjoys the unilateral trade preferences as described in the EU Generalised Scheme of Preferences (GSP). This allows developing countries to pay fewer or no duties on exports to the European Union (European Commission, 2017). As for the current relation between EU-Indian trade, the EU ranks first place of India’s trading partners. By holding 13.5% of India’s overall trade, the EU is 2.7% ahead of runner-up China. India, on the other hand, is the Union’s 9th most important trading partner, with 2.2% of the EU’s overall trade. The EU mainly exports gems and jewellery, engineering goods,
- 4. EU-Indian trade agreements Rianne van Mierlo 2017-2018 European Studies 4 manufactured goods and chemicals to India. The export value of both parties have increased over the past decade, with EU export value rising with €13.6 billion, and Indian export value with €16.3 billion. Also trade in services have tripled within the same period – increasing from €10.5 billion in 2005, to €28.1 billion in 2015 (European Union External Action Service, 2017). Regarding direct investment, the EU amounted €51.2 billion in 2015 to India, making the Union India’s second largest investor (European Union External Action Service, 2017). The graphs as displayed below supports a visual image of the EU-Indian trade. European Commission, February 2017 EU-Indian trade obstacles Since the start of the BTIA negotiations in 2007, many summits, ministerial-level, expert-level, and sectorial meetings have been held to strengthen cooperation and reach conclusions. As mentioned before, several factors restrain the EU from finalising the BTIA negotiations. For instance, India has raised duties on several products, such as ICT, steel and
- 5. EU-Indian trade agreements Rianne van Mierlo 2017-2018 European Studies 5 motor vehicles (Commission, 2016). The requirements as drafted by Indian trade policies appear disproportionate according to the EU, and often deviate from the international standards, making it less attractive for the EU to confirm the BTIA negotiations with the current policies. Next to this, the EU costs have heavily increased when India restricted imports on apples exclusively to the port of Mumbai, in September 2015. Apart from the previously mentioned factors, other remaining policies also weaken the trade with India for the EU. Such as complex intellectual property, and issues on multi-brand retail in the investment sector (Commission, 2016). On March 2017, the Indian government announced it will terminate bilateral investment treaties (BITs) with over fifty countries, of which 22 EU member states (Nicholas Peacock & Nihal Joseph, 2017). This article describes that India is sending out mixed messages by terminating BITs, while also making efforts to attract investment and free trade with its ‘Make in India’ campaign, as mentioned earlier. Over the past recent years, India has faced numerous arbitration claims, mainly concerning judicial delays. India therefore prompted to adopt a new model BIT, under which former BITs will be either terminated, or fully adjusted to the renewed model (Nicholas Peacock & Nihal Joseph, 2017). Indian trade obstacles Just as India is seen as a significant player in global trade, its underdeveloped regime continues to undermine development. The Heritage Foundation declares India’s economic freedom status as ‘mostly unfree’, and rank 143 on the global index, given the factors corruption, poor management of public finance, and underdeveloped infrastructure as the driving force behind this negative status (Heritage, 2017). Even though India holds a stable democracy, it seems to struggle when it comes to finding a way to smaller the gap between the extreme wealth and poverty. This is mainly due to the high percentage of state-owned enterprises. Even though policies on trade freedom in India are better-regulated than 70% of the world, policies on investment and financial freedom are far below average (Heritage, 2017). A study conducted by Transparency International (2017) labelled India as Asia’ most corrupt country. TI examined that India has the highest bribery rate among the sixteen Asia Pacific countries surveyed (Goswami, 2017). This high level of corruption has raised concerns before. In 2010, trade unions, public health and human rights organisations, and anti-poverty campaigners in both India and the EU have repeatedly demanded for a halt to the
- 6. EU-Indian trade agreements Rianne van Mierlo 2017-2018 European Studies 6 negotiations. The main concerns regarded that India, with its highly corrupted regime, would only be stimulated to continue its way of functioning if the Union would open her doors to free trade (Goswami, 2017). These issues still seem to concern the public, despite the fact India is working towards its objectives for becoming a further developed country. Ongoing and future developments Various obstacles that have so far withheld the EU from signing the BTIA with India might have resulted in a negotiation pause for five years. Until recent, the last summit took place in November 2013 (Lakshmikumaran & Sridharan, 2017). As explained by Lakshmikumaran & Sridharan attorneys (2017), a shift of the situation occurred due to the Brexit negotiations, and the fact that India slowly terminates investment treaties within the EU. In late August 2017, the 17th round of India-Europe BTIA talks were organised, in which the developments towards a strategic partnership have been negotiated once more. As mentioned earlier, the termination of BITs by India causes uncertainty for EU investments. However, it appears to be India’s intention to renegotiate BITs already existence to be adapted to India’s renewed 2015 model BIT (Nicholas Peacock & Nihal Joseph, 2017). India is more than willing to stronger ties with trade partners, particularly the UK. With the Brexit negotiations going on, India is highly opportunistic in seizing the opportunity to form a new agreement with the UK ‘very quickly’ (Oliphant, 2017). As for the termination of BITs, much is uncertain to conclude at this point. However, with regard to the EU-Indian negotiations, the parties focus on the EU-India Agenda for Action 2020, a roadmap with actions for the upcoming five years, a city-to-city cooperation between EU and Indian cities, and several other projects. At the summit of 2016, the leaders of both parties concluded by means of strengthening cooperation on the implementation of the 2030 Agenda for Sustainable Development, new ways of engaging in fields of mutual interest will be enhanced (European Union External Action Service, 2017). Hence, although mixed messages are troubling the sight on future trade agreements, a strategic partnership between the EU and India continues to develop.