In Pursuit of Cars, Wines, Cheese. And Some Visas

Pallavi Aiyar

With India's stance at the World Trade Organization (WTO) Ministerial Conference in Bali last month winning the day, there has been some trumpet-blowing regarding New Delhi's putative trade-negotiating prowess. However, the trumpet becomes discernibly muted in the context of the torturously meandering talks on the India-EU Free Trade Agreement (referred to formally as the Bilateral Trade and Investment Agreement) that were launched back in 2007, but have shown scant signs of overcoming the obstacles that have dogged the discussions.

Taken together, the 28-member European Union is India's largest trading partner, with bilateral trade valued at around €78 billion. An FTA, it is widely recognized, could provide an important fillip to both economies, neither of which has faced an easy time in recent years. 

And yet, with an Indian election round the corner as well as a change of guard at the European Commission (the EU's executive branch) in the offing, any deal will, at the earliest, need to wait for the new leaderships to take office. As a result, whatever meager momentum the talks might have gathered over the last few years will be spent.

Between 2009 and 2012 I was the only journalist representing an Indian newspaper based in Brussels, the headquarters of the EU. I spent many a day speeding between offices in the Indian embassy and the various directorates at the European Commission. It wasn't long before I felt I was developing a strange form of tinnitus. The same sentences echoed in my ear, with phrases like the inability to deliver "meaningful outcomes," and the failure to develop "clear negotiating mandates."

It struck me how in many ways the Chinese were the Americans of Asia, while the Indians were the Europeans. As players on the international stage, the United States and China are both goal-oriented and able, at a pinch, to act decisively in their national interest. Despite the existence of internal divisions they are coherent entities that speak with a unified voice. Backed by hard power, their strategic planners take a long-term view of evolving rivalries and alliances.

In contrast, the Indians, like their European counterparts, are notable for the glacial pace of their decision-making. Constrained by the workings of coalition politics, both the EU and India valorize plurality and argumentation over actual outcomes and performance. They often appear unable to articulate a clear vision of their core interests, with internal factiousness hijacking unified, long-term agendas. Unlike the Unites States and ironically, "Communist" China, the political mainstream in both Europe and India is Leftish and characterized by a distrust of unfettered markets.

Polyphonic (both boast over 20 official languages) and seemingly chaotic, the EU and India are the world's two most populous democracies. But despite the similarities, or perhaps because of them, neither is particularly engaged with the other, the relatively thin economic inter-linkages between them standing testament to this distance.

A successfully concluded FTA could be a game changer, but it remains held to ransom by vested interests. Protectionist trade unions, powerful industry lobbies, a ruling coalition with divergent priorities and a convoluted internal decision-making process do not make for quick results in either India or the EU. But while the 'fault' may be quite evenly distributed, the negotiating tactics have differed.

A senior EU official familiar with the ins and outs of the discussions summed it up thus: "The Indians are playing low to settle higher and we (the Europeans) are playing high to settle lower." However, despite all the 'playing', there appears to be scant signs of any 'settling'.

The two sides had agreed to eliminate tariffs on 90 percent of all tradable goods at the outset of the talks. What they have been at loggerheads about ever since is an upping of this figure. But the fact is that in any FTA with India, the EU would be the greater beneficiary. Given the EU's already low duties, most of the elimination of tariffs will necessarily come from New Delhi's side.

The key EU demands that have emerged are for New Delhi to remove cars, wines and spirits, and dairy products from its negative list. While India is reportedly amenable to the request on dairy, it has only offered a middle ground on cars and alcohol, with cars emerging as a particularly sticky point.

The chapter on trade in services remains even more intractable. The EU is asking for greater access to a range of sectors including insurance, banking, legal services and retail. But New Delhi is firm that any demands necessitating legislative changes in India - as greater access in the insurance and legal services sectors would, for example - are red lines that cannot be crossed in a bilateral trade agreement.

In the meantime, the Europeans have been unable to develop a clear position on the one area in which the FTA would have a clear benefit for India: visas. India has been hoping that any potential deal would include a clause to facilitate the temporary stay in the EU of highly skilled Indian service providers.

But given that visas and immigration are a member state competency rather than one that the European Commission can directly negotiate on, the EU has made no clear offer on the matter. The specter of an army of "cheap" Indian labour marching into Europe and taking away local jobs is frequently raised in the European media in the context of the proposed FTA.

The 2008 and 2010 financial crises led to a renewed contestation of the ostensible benefits of globalization and liberal economics in both India and Europe. The free trade and investment agenda promoted by an FTA is therefore not an easy sell to citizens in the post-crisis environment.

In these circumstances it would probably have been best for the EU to compromise on its insistence on "ambition" in the FTA. "Ambition" is the EU's mantra of choice when it comes to trade negotiations, and its purported lack on the part of negotiating partners is the inevitable reason trotted out in Brussels for stalled or failed discussions.

But import duties in Europe on most products are already negligible and so the road that the EU has to travel to meet its FTA targets is considerably shorter than the one India has to go down to meet its own. "Ambition" in the Indian and European context meant different things. It is a relative term. Yet, the EU has held on to it as some kind of categorical imperative, with the result that India's offers at the FTA negotiating table have been consistently dismissed as lacking in the kind of ambition that is apparently non-negotiable for Europe.

A host of issues apart from tariffs and services have also contributed to the negotiations gridlock. The EU, for example, wants any trade agreement to entail a commitment by India to adhere to certain labour, child-protection and environmental standards. For New Delhi the inclusion of non-trade issues such as these in an FTA is almost insulting, rooted in a world of superior, prosperous, Europeans hectoring former colonies about their backward levels of social development. 

The fact is that a lot of India's labour, child rights and environmental protection failings are linked to poverty rather than legislative lacuna. In effect, the European Parliament is berating India for being poor, rather than considering how an FTA might help generate the economic growth in India that would in turn have a beneficial impact on the lot of labour, children, and the environment.

As a matter of fact the EU is scarcely in a position to bully India into a trade deal that enjoys very little political support domestically. An FTA with Europe has few vocal supporters and extremely loud detractors in India.

Indian Prime Minister Manmohan Singh is now ending his tenure as a lame duck of spectacular proportions. It is unsurprising that he has not spent whatever scanty political capital he had in pushing through a free trade deal with the EU, given that everyone from trade unions and farmers' lobbies to carmakers and prohibitionists would have lambasted it. From New Delhi's point of view, the political fallout of not signing the deal was in many ways more beneficial than that of concluding it.

An FTA between Europe and India would have significant symbolic importance beyond the technicalities and the profits these would generate. It would vitalize a bilateral relationship that is lackluster, between entities that are good fits. Europe needs India's markets. India needs European technology and know-how. Both are committed to maintaining diversity and democracy despite the difficulties.

Concluding a big-ticket trade deal with the EU would also likely shift India's attitude towards Europe away from its current indifference towards a greater enthusiasm. If the EU could get its act together and help facilitate the short-term labour mobility of Indian service professionals, which would ultimately only help Europe's own economy, it would signal to New Delhi that Brussels is a player that can in fact address and deliver on issues of interest to India. But the EU has steadfastly clung to its ideas of 'ambition,' even if this has meant shooting itself in its dogged, bureaucratic foot.

The general elections in India will probably yield a deeply fractured verdict. Whoever comes to power in New Delhi next will be preoccupied with basic questions of domestic political stability and an FTA with Europe will be less of a priority than ever before. For the foreseeable future, therefore, Indians will remain stuck with overpriced wine and Camembert, while European companies will continue to struggle to import the Indian professionals they need to plug their skills shortage and remain competitive. It remains a lose-lose situation.

Pallavi Aiyar is an award-winning author and foreign correspondent. Her latest book, Punjabi Parmesan: Dispatches from a Europe in Crisis, has been published by Penguin.