India - European Union(EU) Relations
Timeline
15th Summit between India and EU takes place in virtual format
The leaders decided to strengthen the India-EU Strategic Partnership, based on shared
principles and values of democracy,
freedom, rule of law, and respect for human
rights, aiming at delivering concrete benefits
for the people in India and the EU.
As the world's two largest democracies,
India and the EU affirmed their
determination to promote effective
multilateralism and a rules-based
multilateral order with the United Nations and the World Trade Organisation at its core.
They will bolster their cooperation in international fora to reinforce international security,
strengthen preparedness and response for global health emergencies, enhance global
economic stability and inclusive growth, implement the Sustainable Development Goals
and protect the climate and the environment. The Joint Statement said, the EU is looking
forward to India’s G20 Presidency in 2022 and its membership in the UN Security Council
in 2021-2022.
As the world is fighting the COVID-19 pandemic, the leaders agreed that global
cooperation and solidarity are essential to protect lives and to mitigate the socio-
economic consequences of the pandemic. The leaders emphasised the importance of
strengthening preparedness and response capacities, of sharing information in a free,
transparent and prompt manner, and of improving international response.
The leaders noted mutual synergies in the field of healthcare through shared capacities,
experiences and strengths in the production of pharmaceuticals and vaccines, healthcare
research and development, diagnostics and treatment.
They discussed prospects for global collaboration and sustained funding for developing
and deploying and accessibility of effective diagnostics, treatments and vaccines to make
them available to all at an affordable price. They called for the future COVID-19 vaccine to
become a global common good.
The leaders agreed to further develop their trade and investment relations to unleash their
full potential particularly in the context of post-COVID-19 economic recovery and support
sustainable growth and jobs on both sides. They reaffirmed their commitment to work
towards balanced, ambitious and mutually-beneficial trade and investment agreements,
opening markets and creating a level playing field on both sides.
They also agreed to establish a regular High Level Dialogue at ministerial level to provide
guidance to the bilateral trade and investment relations and to address multilateral issues
of mutual interest. India and the EU agreed to keep the global trading system open, with
the WTO as the bedrock of the rules-based multilateral trading system.
They welcomed the ongoing activity in India of the European Investment Bank and the
upcoming planned investments of Euros 550 million in the Pune and Bhopal Metro Rail
Projects.
The leaders adopted the "India-EU Strategic
Partnership: A Roadmap to 2025” to guide cooperation
between India and the EU over the next five years. They
welcomed the signing of the India-EURATOM
Agreement on research and development cooperation
in the peaceful uses of nuclear energy.
They also adopted a Joint Declaration on Resource Efficiency and Circular Economy and
welcomed the upcoming renewal of the India-EU Science and Technology Agreement for
another five years.
The EU traces its origins to the European Coal and Steel Community (ECSC) and the
European Economic Community (EEC), established, respectively, by the 1951 Treaty of Paris
and 1957 Treaty of Rome. EU is the most advanced regional integration model . It has
common currency (19 countries), common market , common foreign and security policy as
well as alignment on justice and home affairs . Schenzen Agreement abolishes passport
control .
The original members of what came to be known as the European Communities were the
Inner Six: Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany. At
present , the total strength is 27.
Milestones in the evolution of EU
Treaty of Paris, 1951
European Coal and Steel Community formed.
Treaty of Rome , 1957
The EU’s precursor, the European Economic Community (EEC), was established in 1957,
following the Treaty of Rome. Consisting of a homogeneous group of six countries (Belgium,
France, West Germany, Italy, Luxembourg and the Netherlands).
Treaty of Maastricht, 1992
To reflect the post-Cold War Europe's unity with a unified Germany. It helped create the Euro
and, later, also pushed the eastward expansion of the EU.
The Treaty of Lisbon, 2007
It marked another political evolution, giving the EU a stronger legal character by introducing
a permanent President of the European Council and strengthening the position of the High
Representative for the Common Foreign and Security Policy.
EU in current times
Macron: “The bloc needs to assert sovereignty over its political and security
decisions . Europe is on the edge of a precipice ”. He reminds that EU can no
longer be an economic giant and a political dwarf.
Once a gold standard for regional integration , EU is facing the existential crisis
.
o The idea of Europe with a “variable geometry”, proposed during the hasty
expansion during the 1990s to accommodate differences is now a clear sign of
political disunity. As EU expanded , it also started showing faultlines to the extent
it has become difficult to maintain the Unity . EU states may appear as one entity
from outside but today the fault lines are easily visible . EU states are divided on
multiple lines for example – Old Europe and New Europe ; East and West Europe
; North and South Europe ; Core and Periphery ; Europhobic and Europhilic .
o Since Eurozone crisis ,EU is suffering from economic challenges like
unemployment , recession, debt crisis .
o Since 2011 , as a result of Arab Spring , EU came under the crisis emerging from
migration of refugees .
The economic challenges and the refugee crisis has challenged EU’s core values related to
democracy and human rights. There is a growth of rightist parties along with illiberal
democracies and authoritarian leaders.
EU is also facing challenges from outside Unilateralism of Trump , a resentful Russia on
its border and a China determined to emerge as the new global power.
The Covid Crisis has also made a significant dent in EU’s image along with Brexit .
Issues of concern related to EU
Brexit
Brexit represent exit of Britain from EU on the basis
of 2016 referendum . Britain had joined EU in 1973.
Britain was considered as Europhobic.
Key Issues :
The “leave campaign” argued (51.9 % in the
referendum ):
1. Take control of sovereignty of Britain back
which was lost in EU’s complicated system.
2. Huge money paid as a subscription.
3. Controlling our economy ourselves .
4. In context of immigration , controlling our borders.
5. EU has a burdensome regulations and prevent progressive reforms.
6. UK to have its own rational immigration system.
Arguments of “Remain campaign ” (48.1 % in the referendum ):
1. UK is stringer , safer and better of in EU.
2. Jobs and trade is closely linked with EU and it adds billions of dollars to British
Economy
On 1st January , Britain left EU.
Present arrangement :
Freedom to work and live between EU and UK comes to an end .
UK is free to set its own trade policy and negotiates deals with other countries .
Already doing Australia, New zealand and USA. The three do not have FTA with EU.
They will continue to buy an sell goods across the borders without paying taxes and
without any limitations on the amount . Yet they will have to do paperwork to agree
to shared rules and standards on workers rights and social and environmental
regulations. Paperwork at the borders causes delay.
Still, issues have not ended – There is no deal on data sharing and financial services
agreement on fishing is only for 5 years . At present , they have agreed to identical rules . But
in future they need not to follow the identical rules which can lead to dispute and Tariffs.
Northern Ireland will continue to follow EU rules to avoid hardening of borders . However,
there will be checks on goods entering Northern Ireland from UK.
Impact of Brexit on India:
It is premature to make assessment . However , India can explore opportunities in service
sector in both the markets. Brexit paves the way for FTA between New Delhi and London but
can take the sheen away from India’s FTA with EU.
India’s professionals may gain because after Brexit deal , UK and EU professionals will have
no longer unrestricted freedom to work , study or start the business.
Indian companies having their headquarters in UK or EU aiming to serve both the markets
may face problems .
Britain may loose attractiveness for Indian investors as Britain use to be a Gateway to
Europe.
Automobile sector may face downturn .
India EU FTA
The deal has been languishing for many years and have gone through numerous rounds of
talks.
The proposed agreement is politically and economically crucial for both sides. In political
terms, from the EU’s perspective the free trade agreement (FTA) with India will support the
EU’s aim of employing FTAs to foster partner countries’ integration into the world economy,
and will strengthen its role in global trade governance.
From India’s perspective, it will boost Prime Minister Narendra Modi’s “Make in India”
campaign and his ambition to establish India as a regional leader and global manufacturing
centre. Furthermore, the FTA will strengthen India’s attempts to harness its growing
domestic economy and middle class to support its rise as a global economic power.
In economic terms, a well-negotiated agreement will boost trade and investment flows
between the two regions.
The EU is India’s largest trading partner and investor as well as its main source of technology
transfer. The EU- India trade account for €80 billion in goods in 2019 . The EU is the second-
largest destination for Indian exports (over 14% of the total) after the USA.
India is the EU’s 10th largest trading partner, accounting for 1.9% of EU total trade in goods
in 2019. Trade in goods between the EU and India increased by 72% in the last decade.
Trade in services between the EU and India increased rapidly from €22.3 billion in 2015 to
€29.6 billion in 2018.
The EU's share in foreign investment inflows to India more than doubled from 8% to 18% in
the last decade, making the EU the first foreign investor in India.
Some 6,000 European companies are present in India, providing directly 1.7 million jobs and
indirectly 5 million jobs in a broad range of sectors.
There are a host of studies analysing the economic effects of the proposed FTA. The analysis
by the Indian government suggests that India will be a net loser from the FTA in terms of the
trade in goods, primarily as a result of the loss of revenues from lower or zero tariffs,
although gains are expected from liberalisation of the services sector.
A report by Sussex University and an Indian NGO – CUTS International – also indicates that
liberalisation of trade in goods would yield only ambiguous welfare effects.
Areas of disagreement
European and Indian expectations diverge on issues such as tariffs on cars, wines, and dairy
products imported from the EU, and on the liberalisation of the visa regime for Indian
professionals entering the EU.
The EU and India have even had trade disputes at the World Trade Organization (WTO) on
wine and spirits and on pharmaceuticals. When FTA negotiations began, India had high
tariffs in areas of interest to the EU and restrictions on foreign direct investment (FDI) in
several sectors, including insurance and trade. Rules on FDI in insurance and wholesale trade
and on single-brand retail have since been changed, but tariffs on goods such as wines and
cars remain at between 60 and 100 percent.
Both the EU and India have voiced concerns about restrictive measures that function as a
barrier to their exporters. Recently, for instance, the EU expressed anxiety over the Indian
government’s requirement that 15 categories of IT and consumer electronic products must
be registered in the country. A similar issue is mandatory in-country testing and certification
of telecom network elements. India has also been affected by EU regulations and standards,
especially on agricultural exports. For example, imports of Indian Alphonso mangoes were
banned in May 2014 after “non-European fruit flies” were found in some consignments,
though this was lifted in early 2015.
One of India’s key objectives is to be recognised as a data-secure country. At present, India
is not considered data-secure under EU legislation, despite India amending its Information
Technology Act in 2000 and issuing new Information Technology Rules in 2011, in line with
the “safe harbour” principles adopted by the United States. This hampers the flow of
sensitive data and means that Indian firms are unable to gain market access in the EU,
increasing operating costs.
Another key Indian objective is reform to allow skilled Indian professionals to temporarily
reside and work in EU member states. If rules on movement of professionals were
liberalised, Indian businesses would benefit significantly from increased access to the EU
services market. However, the EU says it is unable to intervene on this issue because work
permits and visas are under the remit of individual member states. A related issue is the
differentiated qualifications and professional standards between EU partners, which
restrict Indian professionals’ access to the EU markets.
For its part, the EU wants India to first liberalise its professional services sector, specifically
accountancy and legal services. However, the Institute of Chartered Accountants of India
and the Bar Council of India are vehemently opposed to such liberalisation as they fear
competition from overseas accounting and law firms.
Secondly, the EU has sought massive cuts in India’s tariffs on automobiles and auto
components. Fully assembled cars attract a 60 percent import duty, rising to 75 percent for
cars with free on-board value over $40,000 and engine capacity of 3,000 cc for petrol cars
and 2,500 cc for diesel cars. The EU sees this as protectionism: by contrast, the tariff on
Indian cars imported into the EU is 6.5 percent. However, Indian industry fears that tariff
cuts would flood the domestic market with European cars, which could have an adverse
impact on investment and on the “Make in India” campaign. There are also fears about auto
components being imported into India at concessional rates.
Finally, the EU has sought deep tariff cuts for wines and spirits. India currently levies import
duty of 60–100 percent, plus state taxes. Given that alcohol is a major source of revenue, it is
not likely that Indian states will agree to cut taxes. The EU also seeks to strengthen
intellectual property rights in India. Existing Indian laws do not allow evergreening of
patents (extending patents when they are about to expire by making small changes to the
product) or data exclusivity, preventing various drugs and chemicals from being sold in India.
India argues that if it were to accede to the EU’s demand, the Indian pharmaceutical
industry would not be able to sell cheap generic drugs.
The way forward
These problems notwithstanding, the proposed agreement is critical for both the EU and
India.
The FTA is also important for India from the perspective of investment flows and technical
cooperation. The EU’s assistance would enable European companies to help India in its plan
to develop 100 “smart cities” in the near future, as well as helping other Indian initiatives.
To agree on the FTA despite the differences between the EU’s and India’s negotiating
agendas in a tough economic climate, both partners will need to show determination to
make the partnership strategic.
EU China Investment Deal
China and EU entered into a deal replacing 25 bilateral investment deals entered by
individual countries by China , before 2009. The existing deals reduced the legal uncertainties
for EU investors , but were largely accommodative of China’s discriminatory investment
regime . The new deal makes a step further in broadening the legal framework for EU
investors , but it falls short of genuine level playing field . It is called comprehensive because
earlier deals were only on investment but now gives market access also.
1. The deal eliminates quantitative restrictions , equity caps or joint venture
requirements in number of sectors.
2. China removed joint venture requirement in automotive sector .
3. It will facilitate EU’s market access in research and development, telecom and market
access.
However , it does not include any investor protection mechanism .It does not make any
provision for the forced labour . It benefits China by encouraging EU’s investment; fuels
Chinese economy and technological development . It legitimise its actions in Hong Kong.
The deal strongly favours China . EU failed to leverage its market positions and technological
advancement . EU is caught in asymmetrical game in which China defects and EU cooperates
. The fate of the deal will be similar to British deal with China on Hong Kong.
China’s objective in the deal has been geo-political , whereas EU is caught in “peace lovers
dilemma” .
In economic terms , the primary winners are certain German
and French companies entrenched in the manufacturing and
service sectors . EU leaders think that they will gain vis-à-vis
USA.
The EU has compromised over its values , failed to gain a
level playing field from China in Economic sphere, halt China’s abuse of human rights ; to
discourage China’s assertiveness . EU’s deal is similar to Trump’s mistake of going solo in the
tariff war .
The deal damages EU’s comparative advantage vis-à-vis China , damages the transatlantic
ties and hurt strategic partners like India.
For EU, it was an opportunity to display its “strategic autonomy” vis-à-vis USA. For China , it
was an opportunity to put a wedge between EU and USA.
China has gained the game of realpolitik effectively , whereas Europe weakened its own
hands , gives short shrift to its own values and undermine the position of its friends and
allies.
Message from the deal : China is too big to be ignored, too rich to displease, too big to
punish and too big to fail.
