EU reopen negotiations with India on a Free Trade Agreement

India and the EU first opened their negotiations on a Free Trade Agreement (FTA) in 2007, but in 2013 these discussions were suspended because there was too great a gap between the parties, and it was not viewed worthwhile to continue. The differences were largely due to the EU’s ambitions being generally higher; it wanted to dismantle more trade barriers and open up markets further than India did. While these fundamental disagreements remain, at the same time the global playing field has been redrawn with China becoming an increasingly dominant player.

India is viewed as one of the most protectionist countries in the world; it has no significant FTA with any other country in the world and it is not in the process of negotiating any either. India chose to stay out of both of the new giant free trade areas in East Asia, the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Within the World Trade Organization (WTO), it also often takes a stance aiming to block new initiatives for more free trade.

– India is certainly not going to be an easy negotiating partner for the EU, but at the same time the potential for gain is substantial. India has a rapidly growing economy and a burgeoning middle class, one that is demanding a great deal of the consumer goods and services produced in Europe. In addition, India is facing a gigantic sustainability transition, one which requires new technology and know-how in a range of areas. This is an area where Swedish companies in particular will be happy to contribute. The problem is that currently they are often hampered by certain trade barriers, something that could be addressed by an FTA, says Henrik Isakson, Director of Trade Policy at the Confederation of Swedish Enterprise.

What both parties are now aiming for is a comprehensive agreement, not only to liberalise trade but also to protect investment. As India already has a comprehensive programme to attract external investment (‘Make in India’), it may now have a greater interest than previously in also protecting that investment, so that Europeans can ”dare to invest”, says Isakson. Many Swedish companies are already active in India and can benefit from this and, perhaps most importantly, the agreement can attract more new players.

Henrik Isakson also points out that, ”Sweden’s trade with China is many times larger, despite having a relatively similar size of population to India. This can be explained by China’s greater production capacity and higher prosperity, but also by the fact that India has far more trade barriers and it is therefore more difficult to do business there. The FTA must aim to reduce such barriers as much as possible.”

– No date has yet been set for the start of negotiations, and no one expects them to be quick or easy. However, the very signal that this is desirable is of great significance. This is because it is not simply an aspirational project beyond the pandemic but it also makes a positive contribution to the EU’s current trade strategy, which is more focused on various measures to close the market than those that will open it. A negotiation with India sends strong positive signals. This could be a win-win outcome, concludes Isakson.