Trade

EU hopes Brexit will help deliver an India trade deal

The EU is betting that Brexit will make a trade deal with India a little easier.

Chief negotiators from the EU and India will meet in Brussels on Thursday in an attempt to revive talks that stalled five years ago.

No one reckons that it will be easy for the European Commission to revive dialogue with the fast-growing economy of 1.3 billion people. India has long proved to be one of the toughest nuts to crack in global trade, particularly because of its highly defensive positions on domestic champions ranging from cotton farming to generic medicines.

While most of the challenges of dealing with India look set to be long-term headaches, European officials believe that Brexit will at least remove two traditional hurdles. First, Britain always wanted India to drop its sky-high tariffs on Scotch whisky. Second, Britain was deeply concerned that a more liberal visa regime — one of New Delhis priorities — would bring a wave of Indian workers primarily to the U.K.

“Most Indian companies used to go to Britain as their point of entry into Europe” — Sunil Prasad, secretary-general of the Europe-India Chamber of Commerce

“Its certainly not going to be easy if you think of tariffs for cars and dairy products, for example. But I see much more room for compromises now,” said Sunil Prasad, secretary-general of the Europe-India Chamber of Commerce in Brussels.

He stressed that Brexit has created a sense of urgency in New Delhi that talks with the EU should be revived, primarily because Indian companies had traditionally focused on the U.K. as a launchpad into the single market.

“Most Indian companies used to go to Britain as their point of entry into Europe,” said Prasad. “It appeared the obvious choice because of historical ties and the language. But with the U.K. leaving, they now look to Germany, to France, to Belgium. And they hope for a trade deal to facilitate investment and trade flows.”

The prospect of Brussels leading the charge for a trade deal with New Delhi is galling for Brexiteers, who have long argued that Britains former colonies would be its most natural trade partners after the U.K. leaves the EU.

U.K. Prime Minister Theresa May made an early charm offensive to India a few months after the Brexit referendum in 2016 — but quickly realized that New Delhi was attaching more priority to Brussels, and that there was still little room for a breakthrough on the vexed issue of immigration.

“I dont think India is in a rush” to sign a post-Brexit trade deal with Britain, Indian High Commissioner to the U.K. Yashvardhan Sinha recently told POLITICO, adding that “for us it is very important that if we need to step up our engagement … the ease of travel has to be looked into.”

Franco-German push

In the meantime, Berlin and Paris have doubled down in courting Indian business. French President Emmanuel Macron visited the country in early March to ink €13 billion in investment deals. German President Frank-Walter Steinmeier followed two weeks later with a similar message: As Britain leaves the EU, its time to strengthen business ties with the other leading economies in the bloc.

“Together with our French partners, we can become Indias new strategic anchor on the European Continent and in the European single market,” Steinmeier said in a speech at the University of Delhi.

For EU countries, the prospect of revived trade talks is not only about attracting foreign business but also about opening up the Indian economy — which has grown at an average of 7 percent in recent years — to European exports.

“India is a promising market for machine builders from Germany and other EU countries because they have the technology and skills that India needs to develop further,” said Atul Sharma, a trade lawyer at Seetharaman & Associates in New Delhi.

“There is a very clear logic for the EU and India to engage intensively in the coming months,” Indias EU Ambassador Gaitri Issar Kumar told the European Parliament in January. She added that the deal, if done right, would be “a win-win situation” for both sides, and that “our prime minister is determined” to come to a swift conclusion of talks.

In Mumbai, Indian television reacts to Brexit in June 2016 | Divyakant Solanki/EPA

To avoid running into the same stalemate as before, Brussels and New Delhi have resorted to a classic trick in trade negotiations: reducing the scope of talks.

“Basically the chief negotiators plan to agree [during their Thursday meeting] which are the areas where we can agree, and which are the points we should better leave aside,” said a senior EU official.

Trade lawyer Sharma agreed that both sides “have no other option but to be less ambitious.” While Brexit was making the talks “without doubt much easier,” he said that there were still difficulties on issues such as drug patents, tariffs for second-hand cars, agriculture, services and rules of origin.

Investment woes

Christofer Fjellner, the European Parliaments shadow rapporteur on the India deal, said he was “cautiously optimistic” about the prospect of the EU-India trade talks, and noted that attempts to relaunch them in years prior had repeatedly failed. “Weve been here before,” said Fjellner.

One big stumbling block, he said, was the different approaches to investment protection: Although India is the worlds largest democracy, foreign investors insist that they need a special arbitration system. Regular Indian courts, they say, often work with little transparency and “shocking delays.”

“There are definitely challenges ahead” — Helena König, EUs chief negotiator

“Its very important in a country like India to have a credible investment protection,” said Fjellner, adding that the topic had received additional urgency after India decided to cancel more than 20 bilateral investment protection treaties with individual EU countries in 2016.

New Delhi, in contrast, argues that investors should only be able to appeal to an arbitration tribunal after they had previously sought to settle the issue in an ordinary court. Adding to the controversy, India demands that tax rulings should not fall under the jurisdiction of investment protection — although European investors have complained that taxes are a classic issue where they fear discrimination toward domestic producers.

Speaking to EU lawmakers in January, the EUs chief negotiator Helena König did not hide that this will be a difficult item: “There are definitely challenges ahead,” she said.

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