Talking trade in a downturn

Even as the trade committee of the European Parliament has emphasised the importance of expediting a trade pact with India, another committee of Members of European Parliament (MEP) has submitted a report which has the potential to derail the negotiations for such an agreement. The MEP report has called for bringing human rights and environmental issues into the parleys on the Comprehensive Economic Partnership Agreement (CEPA) between India and the EU, an agreement which hinges on the duty-free movement of goods and services, and the free flow of investment. The issues specifically mentioned by MEP are wholly unrelated to bilateral trade, such as ‘extra-judicial killings’ in Jammu and Kashmir, smuggling of tiger skins to Tibet and the observance of legally-binding social and environmental standards. This kind of add-on loading reflects the social and political concerns in some sections of European opinion, but is untenable; India’s logical position is that trade pacts should contain only trade issues. The MEP needs to realise that other fora are available for discussing such issues, and that raising them in a trade context can prove counter-productive.

Even without this latest hiccup, the going has not been smooth for the Indo-EU negotiations on CEPA, ever since they began in 2007. India has several concerns which are yet to be suitably addressed. The lack of harmonisation of regulatory procedures in individual member-states of the EU is one of the most important, as it prevents Indian exporters from fully penetrating what is supposed to be a unified EU market. Where agro-exports are concerned, these are severely constrained by the lack of uniformity in microbiological standards, costly certification processes for fruits, and cumbersome conformity procedures laid down by the European Commission. In the case of services, the biggest problem is the hindrances in the movement of professionals, as this is often confused with immigration at the EU end. The negotiations on tariffs, too, are unlikely to be hassle-free because of the difference in the average applied rates. These now stand at 14.5 per cent in India, against 4.1 per cent in the EU. Besides, India has a long list of sensitive items where reduction, leave alone elimination, of tariffs may not be acceptable.

Notwithstanding these hurdles, the fact remains that CEPA will be beneficial for both parties, even if the degree of advantage accruing to each may vary. The EU is India’s largest trading partner, accounting for some 21 per cent of total merchandise exports. This level can rise appreciably, post-CEPA. For the EU, though India is only a minor trade partner, there is considerable scope for the expansion of trade. Going by the EU’s reckoning, a CEPA can push up the total volume of bilateral trade from 70.7 billion euros in 2010 to 160.6 billion euros by 2015.

The real problem is the fact that the talks are being held at the worst possible time; the European economy will shrink this year, and there is growing unemployment. India too is feeling the pain of a sharp downturn, and its exports have collapsed in recent months. These circumstances do not encourage the give-and-take that is required for trade negotiations to succeed—precisely the problem facing the multilateral Doha Round negotiations. The danger, if anything, is that protectionist walls will go up; given the discipline imposed by the World Trade Organisation, the new barriers are likely to be non-tariff in nature and will come up in the form of technical and environmental issues. India has to learn how to deal with these, even as it presses on with the trade talks.

Source: business-standard