Nov 17, 2021
Can the EU and India finally strike a Free Trade Agreement?
Louise Curran, Khalid Nadvi, Sangeeta Khorana
Trade policy has rarely had such a high profile. From the ill-fated Transatlantic Trade and Investment Partnership (TTIP) to the long-drawn-out Brexit negotiations, trade negotiations have become increasingly subject to public debate. Yet much of the literature focuses on successful agreements, with little attention paid to stalled talks. At the same time the WTO is being substantially undermined, including by US inaction, meaning global trade governance is increasingly shaped through bilateral agreements. It is thus more important than ever to understand the reasons behind the success and failure of efforts to secure bilateral free trade agreements (FTA).
Using our revision of the Open Economy Politics framework, we explore the blockage in the European Union — India Free Trade Agreement (EUIFTA) negotiations. While these talks were first launched in 2007 before being put on hold in 2013, their impending relaunch makes it vital to understand why negotiations failed and whether prospects for an FTA have since improved. Our framework allows us to not only assess the role played by actors’ interests and interactions with others and the role of institutional structures, but also understand the impact of changing ideas and levels of relative power on the prospects for successful talks. Drawing on secondary sources and 45 semi-structured interviews conducted in the EU and India, we outline key barriers that prevented agreement as well as some areas that could be cause for optimism as both sides return to the negotiating table.
Barriers to a free trade agreement
A major challenge that faced negotiators during talks was that the interests of key stakeholders in India and the EU were not clearly aligned in favour of the EUIFTA. In India, high levels of existing trade protection meant that there were many economic actors with a vested interest in retaining the status quo. Furthermore, in services, where India has clear competitive strengths, the EU still does not control all aspects of market access, particularly visa provision which is largely controlled by member states.
Institutional change within the EU also created further obstacles to successful negotiations. In particular, the acquisition of veto power by the European Parliament, which quickly made its position clear, reinforced areas of existing division. This shifted the focus of EU trade policy towards sustainable development and human rights — areas that India sees as domestic issues outside the purview of international negotiations.
Throughout the course of the negotiations the changing international balance of power has both helped and hindered attempts to reach agreement. From the beginning, it was clear in Brussels that negotiations with India were different to those with high-income countries, like Japan or Canada, or with smaller low and middle-income countries like Colombia or Vietnam. India’s rising power status, its high growth rates and burgeoning middle class made it a particularly attractive trading partner for the EU at a time when it faced economic crises and negative growth.
However, India’s growing power also increased its confidence in its ideas about what an FTA should cover. The EU, under pressure from the European Parliament and civil society, wanted an agreement to include commitments on non-trade issues like labour standards, the environment and human rights. However, India is strongly opposed to such commitments and this position on trade is strengthened by its adopted role as a key representative of the wider Global South. If anything, the two have drifted further apart on these issues since negotiations were launched.
Causes for optimism?
This said, there may be reasons to be more optimistic about the future talks.
One former barrier to an agreement that may now add increased impetus to negotiations is the fortunes of both parties in negotiating FTAs with other states. The EU was heavily invested in TTIP, prior to the Trump presidency. Similarly, India was involved in the Regional Comprehensive Economic Partnership (RCEP), a multi-country Asian negotiation which included China, Japan and Australia. In this context, negotiators on both sides felt that the EUIFTA was not being given due priority.
Interestingly, we have recently seen shifts in this area. The chances of an EU FTA with the United States do not seem bright at time of writing. Ad hoc mini-agreements on issues like technology seem to have replaced the much more ambitious TTIP. In parallel, India pulled out of RCEP as it was being signed and its relations with China have become more fractious. The current context is therefore more propitious for the EUIFTA than it has been for some time.
Additionally, the shared democracy of both protagonists is an idea that has become increasingly important recently. This was mentioned repeatedly in joint communications on the relaunch of negotiations. In an increasingly conflictual international context, building strong relationships with ‘like-minded’ partners has become a priority for both actors. Whether the desire to ally with fellow democracies overrides the belief that trade liberalization needs to be framed by binding sustainable development commitments will be key to future progress on the EUIFTA.
Conclusion
Overall, it remains to be seen whether the breakdown of parallel negotiations and an increasing focus on shared democracy will be sufficient to overcome continued diverging interests and institutional pressures. Our results suggest that the shifting balance between middle-income and high-income economies, as a result of the geopolitical shifts and ideational change, will impact on future trade negotiations just as much as more traditional factors like interests, institutions and interactions. Analysing how these issues interact will be key to understanding the success or failure of future trade negotiations.
Louise Curran is Professor of International Business in TBS Education in Toulouse, France.
Khalid Nadvi is a Professor of International Development, and Managing Director at the Global Development Institute, University of Manchester.
Sangeeta Khorana is a Professor at Bournemouth University, UK.
Their article ‘Building on open economy politics to understand the stalled EU–India trade negotiations’ was published in the November 2021 issue of International Affairs.
All views expressed are individual not institutional.
