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There’s nothing like a common rival to forge a marriage of convenience. Even if, in the past, the EU and India never really clicked.
Back in 2013, trade talks between Brussels and New Delhi went into snooze mode, weighed down by thorny topics like India’s agricultural protectionism and its generic pharmaceuticals.
But there’s now a different mood in the air, as all eyes are on China. In a dangerous escalation of hostilities in the Himalayas, India lost 20 soldiers in a battle with Chinese forces last year and New Delhi is out to bolster alliances against Beijing, which it sees as trying to outflank it commercially and strategically.
Europe is a slippery partner for India to turn to because Brussels is cozying up to Beijing through an investment agreement rather than tackling China head-on like the U.S., but there are signs that the EU is willing to move closer to India than it has for several years.
A high-level meeting between the EU’s chief trade chief Valdis Dombrovskis and Indian Commerce and Industry Minister Piyush Goyal is expected this week, after being postponed on Friday. The session is intended to lay the groundwork for a revival of both trade negotiations and a summit between Indian Prime Minister Narendra Modi with all 27 EU leaders in May in Porto, which would be a first.
Portugal, which currently holds the EU’s rotating presidency, has called EU-India relations a top priority. Mapping out Lisbon’s priorities earlier this month, Nuno Brito, Portugal’s ambassador to the EU, zeroed in on strengthened ties with “the largest democracy in the world.”
The perfect match
The potential economic benefits of a free-trade deal are obvious. The EU is one of India’s largest trading partners, on par with the U.S. and ahead of China. Increased trade with the EU via a free-trade deal could lead to gains of around €8 billion, according to a recent study by the European Parliament.
Geert Bourgeois, the European Parliament’s point man on trade relations with India, said New Delhi represented a dream partner. “It always becomes richer and younger. The growth potential is enormous.”
The pandemic has only fueled both sides’ interest in closer economic ties. As the EU wants to diversify its supply chains to decrease its dependence on China, India is positioning itself as a solid investment alternative.
“Those wishing to shift manufacturing, especially contract manufacturing, from other geographical areas, we have a message — India is serious about making it happen for you this time,” Indian Ambassador to the EU Santosh Jha told POLITICO, a point he has also made to dozens of European politicians and businesses in the past months. This has been a major national priority since 2014, when New Delhi launched the “Make in India” drive to challenge China as a global manufacturing hub.
His anti-Chinese hint also reflects how reopening trade talks between Brussels and New Delhi is not just about economics. It’s political.
“The relationship between the EU and India cannot just stand on one leg,” said Jha. “It will be stronger if it stands on both legs: economic and geopolitical.”
When it came to trade talks, Jha said Brussels now seemed to be going “beyond its domestic preoccupations,” that, according to him, led to the freeze of discussions back in 2013.
Jha avoided mentioning China directly. Instead, the top envoy stressed the “strong binding force” between the two large democracies “sharing values of freedom and rule of law” which “lend an element of comfort in our interactions, which may not be present with others who adhere to different values.”
But it’s clear that China’s rising power is the elephant in the room, said Stefania Benaglia, who specializes in EU-India relations at the Centre for European Policy Studies.
“No matter the importance of bilateral EU-India relations, they are especially enhanced by the geopolitical context of the Indo-Pacific,” Benaglia said. “This region is at the geopolitical heart of the next decade and China is changing that whole setting. It’s a necessity for both the EU and India to work more closely together.”
The recent investment deal between Brussels and Beijing does not seem to hinder the renewed flirtations. New Delhi has noted the intra-European opposition against the deal, which will not be ratified any time soon.
Nonetheless, don’t expect a free-trade agreement to be signed any time soon.
A European Commission spokesperson downplayed expectations of Friday’s call, saying that it can provide “fresh momentum to the bilateral trade and investment relationship that could feed into the next EU-India summit.”
India is one of the toughest nuts to crack as a global trade partner. Brussels has long-standing concerns about India’s high tariffs and local content requirements in its “Make in India” industrialization strategy, which it raised again at the World Trade Organization earlier this month.
At this point, it’s not even clear whether trade talks will even be reopened at all, as both sides seem to be looking for different outcomes from the trade talks.
Friday’s call will help determine the level of ambition, the EU’s somewhat wary trade chief Dombrovskis told a group of reporters this week. “Clearly, India is an important partner, whom we are willing to engage more deeply, but we also know that so far at least India’s willingness to engage in, for example, free-trade agreements and take meaningful commitments in this area has been limited,” he said.
EU officials view India’s recent ambitions on becoming “self-reliant” as further protectionism exacerbated by the coronavirus crisis. India has also pulled out of RCEP, the huge trade deal struck in November between 15 Asia-Pacific nations, out of fear its market would be flooded with cheap Chinese goods.
“India is definitely an important market for European businesses, but it’s not open to market liberalization,” said Luisa Santos, responsible for international relations at BusinessEurope, a European lobby. “It’s why they pulled out of RCEP and one of the reasons the negotiations with the EU stopped the first time. If India wants a deal, it needs to show it’s serious about market access. Our priority would be to clinch an investment agreement first, and then try to build on that.”
Bourgeois, the European Parliament’s point man on the file, also suggests sealing an investment deal as a first realistic stepping stone toward a future trade deal.
New Delhi however has made clear it wants to go further and wants Brussels to make up its mind. “An investment deal might look like moving forward, but why shouldn’t we be more ambitious?” said Jha. “We have already had so many negotiating rounds that our preference is definitely a more comprehensive agreement. It is also for the EU, too, to take a call as we can move forward only if we both agree.”
Jha insists the self-reliant India program is not about protectionism. He holds up a mirror to Brussels by comparing it to the EU’s plans for “open strategic autonomy” as India is “actively seeking international partnership as well on building resilience.”
He pointed out recent reforms in the agriculture and labor sectors to open up markets and new investment domains. “It is not about a self-centered India,” Jha said. “It is about building capacity to enable India to contribute to greater global good and to be better integrated with the global economy.”
According to Benaglia, there is a mentality shift in India away from protectionism. “New Delhi is changing its approach and there is an overall political push to move these kind of trade deals forward. But that means going against a deep-rooted belief within society, and this takes time.”
This article is part of POLITICO’s premium policy service Pro Trade. From transatlantic trade wars to the U.K.’s future trading relationship with the EU and rest of the world, Pro Trade gives you the insight you need to plan your next move. Email [email protected] for a complimentary trial.