House of Commons - Business and Enterprise

Select Committee on Business and Enterprise Fifth Report

4 EU-India trade negotiations

54. One of the most significant developments since the previous Report was the opening in June 2007 of bilateral talks on a regional trade agreement (RTA) between the European Union and India (EU-India RTA). The European Commission's estimates suggest that, on realistic estimates of the extent of liberalisation, this could be worth up to €40 billion a year (around £30.1 billion) to the EU in general.[153] The Federation of Indian Chambers of Commerce and Industry (FICCI) estimated that an RTA could see bilateral trade increase to $572 billion by 2015, a more than fivefold increase.[154] The Committee was not presented with estimates of the potential benefits accruing specifically to the UK, and the effects on bilateral UK-India trade.

Prospects

55. It is early in the EU-India RTA negotiations, and after three rounds of talks so far,[155] neither side has yet fully disclosed its position.[156] Last December, the Trade and Consumer Affairs Minister, Gareth Thomas, suggested the RTA talks could be completed by spring 2009 with "concerted effort from both sides."[157] In January 2008, the Minister said both sides wanted to secure agreement by the end of 2008, although the Government would not "lock ourselves" into that deadline as "the critical thing", rather than "the quality of what actually gets negotiated".[158]

56. Many submissions expressed enthusiasm for the EU-India talks.[159] The Chair of the UKIBC saw them as "an excellent idea".[160] However, for all the potential benefits to both parties, some important concerns have been raised with the Committee. ActionAid told us that that they "believe that rapid and deep liberalisation of trade and investment in India will worsen rather than improve the position of the poor and vulnerable in the country."[161] They expressed concern over the expected pace of liberalisation, inclusion of 'trade-related' issues (including investment, competition, and government procurement), and called for developmentfriendly rules of origin, which determine the eligibility of products to use the lower tariffs in any trade agreement.[162] The CBI said that, despite the "real opportunities" of such an agreement, the Doha Round "remains our top trade policy priority", and that EU-India RTA talks should not be pursued "at the expense of negotiating resources being shifted away" from the WTO talks.[163] It also called for an RTA leading to "rapid, substantial and comprehensive" Indian liberalisation, amid fears that any deal could be weakened through numerous product exclusions and exceptions.[164]

57. One commentator believed that both sides would find it difficult to tackle regulatory barriers in the others' markets, saying the odds of a "strong, WTO-plus EU-India FTA are slim indeed, but there is a strong chance of delivering a relatively weak FTA that, in practical terms, hardly goes beyond tariff elimination."[165] The extent of India's ambition in the talks was also raised by the European Commission, which was keen to see that negotiations resulted in real and additional market access on both sides.[166]

58. There have been recent reports that differences between the two sides have threatened the stated end-2008 deadline. A meeting in March was postponed until April. While progress has been seen on goods trade, a European Commission official has stated that intellectual property rights and government procurement were "not the areas for hurried negotiations".[167] Another Commission spokesman has said that 2008 "is not our deadline for concluding negotiations with India".[168] India's central bank, the Reserve Bank of India, has warned that some of India's proposed bilateral trade agreements risk damaging India's finance sector, as well as weakening multilateral liberalisation.[169] It is too early in the negotiations for the Committee to reach a conclusion on the level of India's preparedness to reach an extensive agreement, which would see liberalisation of the vast majority of trade in goods as well as services, procurement and so on.

New EU trade talks and the world trade system

59. There are concerns that the new talks with India—along with the other RTA talks with South Korea and the ASEAN countries launched at the same time—could risk distracting these parties from the more valuable goal of a successful multilateral Doha Round at the World Trade Organisation.

60. In its response to the original Report, the Government said Doha was its "primary trade policy objective", noting that while it also supported the consideration of an EU-India RTA this "must not undermine" the Doha Round.[170] UKTI's evidence reiterates that the Doha Round remains the "priority".[171] The European Commission similarly states that the "Doha Round and the multilateral trading system will remain the EU's overarching trade policy priority".[172] The Trade and Consumer Affairs Minister, Gareth Thomas, told us that he did not believe other countries would stop negotiating Doha because of these deals, and that "we have got to absolutely make sure that RTAs that we negotiate can support and supplement and do not undermine the Doha Round".[173]

61. ActionAid pointed out that the impetus for the new EU policy towards RTAs comes in part from the enthusiasm of the EU's major trade competitors, notably the US, for them;[174] they cited the European Commission's own trade strategy document, Global Europe—Competing in the World, which states: "We should also take account of our potential partners' negotiations with EU competitors."[175] The Trade and Consumer Affairs Minister has said that he thought it would be "a huge mistake for the EU to stop trying to negotiate regional trade agreements because all sorts of other of our competitors are already negotiating regional trade agreements."[176] The European Commission expressed the view that a careful approach to RTAs could "build on WTO and other international rules by going further and faster in promoting openness and integration, by tackling issues which are not ready for multilateral discussion and by preparing the ground for the next level of multilateral liberalisation."[177] The EU is also seeking RTAs with South Korea and the ASEAN countries. However, the European Commission seems implicitly to accept the genuine risk to the multilateral system in its comments on the possibility of RTA talks being opened with Japan in the future: "the EU and Japan, two major trading partners and strong promoters of the WTO, would have to carefully consider the systemic implications that a bilateral agreement might have."[178]

62. We give a guarded welcome to the EU-India trade talks that have begun since the previous Report. There are clearly benefits to both sides from a successful deal, but we would be concerned if these talks diverted the attention of two of the biggest players at the WTO at a crucial time for the struggling Doha Round. We call on the Government to assess on a continuing basis the impact of the bilateral negotiations on the critically important WTO talks, and to perform a more detailed analysis of the potential benefits to the UK and India from an EU-India RTA deal.

63. Our welcome is guarded because we see a potential danger that the EU's new bilateral trade talks in Asia could provoke other trade partners into similar talks. This would accelerate the growth of bilateral deals and could cut across, confuse and ultimately undermine the multilateral trade system, not least by reducing the time negotiators have available to spend on the multilateral negotiations.

Possible content of an EU-India RTA

64. The Trade and Consumer Affairs Minister, Gareth Thomas, also told us that the UK would want to see improvements in access for services from the RTA—precisely those areas that have seen limited progress through the JETCO (financial, retail and legal services, and intellectual property) and government procurement.[179] As UKTI noted, should barriers to services trade be removed "we would expect our services exports to grow strongly".[180] The Trade and Consumer Affairs Minister said India's interests included access to the EU's legal, telecommunications, and software services markets, which the Trade and Investment Minister, Lord Jones, noted were likely to be more challenging areas for other EU members than for the UK,[181] given that the UK is already comparatively open to foreign investment. The European Commission states that it expects the RTA to cover "not only trade in goods and services, but also investment" while "paying special attention to non-tariff barriers, and to rules and regulations such as Intellectual Property Rights, competition, government procurement, and transparency."[182] The Commission also told us that it will "ensure that no issue is left behind in the negotiations and we move ahead in parallel on all fronts."[183] The European Commission told us that both competition and sustainable development have been discussed in negotiation rounds so far.[184] The CBI told us that while traderelated issues like regulatory convergence,[185] intellectual property rights, public procurement, investment, and trade facilitation should be in any RTA,[186] 'political issues'[187] such as competition policy, labour and environmental standards, and foreign policy goals should not be included.[188]

65. The Trade and Consumer Affairs Minister, Gareth Thomas, saw the EU-India RTA as a 'win-win' situation. He saw "real enthusiasm from the British business community" at the outset of the RTA talks, and was "optimistic […] that we can see significant services liberalisation",[189] with "a much greater range of businesses within the UK starting to look at what those RTA negotiations might deliver."[190] He also said a deal would "help India get access to the best expertise that the European Union has to offer and particularly the best expertise that Britain has to offer […] the legal services, financial services and the expertise that we have to offer is second to none."[191] The Trade and Investment Minster, Lord Jones, also said that an EU-India RTA would enable Indian companies to "use UK as a global platform" for activities elsewhere.[192] The Trade and Consumer Affairs minister, Gareth Thomas, said that an EU-India RTA "matters so much for both British business and […] for the development of India and the needs of India's poor."[193]

66. Any gains from an EU-India RTA will depend on the ultimate outcome—or otherwise —of the Doha Round.[194] It is still hoped that the Doha Round and EU-India trade negotiations are progressing simultaneously towards an end-2008 finish. We recommend that any EU-India RTA deal reached before the completion of the Doha Round should be reappraised in the light of the any multilateral liberalisation through a Doha deal. The Government should therefore press the European Commission to commit to a review of any RTA that is agreed before the Doha Round is finalised, and once that agreement has been fully fleshed out.

Transparency and information-sharing

67. The Trade and Consumer Affairs Minister told us that he had been keeping British business updated on progress in the EU-India talks.[195] We welcome the Government's commitment to keep business informed about progress in the EU-India talks. We expect the Government to keep the Committee similarly well informed of developments in the EU-India talks, and the other bilateral negotiations underway. In the interests of transparency, we urge the Government to make public as much information as possible, subject to the restrictions imposed by the sensitive nature of trade negotiations. The Government should consider issuing position papers similar to that on the EU's Economic Partnership Agreement negotiations in March 2005 on the EU-India RTA, the other bilateral talks, and the EU's broader RTA strategy.

153 Based on exchange rates on 25 February 2008 Back

154 "FICCI for removal of trade barriers with EU", Business Line (The Hindu), 4 February 2008, p3 (via Factiva).Of this, $251 billion is accounted for by goods and $320 billion by services. Back

155 Ev 54 (European Commission) para 8 Back

156 Q160 Back

157 HC Deb 12 December 2007 c630W Back

158 Q161 Back

159 Ev 53 (CBI) para 28, Ev 48-49 (Clifford Chance), para 10-12 and Ev 57 (Standard Chartered) Back

160 Q104 Back

161 Ev 36 (ActionAid), para 3.3 Back

162 Ev 36 (ActionAid), para 3.3 Back

163 Ev 53 (CBI), para 28 Back

164 Ev 49 (CBI), para 4 Back