India, EU need to take their current courtship to marriage

Source: Livemint

September 16,2014

Joan Cravinho speaks about the EU’s readiness to break the current stalemate in the negotiations for the long pending FTA with India

India, EU need to take their current courtship to marriage: Joao CravinhoJoao Cravinho says the EU and India need to sit down and have a reassessment of where they are on the FTA and how to go forward given the fact that there have been changes on both sides.

New Delhi: João Cravinho took over as the ambassador of the European Union (EU) to India in January 2012. Prior to his posting in New Delhi, Cravinho served as a member of the government of Portugal in the capacity of secretary of state for foreign affairs and cooperation. In an interview, Cravinho speaks about the EU’s readiness to break the current stalemate in the negotiations for the long pending free-trade agreement (FTA) with India and hopes India will allow foreign direct investment (FDI) in multi-brand retail as a result of demand from its growing middle class. Edited excerpts: How do you view the new government in India led by Prime Minister Narendra Modi? We are very optimistic, obviously 100 days is very short term, but it has given us some indication of what to expect in next few years. And what we expect is continuation of reforms that India needs. The election results vindicate that Indians feel a need to re-engergize the economy and the government is seeking appropriate ways to do this.

We are optimistic about India’s future. I know that there are tremendous challenges that the government has to face in many different directions. That is not unique, that happens in many parts of the world. But we also have the sense that there is understanding of the challenge, there is also a majority in Parliament, which means the situation from the point of view of the political context is somewhat easier than in the previous governments. One also finds the same optimism in the business circles. There is a marked improvement in the level of confidence of businesses and they are waiting for decisions on some issues which would sustain the level of confidence and optimism. But clearly what I hear from the European businesses is positive and they have great expectations (from the government) for the next few years. The India-EU FTA has been in negotiations since 2007. What is the current status? We have not had much movement over the last year and a half. There has been a stagnation in negotiations. There has been a couple of sporadic meetings, but not much sustained progress. We have come a long way, it is important to say that. It is also important to say that we have not reached the destination.

We have done the great majority of the work, but we have not gone the extra mile in order to finalize the deal. Meanwhile, over the last year and half or so, there have been different situations—situation of winding down of the mandate of the previous government and the situation of the new government coming into office. Neither of these are very propitious for fast moves. When a government is winding down, it has too little political capital to spend, and when a new government comes to office, it wants to take a look at the situation, develop full understanding and decide which direction to go. The new government has been in office for 100 days or so and the sense that we have is that it is now time to move forward. We have been in this situation where we have been courting each other for a number of years and we have been saying that “we might be an interesting marriage partner or may be not, let’s see”. Now having gone all the way down this path, it is a very good time to take the courtship to its natural conclusion. I have recently been in Brussels. I was speaking with people at the headquarters.

In Europe, there is a lot of determination to find ways to conclude a deal. I also heard positive comments from (trade) minister (Nirmala) Sitharaman and other officials. So the time is now ready for us to finalize the deal in a year or so. In a year or so? Well, I don’t want to put a timeframe on it because it does not depend only on our wishes. Certainly, we are capable of doing it within less than a year. Whether we will will depend on how we spend our energies. On our side, there is a clear desire to do this. One hears that there is little interest from the EU side for a deal with India at this juncture as its focus has now shifted to conclude the Transatlantic Trade and Investment Partnership (TTIP), the trade agreement with the US. Our negotiations with the US are very, very substantive, very deep negotiations, which will have quite a transformative impact on the European and American economies. Does Europe have the same level of interest in concluding the deal with India? The short and unambiguous answer to it is yes, and for a very simple reason.

The negotiations with the US, if they are successful, will produce a scenario whereby Europe and US increased trade will have a big knock-on effect on trade with other countries because both American and European companies will deeply engage in global value chains and hence will do a lot of sourcing from other countries. There will be a lot of opportunities for companies of other countries to take advantage of that. This means it is doubly in our interest to sign the trade agreement with India. You mean to say the TTIP will have a positive impact on India? The TTIP will have a positive effect on India regardless of the FTA. But an FTA will have a more positive effect by creating more opportunities. You talked about hearing positive comments from Indian officials. But the officials I have heard speaking seem to suggest that the EU has to come back showing an interest in the deal and that it needs to lower its ambitions significantly for the deal to succeed? How do you react? Negotiation is always a process of give and take. We have not had progress for a long time.

Meanwhile, the world does not stand still. Around us circumstances are moving on. Consolidations are happening through the transatlantic and transpacific negotiations. With these changes, what we have to do now is not to return to sterile arguments, rather have a wide-ranging conversation. We need to sit down and have a reassessment of where we are and how to go forward given the fact that there have been changes on both sides. If we don’t do that now, I think the work that has been done since 2007 will be lost, because by then the world would have changed so much in different directions that our preparatory work in the earlier years will be less relevant. The Indian officials seem to suggest that the ball is in your court and you need to show an interest to conclude the deal? Of course, they always do (smiles). That is a part of negotiating tactics. What is important is not to see where the ball is because we don’t have at the moment the dynamics for over a year. So I would say the ball is out of play at the moment.

What we have to do really is sit down, take stock of where we are and how can we move forward. I think from both sides there is goodwill, that is what I heard from minister Sitharaman. I had a good conversation with her. We have not engaged in any kind of negotiations. We were not talking about percentages and sectors. But I got the sense from her that she would like conditions to be there for an agreement to be reached and she is willing to work for that. On our side, that sentiment is completely reciprocated. But what would it need for both sides to start negotiations again? Just for people to sit down. And how soon that can happen? It is just a question of logistics, when people can get on to aeroplanes, get down and have conversations. And you think that will happen soon? I hope. I can’t talk about specific dates because they don’t exist at the moment, but I certainly hope so. India has been strictly against including issues such as human rights and child labour in the trade agreement. Are you still harping on those issues? I don’t think we ever harped on those issues. Those have never been a significant part of the negotiations because we have not got on to that chapter.

Therefore, it would be premature to say that this is an area of disagreement. There is a sustainable development chapter in all of our trade negotiations. Both the EU and India have international commitments of certain standards in different areas. To be honest, I don’t think if we fail to reach an agreement, it will be because of these types of issues. I believe we will be able to find a language that would satisfy both sides. The new government has made it clear that it will not allow FDI in the multi-brand retail sector. Is this policy flip-flop a concern for the EU and European companies? What I have taken note of is that there is no new initiative by the government in this area. I think we have to distinguish between short term and long term. I believe in the longer term, with India’s growing middle class, as people travel, as people develop an understanding of the way things are in the rest of the world, Indians will come to develop a strong demand for multi-brand retail. This will be a natural process. So the current analysis of the government in terms of a certain section of the population being unable to sustain the changes that would happen will be less significant. In 10 years’ time, I frankly do not expect the government to say no to multi-brand retail. Nothing to do with the EU.

It is just the way I see India evolving. But in the short run, this policy change does not worry you? Well, there has been no legislative change. As far as I understand, the decision is the state’s decision (to allow FDI in multi-brand retail). So states will make up their minds according to their own assessment. After a short span of steady recovery, the EU is again at the brink of yet another economic recession? Why you think the EU’s recovery has been so fragile whereas the economic recovery of US is more or less steady after the financial crisis? You are right, the US is looking better. At the moment, Europe is not looking quite as good as it was a few months ago. We have challenging situations everywhere. Brazil has gone into a recession, Turkey is in a very challenging situation, in India the situation is not as good as one would imagine a few years back. In Europe, major policy decisions are happening and will happen. The European Central Bank has taken very significant policy moves. The future president of the European Union has also announced a €300 billion investment (stimulus) package, which is very significant. I think that will go a long way in improving the situation and putting the euro zone on a growth path.

 

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