Was India immature in calling off free trade talks with EU?

Source: Livemint

18 Aug 2015

A file photo of trade minister Nirmala Sitharaman. Photo: Pradeep Gaur/Mint

A file photo of trade minister Nirmala Sitharaman. Photo: Pradeep Gaur/Mint

While India intended to send a strong signal to the European Union by cancelling talks for a bilateral free trade agreement (FTA) after the European Commission imposed a ban on some Indian generic drugs, experts including former commerce secretaries hold that India may have acted in an immature manner on the matter.

The commerce ministry on 5 August indefinitely postponed a meeting between the chief trade negotiators of both sides scheduled to be held on 28 August holding that it is “disappointed and concerned by the action of EU in imposing legally binding ban on the sale of around 700 pharma products clinically tested by GVK Biosciences, Hyderabad” on 16 July.

G.K. Pillai, former commerce and home secretary, said if one party cancels talks in such situation, then it puts itself on the defensive.

“You have to retaliate in similar fashion against some of their products so that you have the bargaining chips in your hand when you return to the negotiating table. All countries do this since there is no moral ground in trade and commerce. It seems we have not learnt the lessons yet,” he said.

Another former commerce secretary speaking on condition of anonymity said cancelling talks should be the last resort when one has exhausted all other options.

“Pakistan is doing all sorts of things to us and still we have not stopped talking to them. You can’t just walk away from talks. That is not the way trade diplomacy is conducted. Only when you have reached a point of no return, then only you say we won’t talk,” he said.

Both India and Pakistan are expected to hold talks in New Delhi at the National Security Adviser level on 23-24 August despite continuous provocations by the Pakistan army along the borders of Jammu and Kashmir and other areas.

Professor Gulshan Sachdeva, chairperson of the Centre for European Studies at the Jawaharlal Nehru University, said since the EU is India’s largest trading partner, such issues will keep coming up.

“We should be talking more often to resolve such issues, not less. There are so many institutional mechanisms available including dragging the EU to the World Trade Oganisation dispute settlement mechanism to resolve such disputes,” he said.

Sachdeva said India should have used the meeting between the chief trade negotiators later this month as the first opportunity to press for answers from the EU on the matter.

“India should not get too emotional about these issues and try resolving them in a professional manner,” he added.

The cancellation of talks is more puzzling since it comes at a time when both sides are working towards the India-EU Summit meeting in November in Brussels where Prime Minister Narendra Modi is scheduled to participate, Sachdeva said.

India and the EU have a long history of tussle over generic drugs. India initiated dispute settlement consultations in May 2010 at the World Trade Organization with the EU on the issue of detention of Indian generic medicines while in transit.

The dispute was triggered by repeated instances of seizure at EU ports, particularly in the Netherlands, of Indian generic drugs meant for export to Latin American and other countries in 2008.

However, both sides reached a settlement to the dispute in 2011 and the EU agreed not to seize generic drugs consignments in transit through its territory.

The EU also banned the import of Alphonso mangoes, brinjal, taro, bitter gourd and snake gourd starting May 2014 citing the presence of pesticides. However, after a strong protest by India, EU lifted the ban on Alphonso mangoes in January though the ban on vegetables still continues.

The cancellation of talks between the two sides is only the latest setback to the proposed FTA that the two sides have been negotiating since 2007. Differences over the lack of access for Indian professionals to EU’s labour market and high taxes imposed on liquor and car imports from Europe have thwarted efforts to reach an accord that is expected to boost trade between India and the EU.

India’s exports to the EU contracted 4.4% to $49.3 billion in 2014-15 while imports contracted 2.2% to $48.8 billion.

Both sides have missed at least four deadlines to clinch a free trade accord, called Broad-based Trade and Investment Agreement, even after 15 rounds of talks.

A prolonged recession in the EU, and its focus on concluding the Transatlantic Trade and Investment Partnership agreement with the US, also delayed the progress.

Trade minister Nirmala Sitharaman met her counterpart, EU trade commissioner Cecilia Malmström, on the sidelines of an informal meeting of trade ministers in Paris in June and decided to revive talks at the chief negotiators’ level.

Accordingly, India’s chief trade negotiator J.S. Deepak and his EU counterpart Ignacio Garcia Bercero were scheduled to meet in Delhi.

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