London Eye: EU turning from China, not turning to India yet

The EU-China summit in Leipzig this week produced as little by way of an outcome as it was expected to. To the extent it didn’t, it spoke of a continuing cooling between the two that could hurt Chinese interests and ambitions in Europe. There lies a glimmer of hope in upping India’s business with the EU.

On the face of it, this EU distancing from China should show India up as an alternative with growing promise as a billion-plus market. And as a manufacturing partner with EU firms looking to sharpen a competitive edge.

“There is a lot of optimism within the EU about trying to do more business with India, engage more with India, it’s a power that the EU looks to as a potentially bigger and better partner on the world stage,” Raffaello Pantucci from the Royal United Services Institute (RUSI) tells CNBC-TV18. “But there have been many complicating factors in that economic relationship, and we shouldn’t kid ourselves that those are going to get any easier over time.”

The means for resolving those complicating factors have been principally negotiations over a free trade agreement, the India-EU Broad-based Trade and Investment Agreement (BTIA), that has pointedly been going nowhere for a long time. Talks began in 2007 and were suspended six years later after no progress to speak of.

A resolve to renew those talks within wider cooperation was firmed up following an India-EU summit in July this year. A five-year plan was announced over which to remove trade irritants and to build trade and business. The EU is already India’s biggest trading partner, but this is still a fraction of what the EU trades with China, and both sides agree it’s a fraction of what could be with India. New talks to take trade forward were scheduled to start soon.

Years of negotiations have shown what there is to talk about, but show just how difficult it is to find agreement. “The frictions we are seeing at the trade level are very deep-seated and wide,” says Pantucci. “We are seeing a very, very slow burn in terms of the India-EU relationship mature.”

The EU would like India to cut tariffs on cars, wines and dairy products imported from the EU. India is not playing ball the European way. It’s concerned that reduction of its high duties on cars would hurt its own domestic production, and inhibit its Make in India policy. India has long contended that the import of dairy products from the EU would hurt its own production and prices.

Going the other way Indian agricultural exports have at times run into serious regulatory trouble, as with Alphonso mangoes banned temporarily by the EU in 2014 over the alleged presence of “non-European fruit flies”. Duty on alcohol is a strong source of revenue, and states have strongly resisted any moves that would reduce it.

The EU has been keen also on Indian regulation of pharmaceuticals more in line with its expectations. It has in the past banned hundreds of Indian pharma products over its concerns over clinical trials in India. It has sought more opening in India for its own pharma goods that India says could choke its production of generic drugs. The EU did, however, welcome considerable export of Indian drugs such as paracetamol through the COVID-19 crisis.

In services the EU wants India to let in its insurance and legal services businesses. And it is looking for reforms in India’s Intellectual Property Rights (IPR) practices before it can in turn allow more Indian services and professionals. Differences have remained over several other issues such as the Indian demand for easier visas for its services professionals on the back of which it could sell more services to the EU.

These differences, and more, are being reviewed now at a time of fast-changing perceptions about China across Europe. “What’s notable with the China relationship is how much the rhetoric has changed; we see consistently now across meetings, across documents, that the EU has been willing to draw a hardline on China.” But that does not necessarily mean a corresponding EU swing towards India, even if it does point to new opportunities and the good sense of making a renewed push.

The promised five-year plan to restart trade talks and to reinvigorate a more wide-ranging relationship with the EU hasn’t quite taken off yet following the July summit. The difficulties remain enormous, but there has never been a better time to have a crack at them.

—London Eye is a weekly column by CNBC-TV18’s Sanjay Suri, which gives a peek at business-as-unusual from London and around.