India signals duty cuts on wine, auto; EU keen on investment protection

India is trying to maintain its trade surplus with Europe
Despite India’s willingness to slash tariffs on wines and automobiles from the European Union (EU), the bloc remains firm that its concerns on investment protection will need to be addressed in any future bilateral deal.


After deciding not to join the proposed Regional Comprehensive Economic Partnership (RCEP), New Delhi has reached out to the EU to restart stalled talks on the Broad-based Trade and Investment Agreement (BTIA). But EU trade policymakers are in no mood to discuss the pact until India starts discussion on investment protection, a key concern for European firms in India, a senior EU diplomat said.


After being mooted in 2007, the BTIA saw 16 formal rounds of talks till 2013. But talks had hit a wall after India decided to terminate the existing bilateral investment treaties (BITs) with 23 European countries in 2016, he said. The EU had warned that the move would stop investment from its member countries, while asking India to keep individual agreements in force until a new pact was signed.


Investment protection supreme


However, the government has maintained that all future investment pacts will be negotiated under the framework of the model BIT issued by the government in 2015.


This was meant to form the basis for individual deal agreements to be negotiated with other nations. However, four years after unilaterally terminating investment pacts in 2016, only four BITs — with Bangladesh, Belarus, Colombia, and Taiwan — have materialised. Since the negotiations are not time-bound, there’s no deadline to conclude currently ongoing talks with 11 other nations, a senior official from the Department of Economic Affairs said.


Among EU nations, the Netherlands has historically been the fourth biggest source of foreign direct investments (FDI) for India, pegged at $29 billion since 2000. Germany, Cyprus and France figure in the list of top 10 FDI sending nations, apart from the Brexit-facing UK.


“The EU’s prime concern with the BIT is with the clause stipulating that if an investor-state dispute arises, a foreign investor can only seek the option of international arbitration when all domestic legal routes have been exhausted. While India feels this is required to keep control on litigation and reduce the chances of extremely high penalties from international tribunals, the EU calls the Indian legal system slow and corrupt,” a senior Delhi-based trade expert said.


Tariff hurdles remain


On the tariff front, EU officially continues to demand reduced import duties and wider market access for prime, high-value sectors like alcohol and automobiles. After maintaining a trade surplus over the bloc for long, exports to Europe fell below imports in 2018-19 after goods from the continent surged in, competing with their American counterparts.


“There had been a major push to restart the talks back in October 2017 during the 14th India-EU Summit in New Delhi. An offer by India to identify areas for tariff reduction was made then as well but no commitment on investment protection was made,” he added. Back then, European Commission president Jean-Claude Juncker, after meeting Prime Minister Narendra Modi, had said that any discussion on trade would only be held once the terms of engagement had changed.


However, New Delhi remains hopeful that its concessions, especially on alcohol, may sway the bloc. In October, the US administration had imposed 25 per cent duties on European whiskies and wines from France, Britain and Spain, among other nations. Now, it wants to double the tariffs. “The pressure on European winemakers is increasing and India has a robust, growing middle class with interest in European products,” a senior official said.

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