Countries Rush to Fast-Track FTAs with India after Elections

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DELHI – As pro-business leader Narendra Modi settles into office, the European Union, Israel, Canada and Peru, among others, are rushing to expedite free trade agreement (FTA) negotiations with India’s new government.

“Negotiators from India and [the] European Union are on the job to conclude the FTA. The proposed agreement will lead to greater openness. In the past, EU held discussions with the BJP on the FTA. We take Mr. Modi’s speech on economic issues on February 27 as a positive. I have no doubt that the FTA will benefit India. We hope that there will be progress in [the] FTA before the next India-EU Summit at Brussels,” said João Cravinho, Ambassador of the European Union to India.

EU negotiations over an FTA with India were initially launched in 2007, and reached a critical phase in 2012, with focal issues including improved market access for goods and services, a chapter on government procurement and retrospective taxation. An upcoming bilateral meeting on June 26 is expected to clear up most outstanding issues, including intellectual property rights protection.

Previously, the EU ‘disengaged’ itself from broad-based Bilateral Trade and Investment Agreement (BTIA) talks for over six months when the UPA government was unable to meet EU negotiators’ demands. These included eliminating or drastically reducing duties on vehicles, vehicle components, wine and spirits.

“We want India to do well. This election has ensured that there’s political stability for the next five years. A decisive leadership would mean tougher decisions, and no good governance is possible without tough decisions. The BJP-led NDA has a clear mandate to take bold and innovative decisions. International politics is not about [a] zero-sum game and while India would economically engage other powers, EU has the potential to drive growth in India. EU is already the single biggest trading partner as a bloc, and is the single largest source of FDI for India as a bloc. We are ready to meet India’s needs in the fields of technology and funds,” Cravinho added.

Also in the works is an FTA between Israel and India that has been under negotiation for more than three years. According to Israel’s Ambassador to India, Alon Ushpiz, negotiations are likely to conclude sometime early next year, and significant steps will be taken soon to iron out the legal framework for the deal.

“We are planning to sign an FTA next year to accelerate trade ties with India for the greater benefit of both societies. The negotiations are going in the right direction,” Ushpiz said.

In recent years, Israeli trade with India has exploded from US$180 million in 1992 to around US$5 billion last year. “We can go way beyond,” Ushpiz explained when speaking about the potential for an Israel-India FTA to increase cross-border cooperation in agriculture, technology and research and development.

“[The] FTA will bring intensity in the relationship of businessmen and it will bring in more trade escalation. Since India and Israel are competent in technology, our cooperation will bring in development. We are finding a shift in our trade composition with high-tech becoming 70 percent of the total volume. We need to have a legal framework so that our trade will reach five billion to 10 billion in a couple of years,” he added.

In the Americas, both Canada and Peru are taking their own steps to move ahead with FTA negotiations with India.

Shortly after Narendra Modi’s swearing-in ceremony, Canadian Foreign Minister John Baird called Modi to discuss finalizing ongoing FTA negotiations, and was invited by India’s External Affairs Minister Sushma Swaraj to attend the upcoming India-Canada strategic dialogue to close the deal this year.

“Both sides evinced interest in taking the Comprehensive Economic Partnership Negotiations Agreement (CEPA) forward,” an official statement said late last month.

Launched in November 2010, CEPA negotiations will seek to boost bilateral trade and investment between India and Canada by opening up both countries’ services sectors, facilitating investment proposals and eliminating duties in several key products. Bilateral trade between the two countries reached US$4.83 billion last year, and key imports and exports included organic chemicals, precious stones, metals, apparel, vegetables, machinery, iron and steel.

“We will be keen on ascertaining areas of interest and work out strategies to promote Canadian investments in India,” Indian Commerce and Industry Minister Nirmala Sitharaman said.

Peru is also eager to boost its own bilateral trade with India from US$1.5 billion last year to US$2 billion by approving an FTA with India sometime in the next two to three years.

“We will conduct a joint study in July-August 2014 on current activity and [the] potential to grow, then we will take this FTA up,” Peru’s Ambassador to India, Javier Paulinich, said.

Key products traded between the two countries currently consist of automobiles, information technology, pharmaceuticals, gold, ore and copper.

“Trade with India is growing at 25 percent year-on-year without [an] FTA. With the expected trade agreement, we could soar to 60-70 percent. By the end of 2015 we expect bilateral trade to reach US$2 billion,” Paulinich predicted.

A renewed push for FTAs with India doesn’t come without controversy, however. In budget consultations earlier this week, Indian finance minister Arun Jaitley said the signing of FTAs with Japan, South Korea and ASEAN has led to domestic goods being less competitive in the Indian market. With Indian manufacturing sector growth contacting by 0.7 percent in 2013-2014, for the first time since 1991-1992, the Indian government will likely carefully weigh the pros and cons of prospective FTAs before ultimate ratification.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

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