India and the EU may need to sort out a major difference in interpretation of the contours of the proposed Free Trade Agreement (FTA) before negotiations can move forward in full earnestness.

The Commerce Ministry is planning to write to the EU to clarify that the discussions on bilateral investment protection agreement (BIPA) and the trade agreement had to necessarily be concluded together and cannot be independent of each other as the joint statement of the India-EU Summit may have indicated, a source told BusinessLine .

“In the discussions leading up to the India-EU Summit, Indian officials had maintained that the BIPA may be negotiated on a different track but it cannot be independent of the trade agreement. The EU was pressing for the two agreements to be independent of each other but India had not consented,” the source pointed out.

However, on May 8, at the virtual India-EU Leaders’ Meeting, when the two sides agreed to re-launch negotiations on an FTA that had been suspended since 2013, the joint statement appeared to reflect the EU’s views on the investment pact.

“We agreed to resume negotiations for a balanced, ambitious, comprehensive and mutually beneficial trade agreement which would respond to the current challenges….We also agreed to the launch of negotiations on a stand-alone investment protection agreement,” the statement noted.

Investment protection

The words ‘stand-alone’ used to describe the investment protection agreement is what has made Indian officials uneasy as it indicates that the investment pact would be independent. “If the trade pact gets delayed and the investment agreement is on track then the statement gives scope for it to be concluded independently,” the source said.

India may not find this favourable as the bigger idea behind the linkage is to keep the momentum for the trade pact going by putting at stake an investment pact that the EU members are keen on, the source added. Indian officials will, therefore, take up the matter with the EU and ask for a clarification.

Since India terminated all bilateral investment treaties with partner countries, including individual EU countries, in 2017, the EU is eager to put in place a bilateral investment protection agreement between India and all EU member countries as early as possible.

Contentious issues

The EU and India have several contentious issues to iron out in the trade agreement such as India’s market access barriers on automobile and parts, wines & spirits and financial services and retail, and greater access for Indian workers in the EU, and this may take a lot of time. “The EU would want to keep the negotiations on the investment treaty separate and it would take a lot of persuasion on India’s part to make it agree to a common conclusion date,” the source said.

The EU is the second largest export destination for India, after the US, with exports in April-March 2019-20 at $45 billion accounting for 14.36 per cent of the country’s total exports. Imports from the bloc into India were at par with exports at $45 billion during the fiscal, making up 9.5 per cent of India’s total imports.

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