- 1 -

European Economic and Social Committee

REX
Report
for the
12th EU-India Round Table
on
Trade and investment

______
EESC Rapporteur: Mr Jan Simons
______

- 1 -

Trade and Investment

Monitoring the EU-India Free Trade Agreement

1.Introduction

In its joint recommendations, the 11th India-EU Round Table:

welcomed the launching of the negotiations of the Free Trade Agreement between the EU and India, which aims to achieve the highest possible degree of trade liberalisation, including a far- reaching liberalisation of goods, services and investment, whilst also tackling issues related to rules and their implementation;

stressed the potential of EU-India trade based on the complementarity of their economies;

requested elements of sustainable development to be incorporated in the trade discussions;

urged the EU and the Indian government to fully involve their respective civil societies in the monitoring of the trade negotiations. In this context, the Round Table should play an essential role as a forum for civil society exchanges of views and input.

2.Background

During the September 2005 Joint Summit, the EU and India adopted a joint Action Plan and agreed to take positive steps to further increase bilateral trade and economic cooperation and to tackle barriers to trade and investment.

A High Level Trade Group (HLTG) was set up to study and explore ways and means to deepen and widen bilateral trade and investment relationship. It reported to the next Summit (2006) in recommending that an expanded trade partnership be developed through the negotiation of a broad-based trade and investment agreement.

The Council adopted a negotiating Directive for a Free Trade Agreement (FTA) with India on 23April 2007 (together with negotiating Directives for an EU-ASEAN and an EU-Korea FTA). Negotiations for the EU-India FTA were launched in June 2007.

The EU-India Round Table welcomes the Commission's aim to ensure a greater level of monitoring and transparency in the negotiations and to develop the involvement of civil society in Europe and in India.

To improve market access and ensure non-discrimination, priority should be given to the WTO's multilateral approach.Bilateral agreements must not only be compatible with but also strengthen multilateralism and bring a qualitative change in the approach, the bilateral approach allowing more respect to regional and national differences for "it ensures the dialogue can be more fully and directly addressed with due respect to differences in development".

Given the critical importance of EU-India economic relations and without prejudice to a Doha Development Agenda (DDA) Agreement as soon as feasible, negotiations towards an EU-India Free Trade Agreement (FTA), must be part of a coherent strategy so as to restore visibility and coherence topolicies on trade, external relations and development aid.

The trade agreement should address the real trade and investment barriers. It should be comprehensive by:

ensuring broad and deep liberalisation of trade in goods and services;

improvingbusiness conditions in investment;

protecting intellectual property rights;

tackling regulatory cooperation and non-tariff barriers;

dealing with trade facilitation;

including disciplines on government procurement, infrastructure and energy;

ensuring the impact is compatible withsustainable development.

3.Trade and investment barriers

3.1Trade in goods

Indian tariffs

Improvements in market access have the greatest value over the long term when they are bound in WTO commitments. Tariff levels in industrial sectors can constitute tariff walls that entirely prevent market access for exports or the tariff structure includes numerous exemptions and a general lack of transparency. In addition, there could also be a number of discriminatory taxes, and very high additional duties for some sectors.

The objectivemust be to achieve elimination of duties on at least 90% of tariff lines and trade volume within sevenyears of the entry into force of the agreement.

Non-tariff barriers (NTBs)

Non-tariff barriers (NTBs) are a major barrier too. NTBs result principally from the administrative burden and the number of procedures and authorisations.

In particular, companies have to face obstacles such as extensive marking, labelling and certification requirements, export taxes, a complex excise tax structure, import prohibitions and restrictions, and complex and inefficient customs procedures.

To tackle these issues, the EU and India should work more closely in their different sectoral working groups towards enhancing a more transparent framework for technical regulations and standards, and using global harmonised standards. An efficient NTB mediation mechanism, analogous to that proposed by the EU and India in the WTO DDA negotiations could be instrumental in this respect.

A reduction of trade barriers can bring progressive improvements in trading conditions with the objective of promoting growth, employment and sustainable development (HLTG conclusion).

3.2Trade in services

Services account for a large share of economic growth.Entry and capital conditions for service providers are no longer required to berestrictive, but the markets should be further opened to service providers on a non-discriminatory basis.

Retail trading is not closed for foreign direct investment eitherbut key sectors such as banking,insurance and foreign shareholdings in and operations of express service providers are still restricted.

Both India and the EU consider that any agreement should build upon the outcome of the Doha Development Agenda (DDA). Both parties recognise the sensitivities of certain service sectors. The granting of more open access to individual Member States for qualified professionals will be particularly challenging. Civil society will want to monitor developments, and implementation, in this area of trade in services and in all other areas very closely.

3.3Trade facilitation and foreign direct investment

Trade facilitation is an important issue for the FTA, as are promotion of transparency, simplification of trade procedures, and modernisation of customs.Negotiations in the DDA on trade facilitation have been making good progress; EU and India have thus decided to develop provisions on trade facilitation as a complement to a future DDA Agreement.

Foreign Direct Investment (FDI) currently amounts to a fraction of what it could be. Important sectors still remain restricted for FDI - such as telecommunications, insurance, banking, aviation - or are banned as in retail distribution and legal services. Restrictions also prevail in the building of urban complexes.

For other sectors which are not subject to approval procedures, there are still restrictions on the free flow of investment and technology through internal policy guidelines.

A streamlined, less bureaucratic approach to dealing with business and investment would undoubtedly bring benefits in terms of more investment and faster economic development. Bureaucratic hurdles, such asthe inability to carry out an internal clearing of accounts are detrimental to the efficient allocation of capital across borders.

The setting-up of a business requiresmore transparency and harmonisation of trade and investment rules, especially forsmall and medium enterprises (SMEs).

Foreign companies involved in joint ventures are subject to obtaining government approval before setting up new ventures in the same or similar fields.This might lead to delays or compensation claims, or even frustrate the whole investment. Trade facilitation and foreign direct investment should be further pursued.

3.4Public/government procurement markets

Government procurement markets offer significant potential for both sides.

The High Level Trade Group "agreed that a pragmatic approach should be followed for addressing government procurement. This approach shall interalia include better understanding of each party's procurement practices, examine measures to enhance transparency, as well as examine ways to possible improvements in market access opportunities".

3.5Intellectual property rights

Effective intellectual property rights protection is a major stimulus to market accessand to highlevel of FDI inflows. Legislation is largely in line with TRIPS. Although welcome, there are still some important issues which are of significant concern. These include inappropriate conditions for the patentability of some types of inventions and the existence of a pre-grant opposition procedure. Furthermore, the way the law isimplemented by the Patent Offices and courts will, to a significant extent, determine whether it affords protection to innovators in practice. Further development of institutions in the IP field has to be promoted.

Additionally, introducing an appropriate provision to provide regulatory data protection in line with international standards would act as an incentive for both European and Indian companies to invest in the country's enormous potential as a collaborative R&D partner.

The EU-India Round Table recommends that account be taken in the negotiations of the Heiligendamm process, launched in June 2007 between the G8 and the five leading emerging countries to create a structured dialogue on promoting innovation and protecting intellectual property rights for civil society.

The situation regarding counterfeitingshould be analysed. The EU-India Round Table urges that measures to protect consumers from the risks associated with counterfeiting be discussed and recommends that a joint EU-India Committee on Counterfeiting should be set up.

3.6Infrastructure

Good infrastructure is a prerequisitefor the appropriate conduct of many business operations.A gap could undermine economic growth. There is a need for serious investment in all sectors of infrastructure.

Companies which have extensive experience in this sector are committed to helpingto improve the infrastructure, through increased investment, capacity and expertise. To achieve that aim, further efforts are needed by:

enacting transparent and consistent lawswhich guarantee a solid legal framework, notably for public-private partnerships (PPP) and long-term contracts;

removing barriers to foreign investment;

supporting privatisation;

promoting public-private partnerships (PPP).

3.7Energy

A chronic shortfall in power supply affectscompanies whichare therefore often forced to set up captive power generation capacity to counteract power failures or fluctuations. Promoting the development of power generation and further independence to state electricity boards can help.

The energy sector offers great potential, particularly on clean energy sources, where companies have large experience. Moreover, the investment regime needs to be streamlined and further liberalised, and PPPs promoted.

In the international tender process, foreign bidders are at a disadvantage vis-à-vis domestic manufacturers due to certain clauses, such as the Mega Project Clause, which should be withdrawn. More transparent tender submission procedures are also requested.

3.8Sustainable development

The EU-India Round Table welcomes the inclusion of a sustainable development chapter in the FTA negotiatingmandate, taking into account major global issues at economic social and environmental level such as climate change, the Millennium Development Goals (MDGs), poverty reduction, gender equality, decent work and health standards.

The EU-India Round Table believes that decent work, as defined by the ILO and recognised internationally by employers, states and workers, must become a priority benchmark in trade at regional and global level. Further, the Round Tablerecommends that parties take account of ILO regional-level interventions in assessing the impact of trade integration on decent employment and that the principle of sustainable management of natural resources and the environment are to be applied in accordance with due regard to the respective level of development of the parties.

If necessary, the FTA should be backed up by substantial financial assistance in order to catch up with international standards as regards the sustainable development chapter.

3.9Monitoring the EU-India Free Trade Agreement

Since June 2007, three rounds of negotiation have taken place so far where all areas were discussed. As of the end of June 2008, the negotiations are still at an early stage but have encountered some difficulties relating to the coverage of liberalisation, the inclusion of procurement and the level of ambition for the services and investment chapter.The next round is expectedto take place before the summer break.

4.Draft conclusions to be discussed during the 12th EU-India Round Table

4.1The trade agreement should address the real trade and investment barriers, ensuring the impact is compatible with sustainable development.

4.2The objective must be to achieve elimination of duties on at least 90% of tariff lines and trade volume within seven years of the entry into force of the agreement.

4.3To tackle the non-tariff barriers issues, the EU and India should work more closely in their different sectoral working groups towards enhancing a more transparent framework for technical regulations and standards, and using global harmonised standards.

4.4Civil society will want to monitor developments, and implementation, in the area of trade in services and all other areas very closely.

4.5Trade facilitation and foreign direct investment should be further pursued.

4.6Government procurement markets offer significant potential for both sides; a pragmatic approach should be followed.

4.7The EU-India Round Table recommends that account be taken in the negotiations of the Heiligendamm process, launched in June 2007 between the G8 and the five leading emerging countries to create a structured dialogue on promoting innovation and protecting intellectual property rights for civil society.

4.8The EU-India Round Table urges thatmeasures to protect consumers from the risks associated with counterfeiting be discussed and recommends that a joint EU-India Committee on Counterfeiting should be set up.

4.9For improving infrastructure by increased investment, capacity and expertise, efforts are needed to enact transparent and consistent public-private partnerships and long-term laws, guaranteeing a solid legal framework.

4.10The investment regime in energy and power generation sector needs to be streamlined and further liberalised, and PPPs promoted. More transparent tender submission procedures are also requested.

4.11The EU-India Round Table welcomes the inclusion of a sustainable development chapter in the FTA negotiating mandate, taking into account major global issues at economic social and environmental level such as climate change, the Millennium Development Goals (MDGs), poverty reduction, gender equality, decent work and health standards.

4.12The EU-India Round Table believes that decent work, as defined by the ILO and recognised internationally by employers, states and workers, must become a priority benchmark in trade at regional and global level.

4.13The EU-India Round Table recommends that parties take account of ILO regional-level interventions in assessing the impact of trade integration on decent employment and that the principle of sustainable management of natural resources and the environment are to be applied in accordance with due regard to the respective level of development of the parties.

5.Further proposals for the Round Table

5.1Keep the subject of trade and investment and the monitoring of the Free Trade Agreement negotiations on the agenda of the Round Table as a permanent item until the agreement is concluded.

5.2Organise a special workshop in India in the context of the Round Table on Trade and Investment with a range of stakeholders of various sectors.

5.3Have an input, as a Civil Society Round Table, in the Trade Sustainability Impact Assessment (SIA) of the EU-India Free Trade Agreement organised by the European Commission's DG TRADE.

5.4Use the expertise and network of the Round Table to facilitate a structured consultation of civil society in India in the framework of the DG Trade Civil Society Dialogue.

______