India-EU Relations – Issues and Way Ahead

The 15^th India-EU Summit, which was held virtually, saw very little progress in the boosting of the bilateral relationship. Previous summits, since 2000, have failed to address the differences between India and the European Union because, though they have had vast areas of discussions, they lacked political commitment from both sides. Notwithstanding numerous differences, the shared principles and economic potential can not only bringing change to the bilateral relationship but also the international order that is dominated by US-China tussle.

What is the European Union?

• The European Union (EU) is an economic and political union between 27 European countries.
• The EU’s predecessor is the then European Economic Community, created in 1958 to increase economic cooperation between 6 countries – Belgium, Germany, France, Italy, Luxembourg and the Netherlands.
• Since then, 22 more countries joined (and the UK left in 2020) the Union.
• The name change from European Economic Community to the European Union happened in 1993 to reflect the change from being purely an economic union to a broader alliance focusing on many other policy aspects like climate, health, external relations and security, justice and migration.

How did India’s relationship with the EU begin?

• The bilateral relationship between India and the EU dates back to the early 1960s, with India being one of the first countries to establish diplomatic relations with the European Economic Community.
• A cooperation agreement signed in 1994 took the India-EU relations beyond trade and economic cooperation.
• At the 5^th India-EU Summit in 2004, the relationship was upgraded to a ‘Strategic Partnership’.

What is India’s economic relationship with the EU?

• The EU is India’s largest trading partner, while India is the EU’s 9^th largest trading partner.
• The EU is the second-largest destination for Indian exports after the United States.
• The 27-nation EU, as a whole, was India’s largest trading partner in 2018.
• The bilateral trade in 2018-19 stood at $115.6 billion – exports were valued at $57.17 billion and imports at $58.42 billion.
• The EU’s share in foreign investment inflows to India has more than doubled from 8% to 18% in the last decade. This makes the EU an important foreign investor in India.
• The EU’s FDI stocks in India are significant.
• Around 6,000 European companies are present, providing directly 1.7 million jobs and indirectly 5 million jobs in India.
• Indian companies invested over €50 billion in Europe since the year 2000.
• India is benefiting from the unilateral preferential tariffs under the EU Generalised Scheme of Preferences (GSP), which links unilateral trade preferences with respect for human and labour rights.

What is the recent nuclear pact signed by India and the EU?

• Ahead of the 15^th India-EU Summit, both sides have finalised civil nuclear cooperation agreement after 13 years of negotiations.
• The agreement is between the European Atomic Energy Community (Euratom) and Indian authorities.
• It focuses on cooperation between the EU’s research programmes on new ways of using nuclear energy and similar activities on the Indian side.
• It would involve collaboration in the civil nuclear energy sector, including research and development aimed at the peaceful use of nuclear energy.
• The Euratom-India agreement was signed by both sides’ leaders during the 15^th India-EU Summit.

What are the highlights of the 15^th India-EU summit?

• The 15^th India-EU Summit was held virtually, with India being represented by Prime Minister Modi and the EU by Mr Charles Michel, President of the European Council and Ms Ursula von der Leyen, President of the European Commission.
• The leaders agreed to strengthen the EU-India Strategic Partnership based on shared principles and democratic values.
• They reiterated their support for multilateralism and a rules-based multilateral order with the UN and WTO at its core.
• They also decided to bolster cooperation at multilateral forums to reinforce international security and other aspects.
• Both sides will also enhance their partnership in support of sustainable modernisation by boosting cooperation to support the clean energy transition, resource efficiency and circular economy.
• The two sides agreed to explore concrete initiatives, including possible future comprehensive connectivity partnership between the EU and India and to seek synergies with third countries, including those in the Indo-Pacific region.
• As for addressing the coronavirus crisis, leaders agreed to further develop their trade and investment relations to make use of the opportunities during the crisis.
• They agreed to set up a regular High-Level Dialogue to enhance conditions of traders and investors.
• With regards to climate change, both sides welcomed the efforts under the Climate Energy and Climate Partnership and agreed to cooperate on its implementation.
• They agreed to launch a dialogue to reinforce maritime security, especially in the Indian Ocean, where 40% of the bilateral trade passes.
• Both sides agreed to enhance convergence between their regulatory frameworks to ensure high-level protection of personal data and privacy. They will upgrade their dialogue and cooperation on technology and engage in promoting global standards, safe and ethical deployment of 5G and artificial intelligence.
• India and EU launched negotiations on the working arrangement between Europol (law enforcement agency of the EU) and the CBI.
• The ‘EU-India Strategic Partnership: A Roadmap to 2025’ was adopted during the summit. This will guide the bilateral relations over the next 5 years.
• The leaders adopted a Joint Declaration on Resource Efficiency and Circular Economy and welcomed the upcoming renewal of the EU-India Science and Technology Agreement for another five years.
• The 16^th India-EU Summit will be reconvened in 2021.

What are the challenges faced by India-EU relations?

Political:

• The abrogation of article 370 and 35A and the passing of Citizenship Amendment Act (CAA), 2019 received considerable attention from the EU, with a large number of Members of European Parliament speaking out on possible human rights
• The formalised and concerted nature of the EU MEPs’ response reveals the high degree of focus the European Parliamentarians have rendered to these decisions.
• The issue of CAA was once again raised during the 15^th India-EU Summit.
• This deviates from the previous policy of non-interference in matters that are declared to be internal affairs.
• At the same time, the EU has remained silent when it comes to China’s blatant human rights violations in Xinjiang and Tibet. It did not even question the draconian National Security law in Hong Kong.
• Just recently, Germany has removed the flag of Taiwan from its official website, replacing it with a white triangle and stripping the democratic Republic of China of its identity in response to PRC’s objections.
• It is evident from the aforementioned issues that the EU is tilting support towards an opaque and totalitarian regime while opposing the transparent and democratic functioning according to rules-based global order.

Economic:

• India and EU launched negotiations on Broad-based Trade and Investment agreement in 2007.
• However, these negotiations were stalled in 2013.
• It remained elusive at the 15^th India-EU summit, with India just stating that there is no deadline for the free trade agreement, which is officially called the Bilateral Trade and Investment Agreement (BTIA).
• Though the bilateral trade has grown, it remains well below potential.
• Unlike with some other partners, India and the EU enjoy a balanced trade relationship with bilateral trade.
• Yet, over the years, new trade and investment issues have been added.
• The need for investment protection has been illustrated by the devastating impact of the COVID-19 on European countries and its subsequent disruption of supply chains and manufacturing, which potentially endangers Indian investments in Europe and vice versa.
• The lockdown consequences like the decline in production and exports and temporary suspension of projects have a direct impact on several partnerships.

China’s influence:

• European Union’s close ties with China are because of its high dependence on the Chinese market.
• Between 1995 and 2012, Germany, the EU’s economic powerhouse, enhanced its trade value by 37%, the largest portion of which came from supply chains in China.
• The EU Chamber of Commerce in China recently released its Business Confidence Survey 2020. The survey stated that most European businesses are chiefly “in China, for China”.
• These companies are hoping for Xi to make fundamental changes by utilising the coronavirus-crisis.

What can be the way ahead?

Technological cooperation

• Reducing dependence on Chinese technology is necessary for both sides as it is making them highly vulnerable to Chinese aggression.
• In this context, India and the EU can build strong domestic technological bases via talent exchanges, providing work permits for students and professionals, reciprocal market access for business, joint initiatives for research and innovation.
• The EU can make use of India’s ICT and manufacturing potential to enhance capacities for sourcing components and supporting technological development.
• Digital trade can be facilitated by adjusting the existing bilateral trade policy.
• This is especially vital now amid the on-going strategic technological competition between the US and China, which makes depending on global digital supply chain challenging.
• Both sides can look for ways to provide for technological safety protocols and privacy provisions for improved cybersecurity.
• They can jointly promote democratic principles through institutions like the Global Partnership on Artificial Intelligence and D-10 (G7 plus Australia, South Korea and India).
• Both sides can collaborate to develop common ethics and a set of principles that should fortify technological development and deployment.

Supply Chain:

• Europe should take cognisance of its supply chain’s vulnerability, the risk posed by overdependence on China, and the need to strengthen the global community of democracies.
• The EU needs to increase its power to attract Indian talent, which is mostly heading towards the UK. The UK is the biggest recipient of the Indian diaspora among the EU member states, hosting 65%, followed by Netherlands (8%) and Italy and Germany (both around 6%).
• Both sides can work on a mutually beneficial supply chain mechanism as it would create new synergies in terms of business and connectivity between India and the EU.

Climate Change:

• Multilateral cooperation is vital to address the issues of climate change.
• The Paris Agreement and EU-India Clean Energy and Climate Partnership would provide a foundation to further improve the bilateral ties.
• The partnership should include promotion and removal of risks of investments in renewable energy and green technology.
• The post-COVID-19 stimulus should focus on green infrastructure, joint research and development and business cooperation to ensure the green transition.
• Both sides can facilitate the creation of institutions that attract financing to sustainable growth, similar to the Green Growth Equity Fund by India and the UK.
• Long-term strategies must be developed to ensure emission reduction, adoption and building resilience.
• Industrial participation can be increased as, though India is a global leader in renewables, it still needs to decarbonise heavy industry and heavy-duty transport, where Europe has the experience and innovative technology.

Health:

• The on-going pandemic has shown the need for cooperation in global health.
• India and the EU have called for a reform of the World Health Organisation. This can be taken as a mutual interest in the global arena.
• Both sides must further discuss vaccine issues and future pharmaceutical production opportunities.
• Amid this pandemic, Europe’s high dependency on Asian countries for critical health goods was revealed.
• India too found its health sector’s limitations during this crisis.
• In this context, India can have improved access to European healthcare technologies and the EU countries can leverage the potential of India’s pharmaceutical sector.
• Therapeutics, disease management and preventive technologies can also be some of the areas of cooperation.

Economic relations:

• European countries have a general interest in remaining open for trade, as closing down economies due to fear of uncertainties does not bode well for economic growth.
• India is already a major partner for Europe in supplying medicine and research.
• The current trends predict that the Indian economy would be equal to the EU and the second largest in the world after China.
• Common interests in economic aspects can pave the way for more improved diplomatic relationship.

Free Trade Agreement:

• The stagnated FTA negotiations need to be addressed as soon as possible.
• A study from the European Parliament assessed that the potential impact of the EU-India trade agreement would provide between €8 billion and €8.5 billion because of increased trade from both sides. It noted that more significant gains are likely to flow to India.
• The study also refers to additional potential gains from enhanced coordination on the provision of global public goods like environmental standards.
• Taking this into consideration, both sides need to display political leadership to further negotiate trade aspects of the relationship.
• If the Bilateral Trade and Investment Agreement is not considered possible, then this infructuous exercise should be permanently suspended and more modest agreements should be salvaged in the areas of mutual interests.

Other than trade:

• The Broad-based Trade and Investment Agreement and the 30 other bilateral instruments of engagement have only resulted in an underperformed partnership.
• The partnership is held captive by the diminishing promise of a free trade agreement, with negotiations not succeeding in achieving unrealistic aspirations.
• The India-EU relationship should not be centred around the FTA, but more on whether India and EU countries can become part of “trusted” global supply chain networks.

New geostrategic outlook:

• There are about 6,000 EU companies investing in India. However, this is only half of that in China, whose economy is currently suffering because of the fall in demand and increased production.
• The EU should deal with India with new geopolitical interest.
• It can do more with connectivity agenda and provide support to infrastructure via low-cost financing.
• India, for its part, can provide incentives to attract more investments from European countries, especially in vital sectors like healthcare.

Strategic autonomy:

• Both sides are facing issues related to US-China trade war and uncertainty of the US’ policies.
• India and the European Union have a common interest in avoiding a bipolarised world and developing a rules-based order.
• India and the EU can make a difference in international politics by standing up to these issues through strong political alliance.

Multilateralism:

• Both sides can make use of existing multilateral forums like the UN and G20 to promote rules-based order that ensures inclusive growth.
• They can develop joint initiatives to reform the WHO and the WTO.

Strategic foresight:

• India and the EU can take efforts to improve their capacity to anticipate risks, crisis, challenges and opportunities that arise from global developments.
• For this purpose, they can set up a joint mechanism for common strategic foresight.
• Strategic foresight would also include sharing and assessment of potentially sensitive data. This necessitates the need for mutual trust.

Conclusion:

A close bilateral relation between India and the EU has far-reaching economic, political and strategic implications on the crisis-driven international order. Both sides should realise this potential and must further the growth of the bilateral ties with a strong political will.

Practice question for mains:

India-EU relations have the potential to impact the current crisis-driven bipolar world. Elucidate. (250 words)