Trade talk: Blair and Singh know there's plenty to reap on the agriculture and services front

Prime minister Manmohan Singh had planned to showcase Shimla, the summer capital of the British Raj, to his British counterpart during his recent visit to India. However, bad weather intervened, forcing a change in the venue of a luncheon meeting between the leaders to the gold-domed Udai Vilas Resort in Udaipur, some 660 kilometres from Delhi. Nevertheless, it afforded British Prime Minister and European Union President Tony Blair a chance to get a feel of the real India-teeming crowds along the dusty road from the airport to the resort and, hold your breath, a herd of cows that almost brought his motorcade to a halt. It was very different from the high-profile meetings, photo-calls and diplomatic negotiations that were otherwise the feature of his three-day trip.

But away from the arc lights and the public bonhomie, the trip was all about hard-nosed negotiations and business. It had to be: Blair landed in Delhi on September 6 with a delegation packed tight with 50 of the world's leading businessmen-his party included the CEOs of British Telecom, bat, Barclays and Glaxo SmithKline-Beecham. And all of them delivered the same message at the Sixth India-EU Business Summit on September 7: it is in India's interest to further open up its economy as this alone will result in more trade and greater investment flows between the European Union and India. EU Trade Commissioner Peter Mandelson, a member of Blair's delegation, says: "India can increase the per capita productivity and income of her rising population only from the stimulus of economic openness." Adds Alan Johnson, Secretary of State for Trade and Industry, UK, another of Blair's co-passengers: "India-EU trade has to be a two-way street. While we benefit from Indian onshore and offshore service providers, Europe also has much to offer in retail, in accountancy, in advice on European company law and in insurance."

Every delegate was obviously reading from the same script. Martin Harman, Chairman of UK law firm Pincent Mason, feels allowing foreign lawyers to practice in India is crucial to attracting foreign direct investments as "this will allow foreign companies to deal with their trusted advisors (read: foreign lawyers) in India." Sanjiv Ahuja, CEO of telecom giant Orange, and David Wright, Vice Chairman of Barclays Capital, say more of the same about telecom and financial services, respectively.

It's natural for these CEOs to pitch for a larger slice of the Indian market. With a 220-million-strong middle class and an economy that's running on a mild dose of steroids, India does present huge untapped opportunities for EU companies. Though the big picture-India-EU trade volumes touched $35.37 billion (Rs 1,55,628 crore) in 2004-05 and is growing at 20 per cent per annum-looks impressive, the fine print shows that this is just scratching the surface. EU accounts for 20 per cent of India's global trade, but India accounts for only about 1.5 per cent of EU's total. Clearly, there's a massive upside potential.

The EU delegation had the prescription ready: open up retail, accountancy, insurance, agriculture and financial and legal services for greater trading opportunities and larger investment flows.

But to India's officialdom, this talk of "globalisation in action"' and "walking the talk"' rings hollow. Only a day before landing in India, Mandelson, otherwise a staunch supporter of free trade, brokered conciliatory a deal with China, limiting Chinese textile exports to EU. And earlier this year, under Blair's presidency, the EU placed limits on the import of Chinese textiles, despite agreeing, more than 10 years ago, to lift such restrictions by January 2005. The upshot: more than 80 million pieces of Made in China garments ordered by European retailers were blocked by EU customs.

Kamal Nath: Seeking reciprocity

There are plenty of India-specific examples, too. Says Union Commerce & Industry Minister Kamal Nath: "Indian trade and industry circles feel that the action we have taken in liberalising procedures and opening up our markets for global trade and industry have not been reciprocated by the developed world." He points to the disproportionately large number of Indian textile, electronics, chemical, pharmaceutical, herbal remedy and steel products that face non-tariff barriers in the 25-nation strong EU market. "And that's not counting the huge subsidies that the EU and the us give to their farmers. These make Indian farm produce uncompetitive in the global market and act as a barrier to free international trade," he adds.

Despite these bilateral asymmetries, which the EU has promised to address, European leaders are keen to have India (as one of the leaders of the G-20) on their side at the WTO round in Hong Kong, if only to take on the might of the US. The developed countries can't afford another failure such as those in Seattle and Cancun, because they have been the major beneficiaries of the multilateral trading system. Says Mandelson: "Our interests do not entirely overlap in this round, but we are united in our desire to make the implementation of the Doha negotiations a success in Hong Kong." The EU's promises on reducing agricultural subsidies and allowing the free movement of professionals-sweeteners designed to woo India-however, do not cut much ice with analysts like Nagesh Kumar, Director General, Research & Information System of Developing Countries, a government think tank. "We agreed to sign the Trade-Related Intellectual Property Rights (trips), Agreement on the Trade Related Investment Measures (trims) and the General Agreement on Tariffs and Trade (GATT) in 1996 because we were given assurances that distortions in agricultural trade would be removed and Mode IV (free movement of professionals) opened up. But EU has not delivered on any of these promises," he says, adding: "Without specific deadlines, such promises are meaningless."

INTERVIEW/ PETER MANDELSON "We Will Eliminate Export Subsidies"

The 52-year European Union (EU) Trade Commissioner Peter Mandelson was in India on a three-day visit with the EU delegation. He met up with BT's Ashish Gupta to discuss the role of the G-20, agricultural subsidies and how India can help make the next WTO meet a success. Excerpts: How do you see the emerging G-20 and India's role in it? I believe the G-20 is essential for making the Hong Kong Round a success. (Indian) Commerce Minister Kamal Nath has been building bridges between different interest groups and countries. India should seize the leadership of the Round in a way that accords with its own legitimate national interests. In which areas can India and EU work together? We can work together in agriculture, services and manufacturing to bring negotiations to a point of agreement. We recognise India's compulsions in agriculture. We, too, have certain compulsions and, therefore, need to accommodate each other's interest. We also have a shared interest in wanting to liberalise trade in services. We understand India's constraints with regard to the manufacturing sector, but we will still encourage India to take decisive steps towards liberalising it. Agriculture is the biggest stumbling block. How do you plan to avoid a repeat of the Cancun fiasco (when the developing countries walked out of the talks over farm subsidies in the EU and the US)? Our position on agriculture has changed dramatically since then. We have promised to eliminate export subsidies as well as other subsidies over time. We also endorse the G-20's framework (which calls for developed countries to slash their subsidies at a higher rate than developing countries) for agricultural negotiations. You have spoken of "fair reciprocity"' from the Indian side? What do you mean by that sentence? It is not in India's interest to remain a partially-closed economy. If India wants greater access for its goods in the European markets, it must open up its markets more. For example, India is not sufficiently open for textile imports. What kind of tariff reduction are you seeking for industrial goods? I am not going to negotiate through the media. But, the Indian government is aware of our expectations. What about visa restrictions? Different EU countries seem to have taken different positions on this? There is a certain amount of nervousness about foreigners in Europe after the 9/11 bombings. But I will continue to strongly advocate the legitimate and genuine needs of Indian professionals. Indian industry is upset about non-tariff barriers, especially the EU REACH programme. Your comments. These standards are not aimed at India alone. What we have to ensure is that sanitary and phytosanitary standards are not used against any single country. How optimistic are you about the success of the Hong Kong talks? I am a politician and, therefore, by definition an optimist.

But India and the EU do have a common agenda on some issues. Both are against any further opening up of the global agricultural trade, albeit for completely different reasons. India wants to protect its small and marginal farmers, while the EU wants to shield its heavily subsidised and politically important farm lobby.

Secondly, both the EU and India realise that they will benefit from a further opening up of the services sector. For India, it will mean easier travel for its professionals (Mode IV), opening up of the health sector to its service providers and recognition of its educational degrees in the developed world. And any forward movement on services will allow the EU to gain a foothold in retail, legal and banking and financial services in India and other closed (or partially open) markets. The Indian government will decide on its course of action shortly.

Despite a few very obvious differences in perspective, the Sixth EU-India Business Summit did result in some very tangible gains for both sides. Singh and Blair signed an agreement to increase the 84 direct passenger flights between Britain and India by a factor of three. Deals were also signed to boost cooperation between the film and oil industries of the two countries, protect intellectual property rights and boost training and education on patent enforcement. But, the biggest success perhaps was the Joint Action Plan for India-EU Strategic Partnership. As part of this partnership, India and EU have agreed to set up a high-level group to study contentious issues-intellectual property rights, anti-dumping issues and non-tariff barriers-that have soured relations in the past. This, hopefully, will be the starting point of a more meaningful and equal partnership.

-additional reporting by Kumarkaushalam and Supriya Shrinate