India and Europe draw closer as economic and political ties blur

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BANGKOK – The leaders of the group of seven leading industrial nations closed their face-to-face meetings in the UK on June 13th after showing the world a united front against China.

The summit was also expanded to include leaders in four other democracies – Australia, South Korea, South Africa and India – as guests.

For Indian Prime Minister Narendra Modi, who attended online because of the COVID crisis in his country, his G-7 appearance was his second meeting with the leaders of Great Britain, Germany, France and Italy in almost a month.

India and Europe are moving closer together. Indeed, Britain and the European Union are competing for closer ties with India.

On May 4th, UK Prime Minister Boris Johnson held an online conference with Modi. Although Johnson had planned to visit India in January on his first overseas trip after the UK left the EU, the plan was postponed until April due to an increase in COVID-19 infections in his country. In April, the worsening situation in India resulted in Johnson’s second postponement of the trip.

The UK hosted the G-7 summit in Carbis Bay, Cornwall on June 13th. India participated online as a guest. © Reuters

On May 8, the EU then hosted an online summit with India. Unusually, all the heads of state or government of the 27 nations attended the meeting, while in the past such meetings were only chaired by the President of the European Council and the President of the European Commission.

The UK and the EU have separately agreed to start negotiations on free trade agreements with India. In 2007, nine years before Britain voted to leave the EU, the bloc began negotiations on a free trade agreement with India, but made no significant progress despite 16 meetings. The talks were finally broken off in 2013.

It is no surprise that talks have resumed on all sides. The trading figures speak for themselves. The EU was India’s third largest trading partner in 2020, absorbing 11.2% of the South Asian country’s exports and imports, after China’s 12.1% and 11.8% for the US, the European bloc.

India has trade surpluses with the US, EU and UK only with its 15 largest trading partners, underscoring the importance of these relations with Delhi.

India has not signed any other such agreements since the free trade agreement with Japan entered into force in 2011. But after India withdrew from the agreement on a comprehensive regional economic partnership in the final phase of negotiations in November 2019, it has become more important for the country to forge closer trade relations with other partners.

India turned its back on the RCEP at the last moment to avoid a further surge in imports from China. Trade and Industry Minister Piyush Goyal said at the time that Delhi should resume FTA talks with the EU.

On the other side of the coin, the EU and the UK have trade deficits with India, which is only a small part of their total trade. For the EU, in which 60% of trade is carried out within the EU, India is the eleventh largest trading partner with a share of only 0.7%. For Great Britain India is the twelfth largest trading partner with a share of 1.1%.

Given these numbers, India is hardly a high priority FTA partner for the EU and the UK despite the economic potential of its huge 1.3 billion people.

However, in large part due to the impact of Brexit, Europe and the UK are looking to sign a free trade agreement with India. Since leaving the EU, Britain has reached its former colonies of Australia and Singapore and is particularly keen to take India with it due to its large economy.

The EU cannot afford to overlook such moves by Britain, which has become a competitor to the bloc. In this sense, the UK is ahead of the EU, as the successive summits with India symbolize.

The emergence of room for compromise on the issue that has overturned the EU-India negotiations in the past is an important factor in recent developments.

Negotiations stalled in 2013 because India refused to cut tariffs on products such as auto parts, wines and spirits, while the EU was reluctant to open markets to export services and human resources that India is good at, such as the development of software, the acceptance of outsourcing contracts and medical services.

Britain led these negotiations with India. While the UK was nervous about a sharp surge in migrant workers and job outflows, factors that had contributed to the Brexit vote were also aware that as a former colonial ruler and English-speaking country, it would be hit harder than any other country in the bloc by opening up the market for services.

Brexit has lowered the hurdle for the EU. Britain under the Johnson administration is also approaching India “from the point of view of securing labor,” said Yosuke Tsuchida, deputy research director at Mitsubishi UFJ Research and Consulting. Paradoxically, Britain is now turning to India for labor and talent as it has lost workforce from Central and Eastern Europe.

But a more important variable is China, the EU’s largest trading partner outside the bloc and Britain’s third largest trading partner, the EU and the US

While India may become an important export market, the feeling of crisis in Europe has grown due to its reliance on China for imports of medical and other relief supplies amid the COVID-19 pandemic. Europe now hopes India can be its alternative source.

Before the Hindu festival of lights Diwali in Ahmedabad, India on November 10, 2020, people crowd in a market. The 1.3 billion people in India offer economic potential. © Reuters

In that regard, Europe may not get what it wants because India has become more protectionist under the Modi government, making it extremely difficult for the bloc to gain concessions. Still, it’s important for Europe to try to keep China in check through warmer ties with India.

“The benefits of trade negotiations are not limited to economic ones,” said Seiya Sukegawa, a professor at Kokushikan University. “The regular repetition of talks deepens relations. While India is in an advantageous position solely with regard to a free trade agreement, Europe can benefit greatly in the area of ​​geopolitical diplomacy and security.”

International society has always operated under a policy of “cold political but hot economic relations”. This has worked in many bilateral relationships in the past, particularly between Japan and China and Japan and South Korea.

In recent years, however, as China challenged US hegemony, the world appears to have plunged into an age of “cold political and cold economic relations.” Europe and India, which agreed on their China policy with the US at the G-7 conference that has just ended, are not immune to this trend.

China is of course alarmed. Commenting on the resumption of FTA talks between the EU and India, the state-controlled newspaper Global Times said China overtook the US as the EU’s largest trading partner for the first time in 2020 and regained its position as India’s largest trading partner. If the EU and India choose to confront China economically and trade together for their own geopolitical interests, it will be very detrimental to the recovery of both economies, she warned.

But China itself is guilty of using money to steer policy in its direction. Beijing is exerting its influence on Asia, which has maintained a balance between reliance on the US for security and China for the economy, through its Belt and Road Initiative, which links credit and development offers to countries that can bow to its desires .

China imposed economic sanctions such as import restrictions on Australia after Canberra requested an investigation into the source of the pandemic. China’s President Xi Jinping even said China would strengthen its power of intimidation and retaliation by making global supply chains more dependent on it.

The separation of politics and business is a thing of the past. Will Asia, which is likely to become the main battlefield of the new Cold War between the US and China in the post-COVID era, also become the stage for the confrontation between the new economic blocs?



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