EU-India trade pact stumbles

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Indian objections to the inclusion of a standard “human rights and democracy” clause in a proposed free trade agreement with the European Union have emerged as a serious stumbling block, the Financial Times has learnt.

The row is a setback for the ambitious agenda set at the EU-India summit in Helsinki in October last year, when both sides pledged to deepen economic and political ties.

“This clause would, of course, be a deal-breaker,” Kamal Nath, India’s commerce minister, said in an interview.

“This is meant to be a ­specifically targeted trade and investment agreement, which it will not be if other elements come into it.”

Since a 1995 EU Council decision by member states, the European Commission has systematically included a so-called “essential elements” clause in bilateral trade and co-operation agreements. It now applies to agreements with more than 120 countries.

However, the Commission has triggered an intense debate among the EU’s member states by pushing for an apparent exception for India, on the grounds that a 1994 EU-India co-operation agreement covers human rights questions.

Peter Power, spokesman for Peter Mandelson, EU trade commissioner, said: “Given how much both countries can get out of it, we feel we should forge ahead on the basis of strict economic criteria, leaving more political considerations for other agreements.”

Commission officials privately acknowledged that the outcome of the debate in the EU Council was “too difficult to predict”.

One said: “The council is going through the detail of the agreement at the moment. We are not out of the woods.”

Bilateral trade in goods between India and the EU amounted to $40bn in 2006 and trade in services a further $8bn. Both sides say they want a “deep and comprehensive” agreement that goes beyond multilateral commitments and is not trade-diverting.

New Delhi argues that the “essential elements” clause conflicts with India’s longstanding position that economic agreements should not be “contaminated” by political riders.

“India suspects that such clauses provide protectionist cover,” said Pradeep S. Mehta, of Consumer Unity & Trust Society, an Indian trade think-tank.

“Because of its economic performance, India is now more self-confident about when it will give ground and when it will not give ground.”

Mr Nath said: “This is a win-win deal for both sides and the EU must evaluate how much it has to gain from this agreement. It’s up to the EU to work out how it wants to proceed.”

India is a member of the United Nations Human Rights Council, but ranks low, according to the Asian Human Rights Commission, among the international community in terms of the ratification of international conventions and covenants.

Although it has signed the UN Convention against Torture, for example, it has resisted ratifying it on the grounds that domestic mechanisms within the country are capable of addressing the issue.

India is keen to launch an FTA with the EU as soon as possible. Manmohan Singh, prime minister, regards it as a low-key way of keeping the reforms process moving forward at a time when there is no consensus for more overt liberalisation.

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