India, EU Work Toward Trade Pact - Bid for Agreement by 2009 Underlines Bilateral Focus In Wake of Doha Collapse

India, EU Work Toward Trade Pact - Bid for Agreement by 2009 Underlines Bilateral Focus In Wake of Doha Collapse By JOHN W. MILLER October 13, 2006; Page A6

HELSINKI -- The European Union and India stepped up free-trade negotiations that could one day link two of the world's biggest markets. Both sides said they hope to complete a deal by early 2009.

"India is a market the EU has to get closer to before it goes off with another partner," EU Trade Commissioner Peter Mandelson said yesterday in an interview here in the Finnish capital, as top political and business leaders from India and Europe began two days of meetings.

The push for a bilateral deal is a strong signal that countries are putting aside hopes of resuming talks toward a global trade deal that would slash tariffs among the World Trade Organization's 149 members.
The so-called Doha round of WTO negotiations collapsed in July, primarily because of farm-subsidy disagreements among the U.S., Europe and developing nations.

Like other officials, Mr. Mandelson still expresses hope that a comprehensive global deal isn't dead. "But Doha first never meant Doha alone," he said.

In private, EU officials say their motivation to move ahead with bilateral talks stems partly from a belief that rising protectionist sentiment among U.S. lawmakers eager to protect farm subsidies will make Doha impossible to achieve until after the 2008 presidential election. In an official policy declaration last week, Mr. Mandelson said the EU would work hard to sign bilateral trade deals with Russia, India and several countries in Latin America, Asia and the Middle East.

"Europe has for too long overlooked opportunities in Asia," Mr.
Mandelson said. "I am now trying to correct that imbalance." Today, the Indians and Europeans expect to set a date for formal bilateral- trade talks.

Despite optimism about an EU-India deal -- including a pledge by Indian Commerce and Industry Minister Kamal Nath to move toward no tariffs for EU goods -- negotiations promise to be long and complicated. Decades of socialist rule have left India with cumbersome regulations and steep tariffs that shut out foreign companies and goods, while its own businesses struggle to meet strict environmental, safety and social standards the EU requires before opening the door to its 450 million consumers.

"Most European businesses face so many technical barriers to their investments that they make a U-turn and go home," says Marco Felisati, the top trade official for Confindustria, Italy's business lobby. Consequently, despite the size of their economies, trade between the EU and India remains relatively small.

EU trade with India amounted to ?40 billion, or about $50 billion, of goods and services last year, with exports to India accounting for less than 2% of the EU total. By comparison, trade between the 25- nation bloc and China totaled ?261 billion last year. Of course, European companies have been outsourcing much of their information- technology and call-center work to India, while India exports some ?2 billion of precious stones, mostly diamonds, to the EU every year.

The EU wants India to remove regulations that prevent foreign companies from setting up shop and to cut high tariffs on certain goods Europeans produce, especially wine and spirits, said Mr. Mandelson. Because of levies as high as 264%, EU producers sold only ?4 million of wine to India in 2004.

European companies are increasingly frustrated at being shut out of selling goods and services to a country of one billion people whose gross domestic product rose 8.3% in 2005 and 8.1% in 2004. Rules currently prohibit large retailers such as Tesco PLC, Wal-Mart Stores Inc. and Carrefour SA from building in India.

The picture is even worse for services, says Pascal Kerneis, managing director of the European Services Forum, a Brussels-based lobbying group. For example, the pension market is still entirely closed to foreign companies, to the frustration of European giants such as Allianz AG, which does sell insurance in India but only through a local partner. "You can argue whether it's 200 million potential consumers or 300 million, but it's a market with a huge potential,"
says Heinz Dollberg, Allianz's executive vice president.

Indian companies and politicians complain that EU regulations unfairly benefit European companies. For example, Europe requires farmers to certify that pesticide levels in their crops aren't dangerous, and compliance costs ?1,700 per Indian farmer, according to the Federation of Indian Chambers of Commerce and Industry -- a fortune in India. The EU is readying legislation requiring firms importing chemical-based products into the EU to prove they are safe.
That would cost as much as ?325,000 per chemical, according to the federation.

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