Taking EU-India relations beyond trade (Originally published 08/02/12)
Negotiations on a first-ever EU-India free trade agreement are injecting much-needed excitement into Europe’s relationship with India.Despite earlier hopes, the trade deal will not be signed at the 12th EU-India summit in Delhi on February 10th. But the buzz generated by the negotiations as they enter a critical final stage is helping to lift Europe’s profile in a country which has so far kept the EU at a polite arms length.Significantly the trade talks, now into their fifth year, have helped to focus official and public attention in India on the EU – rather than individual European member states - as a global economic player.The challenge facing European policymakers is to use the shift from indifference to interest in EU-India relations to reinforce the still largely underdeveloped conversation with Delhi on non-trade questions.The change of mood is recent - but palpable on both sides. Senior Indian officials now describe the EU as a “key strategic partner”. Catherine Ashton, the EU High Representative for Foreign and Security Policy was recently in Delhi for a groundbreaking foreign policy dialogue with her Indian counterpart.With EU-India trade currently estimated at a mere 86 billion euros a year (compared to almost 400 billion euros annually with China), the free trade pact under negotiation – officially called a “Bilateral Investment and Trade Agreement” - is a good step forward in building stronger ties and increasing mutual understanding.The ongoing trade negotiations, while problematic on some key issues, have meant more regular contacts between Indian and European officials – and a clearer European understanding of the complexities of India.This is cause for some celebration. For all the talk of India’s rise and the country’s growing global clout as a member of the G20, the EU has not devoted adequate time or effort to clarify its strategic objectives and interests in the country. As such the EU-India “strategic partnership”, launched in 2004, has remained under-exploited.In part, this is the result of India’s complex landscape. According to some forecasts, the country is set to overtake China as the world’s fastest growing economic by 2050. The Asian Development Bank reckons that India’s 350 million strong middle class could grow to 1 billion in 2025. But India also has one third of the world’s poor. A major effort is therefore necessary if India is to meet the Millennium Development Goals (MDGs).As Nobel laureate Amartya Sen points out, “India has started falling behind every other South Asian country (with the partial exception of Pakistan) in terms of social indicators, even as it is doing so well in terms of per capita income.” The Indian government is paying greater attention to making development more inclusive and achieving a substantial reduction in poverty. The national focus is also on structural reforms, including better governance – especially following the Anna Hazare anti-corruption campaign in the wake of key graft scandals - and improved infrastructure. But more remains to be done.India and Europe share common values such as democracy and a preference for multilateralism. They also have common goals as regards good governance, achieving MDGs and working for global peace and stability. But the partnership is made more difficult because of divergent interests. Crucially there are different interpretations of what a strategic partnership is supposed to achieve.The EU sees it as a partnership to achieve global public goods by meeting 21st century challenges, including terrorism, proliferation of weapons of mass destruction, state failure and regional conflicts. India views its strategic partnerships with the EU and the US as a vehicle for ensuring greater worldwide prestige and political clout.There is also an inevitable dissonance between the EU as a status quo power which is often reluctant to make room for newcomers and India which is seeking great power status. The accusation is that the EU speaks the language of inclusiveness but unwilling to cede its seats and voting rights.This time, however, Europeans want to do more than talk trade with India. While in Delhi, European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso will try and convince their host Indian Prime Minister Manmohan Singh to join the international sanctions regime against Iran.The EU says it is disappointed that India has not joined the large international consensus against Iran’s nuclear programme. India, however, is heavily dependent on Iranian oil to meet its growing energy needs.Venturing into relatively new political territory as regards volatile politics in South Asia, Messrs Rompuy and Barroso will also encourage recent signs of a thaw in Indian relations with Pakistan following Islamabad’s decision to grant Most Favoured Nation trade status to India and Delhi’s move to allow a World Trade Organisation (WTO) waiver on zero-tariff EU imports of Pakistani textiles.There will be discussions on climate change and signature of a declaration on enhanced cooperation on energy which will allow joint activities in areas such clean coal, energy efficiency and renewables as well as nuclear safety.Interestingly, cooperation possibilities will be explored as regards cyber security and anti-piracy operations as well as more exchanges on counter-terrorism.These initiatives are positive and should help prepare the ground for further political exchanges. However, as the FTA negotiations enter the final stretch and domestic lobbies in both India and Europe fight hard to defend their interests, the summit’s focus will inevitably be on trade.The EU is seeking a steep reduction in tariffs for export of its automobiles, wines and spirits to India. However, the proposals have met with fierce resistance from Indian manufacturers.Europeans are also pushing India to open the banking and insurance, postal, legal, accounting, maritime, security and retail sectors.European carmakers say the FTA will grant Indian-built cars immediate duty-free access to the EU but would only reduce the tariff barrier to European vehicle exports to a level of 30 per cent, which would stay intact indefinitely. Car manufacturers in India including Tata, Toyota, Maruti Suzuki, Honda, Hyundai Motor and General Motors, otherwise fierce competitors in the Indian market, have joined ranks to resist what they fear will be a flood of imported European cars into the Indian market.These and other disagreements will inevitably be sorted out in the coming months. Once the FTA is completed, the EU and India must pay increased attention to other aspects of their relations. Both sides can set key priorities which meet India’s requirements as a dynamic emerging power but a country which is also struggling to combat poverty and exclusion.As India rises along with the rest of Asia, it deserves stronger EU recognition as a regional and global power, not just an expanding market for EU exports and investments.
Asia 2050: Hopes and Challenges (Originally published 05/10/11)
For insight into the historic changes taking place in Asia, read and compare the Asian Development Bank’s recent ground-breaking report (Asia 2050: Realising the Asian Century) tracking Asia’s seemingly unstoppable rise with the World Bank’s seminal study on The East Asian Miracle published in 1993.East Asia’s eight turbo-charged power houses described by the World Bank two decades ago have now been joined by China – the biggest development story in the world today and the region’s dominant economy. India, while not an East Asian state, is part of the region’s growth trajectory as are Australia and New Zealand.The East Asian Miracle pointed to strong fundamentals, international integration, and good government as the key factors of success in East Asia. But it all came crashing down a few years later as the region was brought to its knees by the 1997-1998 financial crises. Complaints about corruption, nepotism, poor financial regulation and more dominated the headlines. The region was expected to lose years of growth. Asia faltered but it did not fail.The recovery has been difficult but relatively rapid as governments got serious about putting their houses in order. Today Asia is doing better than anticipated and the region has – so far – managed to escape relatively unscathed from the slowdown affecting Europe and the US.As the ADB underlines, if Asia’s march to prosperity, being led by seven economies with more than 3 billion people between them – China, India, Indonesia, Japan, South Korea, Thailand and Malaysia - continues apace, there will be some 3 billion additional affluent Asians by 2050. Asia’s combined GDP – also including poor nations such as Laos and Pakistan – will rise from 17 trillion dollars last year to 174 trillion dollars in 2050. In short, Asia will retain the dominant economic position it held 300 years ago.But Asia’s ascendance is not set in stone. Countries could slip and stumble into a middle income trap of stagnation and slow growth. And even as we celebrate rising Asia, it cannot be forgotten that the region is still home to almost half the world's absolute poor, who earn less than 1.25 dollars a day.
Emerging economies face the risk of being stuck in the "middle-income trap" as bursts of rapid growth, driven by export-based manufacturing, are followed by periods of stagnation or decline.
There are other key challenges -- rising inequality within and between countries, poor governance and corruption in many of them, and intensifying regional competition for finite natural resources.
In the worst case, according to the ADB, Asia could face “a perfect storm” of bad macro-economic policies, unchecked financial sector exuberance, conflict, climate change, natural disasters, changing demography and weak governance.
To make Asian growth sustainable, the study says, countries must address poverty, equality of access and opportunity, and focus on education, entrepreneurship, innovation and technological development. Massive urbanization will need to be tackled.
Climate change is “a wild card for Asian development”, warns the study, which stresses that Asia is already hit by more storms, floods and other natural disasters than any other region.
Asia must retool its institutions to ensure transparency, accountability and predictability in order to respond to demands for greater voice and participation in government being made by an expanding middle class.
Significantly, regional cooperation and integration are seen as vital for Asia’s continuing rise. The ADB also correctly insists that Asia will need to take greater ownership of the “global commons” and transform itself from a passive onlooker in the debate on global rule maker to an active debater and constructive rule maker.
Changes in Asia are impacting not only on the region itself but across the world. The United States is stepping up its engagement with all major Asian actors. In fact, if any thing China’s economic rise has increased other Asian countries search for closer military and security links with the US.
Is there a role for Europe in the Asian Century? Certainly, Europe has strong historical, cultural and economic ties with Asian countries. However, as pointed out in a Friends of Europe policy briefing and conference held in June 2011, enhanced Europe-Asia cooperation in the political and security spheres, requires stronger mutual understanding and a deeper knowledge of each other.
Key findings of the ADB report and Europe’s potential as a partner to help Asia maintain its growth trajectory were the subject of our breakfast debate entitled "Asia 2050: Challenges ahead" on 6 October 2011.
THE NEED FOR A STRATEGIC EUROPEAN VISION ON ASIA (Originally published 02/02/11)
Europe and Asia have good trade and business ties but need to develop an equally dynamic and forward-looking political and security relationship. This is crucial if Europe is to become a credible partner for a rising Asia. With the structure of the new European External Action Service finally in place, it’s time to start work on a much-needed new European strategic vision for engaging with Asia.
Relations with China must be top of the agenda but EU policymakers must also look beyond the current preoccupation with Beijing. Stronger ties must be built up with India and Indonesia as well as the Association of Southeast Asian Nations (ASEAN). The EU-Japan relationship needs new momentum. A stronger EU-Asia conversation is needed on global flashpoints including Iran, North Korea and Burma as well as recent tensions in the East and South China Seas.
Discussions should focus on cooperation to manage urbanisation, develop low-carbon technology, tackle climate change, combat poverty, ensure energy security and pursue anti-piracy actions.
Free trade negotiations with Asian countries need to be pursued and more ambitious pacts covering wider economic cooperation should be explored with other countries, including Japan, which are looking for closer trade ties with the EU. EU-Asia investments must be facilitated in both directions. Discussions on easing the financial and monetary crisis are vital.
Closer ties between European and Asian civil society groups should be encouraged, with a special emphasis on reaching out to young people.
Above all, Europe must not only talk to Asia – it must also listen.
Dealing with ascendant Asia will require that the EU changes its traditional way of dealing with the region. Emerging Asian countries like China and India do not fall into neat categories of “rich” and “poor”; as such, they require sophisticated handling.
The Asia-Europe Meeting (ASEM) held in Brussels last October - attended by most Asian leaders - is proof that the majority of Asian countries want close relations with Europe, and see the EU market as vital for their domestic growth and development.
The EU's problem is simple: it has been unable to leverage its economic power in Asia into real, sustained political clout.
Dealing with a changing and rising Asia will require a change in European mindsets, new courtships and new alliances.
Correcting the view among many Asian policymakers that the EU is an irrelevant global player will take time, energy and effort. Failure to do so, however, could mean a brake on Europe’s ambitions to become a potent global actor.
It is with these challenges in mind that Friends of Europe has launched a high-profile Asia Programme which will study and analyse ascending Asia and assess the different ways in which it impacts on the European Union.
Through a range of diverse activities, including high-level conferences, seminars, roundtable discussions and publications, including policy recommendations, our new Asia Programme will strive to contribute to the development of a new EU strategy for Asia