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After talks with German Chancellor Angela Merkel, PM Narendra Modi to push stalled trade with EU

The announcement could ease concerns of German businesses, who have been warning that potential investments in India could be at risk, unless an investment protection treaty is negotiated.

Written by Praveen Swami |
May 31, 2017 4:31:05 am
Narendra Modi, Angela Merkel, Modi germany visit, modi europe visit, india news Prime Minister Narendra Modi with German Chancellor Angela Merkel in Berlin Tuesday. AP

Prime Minister Narendra Modi has decided to push forward negotiation of a Free Trade Agreement with the European Union, stalled since 2013, a spokesperson for the Ministry of External Affairs said at the end of high-level inter-governmental consultations between India and Germany on Tuesday. Talks between European Union and Indian negotiators are now expected to begin in July, the spokesperson said, opening the way for a treaty that would provide protection to businesses investing in India. The announcement could ease concerns of German businesses, who have been warning that potential investments in India could be at risk, unless an investment protection treaty is negotiated. Chancellor Angela Merkel said Wednesday that she had raised the issue with the Prime Minister at their three-hour one-on-one meeting at her country resort in Meseberg. Hubert Lienhard, a prominent businessman who heads the Asia-Pacific Committee of German Business, underlined the importance of the investment protection pact at a conference where both the Prime Minister and Chancellor Merkel were present.

“Lots of German businesses are worried about the expiry of the India-Germany bilateral investment treaty,” he said. “Tension is not good for investment. Let us join forces to push for a stable framework for future collaboration. Let us commit ourselves to globalisation.” New Delhi has been pushing hard to expand its share of investment from Germany, with the Prime Minister inviting greater involvement from the mittelstand, or mid-sized companies who make up the backbone of the German engineering sector. There are more than 1,600 German companies, 600 German joint ventures operating in India, who brought in $2 billion in foreign direct investment in the last two years.

But these figures are dwarfed by Germany’s relationship with China: India trade with Germany stood at €17.4bn in 2016 to China’s €169.9bn in 2016, according to figures published by the country’s Federal Statistics Office earlier this month. China is Germany’s largest trading partner, while India ranks number 24, below Romania, South Korea, Norway and Ireland. Prime Minister Modi flagged the opportunities at a press conference, inviting Germany to step up its participation in training the 800 million Indian youth he said could contribute to the global economy if they acquired skills, as well as transport and smart cities.

Key to those hopes is investment but the bilateral treaty governing German investments expired in March, along with those in several other European countries, after New Delhi served a year-long notice. India cancelled its treaties because of concerns that they were working against the country’s interests, after the government received adverse verdicts in a succession of high-profile international arbitrations. The negotiations of a fresh treaty were further complicated by the fact that European Union member-states had ceded the right to individually negotiate new investment treaties in 2012 and thus became part of the European Union’s wider Free Trade Agreement negotiations.

In 2013, negotiations on the FTA had deadlocked over disputes ranging from the access of Indian information technology workers to Europe, to European insistence on stronger intellectual property protections for pharmaceuticals. Last year, India produced a new draft text which asks companies to seek recourse in Indian courts for five years before seeking the appointment of an international arbitrator but movement forward on investor protection cannot be separated from the conclusion of the wider FTA.

Eight other agreements, spanning technology, railway safety and education, were also signed by the Prime Minister’s delegation, which included Minister for Science and Technology Harsh Vardhan, Commerce Minister Nirmala Sitharaman, Energy Minister Piyush Goyal and Minister of State for External Affairs M J Akbar.

Germany sees India as a key long-term partner for upholding its multilateralist view of the world, which it hopes will be governed by a commitment to free trade and commitment to treaties. Chancellor Merkel, German diplomats say, sees both United States President Donald Trump’s protectionism, and China’s state-driven One Belt, One Road proposal, as potential threats to the liberal international order and hopes India will be among its partners in defending the status-quo.

For Germany, experts say, the outreach for new allies comes amidst an uncomfortable realisation that the support it had long taken for granted from its transAtlantic superpower ally can no longer be taken for granted — meaning Berlin may have to take a leadership role complex geostrategic conflicts like those of states in eastern Europe with Russia. Christian Wagner, a scholar at the German Institute for International and Security Affairs, wryly noted that “if you really want to confuse a German politician, ask them what the country’s national interests are. You won’t get an answer in less than half an hour, because no one has really thought about it”.

Though the Prime Minister was generous in his acknowledgment of Chancellor Merkel’s status as a world leader, saying he had benefitted from her “experience, her knowledge, and her vision with regard to the European Union, and her global vision”, areas of disagreement were also evident. Prime Minister Modi, notably, stopped short of acceding to European pleas for a commitment to remain in the Paris Agreement on climate change, should United States President Donald Trump deliver on his threat to leave the multination framework.

Invoking Indian tradition, the Prime Minister said that “our ancestors left us this planet, and we have no right to play with the future of coming generations. That would be morally criminal”. He noted that India was already working to meet a target of 175 gigawatts of renewable energy.

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