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India-EU FTA marks a major milestone, says CSIS Senior Advisor Richard Rossow, noting it will boost trade but not radically alter India’s growth rate. He highlights India’s strategic trade focus on developed economies, cautious sector protection, limited security overlap, and the agreement’s significance for global partnerships.
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00:0020 years ago or 18 years ago when they first started negotiations, India was willing to sign trade agreements, but not normally those that had really cutting-edge commitments in terms of market access and liberalization.
00:12I think, to me, the bigger signal, apart from what it means for the White House, is the fact that as India thinks about shoring up new partnerships, when they don't look at the United States quite as stable as it was before, at least they continue to lean towards U.S. friends and allies.
00:26You have seen an acceleration. India signed more agreements in the last 12 months than they signed for the 24 months before that.
00:33But still, you know, this openness on India and signing substantive agreements with developed countries, it does predate Trump coming in.
00:40Thank you for talking to me, and I really appreciate your time.
00:42Let's start with your initial reaction to what you saw unfold in New Delhi earlier today.
00:47The statements from the prime minister, the EU leadership, and even the optics and tone of the announcement.
00:54What really stood out for you?
00:57Well, the fact that they got this across the finish line at all, it's been in the works for almost 20 years.
01:02And I think, you know, 20 years ago or 18 years ago when they first started negotiations, India was willing to sign trade agreements,
01:07but not normally those that had really cutting-edge commitments in terms of market access and liberalization.
01:13And as we saw, I think, really during Modi's second term, this big turn in India that was really becoming a lot more interested in trade agreements
01:21that had groundbreaking provisions, you know, you saw this kind of steady stream of India's recent deals having firmer and firmer and deeper commitments.
01:28And so it wasn't surprising this thing started to move.
01:32And, of course, everybody has signaled that we were heading towards this visit as an opportunity to sign it.
01:36But, you know, what a celebration.
01:38A quarter of the world's population, a massive percentage of world trade coming together under a pretty significant trade agreement.
01:44So not surprising at all that the optics were quite good because the substance is quite good.
01:48All right. Now, if you talk about the global implications, what message does EU and India, this agreement really, send globally,
01:57particularly to the policymakers, the lawmakers here in Washington?
02:03Well, you know, to some extent, I think for both Brussels and for Delhi, it kind of shows, you know,
02:08this ability to differentiate security and commercial because when India thinks about its major security concerns,
02:14whether it's China or Pakistan, Europe tends not to weigh in very heavily when there's crises.
02:19And similar, you know, to Europeans, they think of Russia's invasion of Ukraine.
02:22And India certainly doesn't want to play in that game.
02:24And that's been a sticky point, I think, in relationships in recent years.
02:28But this kind of shows the ability to sort of divorce those things.
02:31You know, from Washington, I guess we're all kind of wondering, is this going to have an impact on whether the U.S.-India deal,
02:37it's actually been, you know, under negotiation for almost a year now.
02:40Is that going to help it get across the finish line?
02:42I mean, it's been on the president's desk.
02:44We basically have, you know, what we consider a first round of a deal.
02:48The negotiators have brought, you know, a couple of versions up to the president.
02:51We haven't been able to get something across the finish line and signed.
02:54I don't know whether this is going to unstick that.
02:56I think the president wants certain things on agriculture commitments.
02:59He's going to want better access in almost any area than what India has given to other markets.
03:04Maybe there's a few things Europe got that they might go back to the drawing board.
03:07But I think to me, like the bigger signal, apart from what it means for the White House,
03:11you know, is the fact that as India thinks about shoring up new partnerships,
03:15when they don't look at the United States quite as stable as it was before,
03:19you know, at least they continue to lean towards U.S. friends and allies.
03:22You know, you get the high visible BRICS summit and SCO summit.
03:26And I get a lot of questions about whether India, China, you know, there's this new partnership.
03:29But you really kind of see India's substantive commitments have mostly been with Australia,
03:34with New Zealand, with UK, with Europe, with Japan,
03:37with some of the commercial agreements announced in the prime minister's visit to Tokyo.
03:41So that's kind of the two features.
03:42I don't think it'll unstick our deal.
03:44But also it is good to see India shoring up, you know,
03:47with countries and blocs that are on our side of what would be a separated ecosystem
03:51at some point, perhaps on areas like tech.
03:53Now, a lot is being said about the timing and the Trump factor.
03:58This agreement has been negotiated over almost two decades now, so 20 plus years.
04:04And do you believe that the current tensions between Trump and the EU
04:08help push this across the finish line in some way?
04:12Yeah, you know, again, I think India's changing position on trade
04:16predates President Trump's election and coming back to office.
04:19You have seen an acceleration.
04:21India signed more agreements in the last 12 months.
04:23Then they signed for the 24 months before that.
04:26But still, you know, this openness on India and signing
04:28substantive agreements with developed countries,
04:31it does predate Trump coming in.
04:33So I don't think you can say that's entirely the reason.
04:35But I'd say probably it's a bit of icing on the cake,
04:37maybe a little bit more momentum behind getting this done.
04:40So let's just say it's probably high single digit,
04:43low double digit percentage of the reason,
04:46not 90 percent of the reason that happened like this.
04:49But I'm sure that it was at least a bit of an accelerant.
04:52Right.
04:52Right.
04:53We watched EU gradually decouple from China.
04:57How does that backdrop really shape the significance of this deal
05:01that EU and India have gone in for?
05:04Well, I don't know that you'd say Europe as a whole,
05:09you know, is decoupling necessarily.
05:11Every country kind of shorts itself up with different partners.
05:16So you do see a number of European countries that still have substantial trade
05:20and investment economic ties with China.
05:22So I don't think it's appropriate to say that as an entire block
05:25they've been trying to decouple.
05:27But I do think, you know, you do see kind of increased pressures
05:30when we talk about particularly for separating high tech ecosystems.
05:34We don't want China to get access to the kind of chips
05:37that are going to make it, you know, help it to create
05:39not just commercial technology capabilities,
05:42but weapons technologies that can come back to haunt us.
05:45And so, you know, the United States controls a lot of that tech.
05:48You know, we are asking countries to kind of decide,
05:50like, which side of this list you want to be on?
05:52Do you want to be in a China-led ecosystem for high tech
05:54or do you want to be in a U.S.-led ecosystem?
05:56And I think for a lot of European countries,
05:58there's a bit of a natural lean towards the United States,
06:01despite some counterpressures Washington occasionally puts.
06:05But I don't think it's fair to say that Europe as a whole
06:08has taken a single, you know, cohesive step in one direction or another.
06:11Every country in Europe still is kind of managing China
06:15either in a positive or negative way, kind of of its own accord.
06:18They don't operate in a strategic fashion,
06:21sometimes as kind of a unified bloc.
06:25Right.
06:25Now, from this EU deal, do you think that India is really appearing
06:29to move away from the protectionism, you know,
06:33attitude that India had for a long time
06:36towards a more open trading posture?
06:39And what has really made this whole shift in your view?
06:44Yeah.
06:44You know, when we saw, again, going to Modi's second term,
06:47because the first term in the Modi government back in 2014
06:50was very pure-play protectionism.
06:52You saw higher customs duties.
06:54You saw domestic manufacturing rules.
06:57Even some of the price controls that were adopted on different products.
07:01You know, those hit foreign companies particularly hard sometimes.
07:04And so, you know, I think that kind of captures
07:07at least one of the major thrusts that the Modi government had to make in India.
07:11But the second term, about midway through,
07:13you began to see a very different perspective on trade.
07:15And I remember traveling to India, meeting with a lot of people in government.
07:18And the one thing they pointed to was actually a lot of the good work
07:21that's being done, even at the state level in India,
07:25on how governments can attract major investments
07:28to enter global supply chains, global value chains.
07:31And one thing that came up consistently was
07:32you need to have low customs duties.
07:35You need to have low barriers to trade on input goods,
07:39on raw materials, things like that,
07:41as a way to give a boost to your own manufacturing industry.
07:44To me, I think that was probably one of the most significant factors,
07:47something that I think a lot of us have been counseling India for quite some time,
07:50but it really kind of settling in that, you know,
07:52openness to some parts of trade is critical
07:54to be able to be a major producer and exporter of finished goods.
07:59And so I think a lot of this great work that's been done,
08:02we don't even listen to that quite so much ourselves anymore in the United States.
08:05So this clearly is not always like, you know,
08:08one country telling the other what it should be doing.
08:11We don't even listen to our own advice occasionally.
08:13And I think we're kind of in a situation like that right now.
08:15But that seems to me to have been a turning point.
08:19And now you look at the agreements India is signing.
08:22I think you have this kind of visible and intentional approach
08:25where they're looking mostly to developed countries.
08:27I mean, look at who they signed agreements with.
08:29They're not signing trade agreements with developing countries.
08:32India realizes that when it comes to trade,
08:34labor-intensive industries is a real area of strength.
08:38But partnering in areas where India is less competitive on tech,
08:42on a lot of times, you know, capital-intensive industries,
08:48India is not going to lose out.
08:49But you need to make sure you've got protections for the one area
08:51that still, you know, can't be touched, which is basic agriculture.
08:55So I do think it's been an about-face, a serious change.
08:58Not just in trade agreements, too.
09:00I mean, you look at India is kind of walking back
09:03from some of its review mechanisms they had of standards
09:08and what they could import.
09:11You know, that's great to see.
09:12You also see intentionality in the budget the last couple of years.
09:16And, of course, we have the budget coming up in a few days
09:18where you've seen finance minister Sitaraman
09:20reducing customs duties more than increasing,
09:23talking about ending this process
09:25where sometimes it's cheaper to bring in finished goods
09:28than input goods.
09:30So you do see not just in trade agreements, too,
09:32but some other avenues where India actually is really trying
09:36to unpack some of the work they've done early
09:37on trade protectionism and being a lot more open,
09:40which is good to see.
09:41Right.
09:42Now, we talk about the U.S. relationship from, you know,
09:45just step out of this whole EU-India deal.
09:48And given that India still remains economically tied
09:51to the United States, should we interpret that this is
09:54India broadcasting its openness to do business with everyone,
09:58not just the Brussels?
10:00Yeah, I think that's true.
10:02I mean, you know, this is the biggest agreement India signed,
10:04but it's not the only one.
10:06And, you know, well, sometimes when I bring up some of the other agreements
10:09India signed, like UAE and Australia, you know,
10:11some Americans that don't follow the details say,
10:13well, those are tiny countries.
10:14Yeah, they may be relatively small,
10:16but they're some of India's most significant trade partners.
10:19So Switzerland, too, is the Swiss-led EFTA group.
10:22So, you know, while the countries, you know, population-wise may not be huge,
10:27when you think about India's commercial relationships,
10:28even before the trade agreements,
10:30these were significant economic partners.
10:33Yeah, for the United States, I mean, you're right.
10:34I mean, we are India's most significant economic partner,
10:37the largest export destination by far,
10:39about 20% of India's goods exports,
10:41about 60% of India's IT service exports,
10:44probably the single largest source of foreign investment.
10:47Of course, those numbers are a little cloudy
10:48because the official numbers have Singapore and Mauritius.
10:51But, you know, so when you think about that,
10:52and despite, you know, the tariffs
10:54and the threats of other tariffs and things like that,
10:57the numbers aren't too bad.
10:58You know, we had substantial growth in bilateral trade last year,
11:01even, you know, continued growth to some extent,
11:03even after the tariffs came in force.
11:05So, you know, despite government intentionality
11:08on trying to slow trade, it's stickier.
11:12You know, policy doesn't always have the direct impact
11:14that people think it would.
11:15It might later on, not trying to predict the future here, Reina,
11:18but so far, even despite all the wobbliness that you have
11:22and the bumps, U.S.-India trade has proven
11:24to be remarkably resilient so far.
11:26So not quite done with this yet,
11:28but finding new partners like Europe
11:29clearly is the flavor of the day in Delhi.
11:32Right.
11:32Now, if you hear two prime ministers' remarks from New Delhi today,
11:37he described this as a geopolitical stabilizer
11:39for a new, quote-unquote,
11:42a new world order of sorts.
11:45How do you interpret this whole language
11:47that the prime minister used?
11:49Well, I think for both countries, you know,
11:52it's probably the most significant trade agreements
11:54either has ever signed.
11:55So, you know, again, still,
11:57you can have a trade agreement,
11:58you can have duty reductions,
11:59but ultimately trade is a result of mostly
12:03a lot of private individual actors
12:04making individual decisions
12:05on where to source and sell from.
12:07So, you know, I think we have to look back
12:09a few years from now and see
12:10was this as revolutionary and groundbreaking
12:12as we think it was,
12:13but at least on paper,
12:14both sides are offering significant market access
12:17to the other,
12:18and so there's a real opportunity to grow together.
12:20So I have a hunch, you know,
12:21it's going to provide a boost.
12:23Is it going to turn India from 7% growth
12:25to 20% growth?
12:26Probably not.
12:27Probably nothing close to that.
12:29Is it going to help to, you know,
12:31stoke maybe sluggishness
12:33and European countries have been going slower?
12:35Maybe a little bit.
12:36But, you know, ultimately,
12:38it's a lot of really helpful small and medium steps
12:40that make up for big change.
12:42And again, seeing India in particular
12:44have that much more openness on trade,
12:46but even Europe, you know,
12:48we've tried in the past,
12:49the United States,
12:49as in negotiating trade agreements,
12:51divisiveness between us on trade
12:53and regulatory matters
12:54and that kind of stuff
12:55is pretty serious and significant.
12:57So you need to be able to do stuff
12:59that the rest haven't.
13:00And I think it's also interesting,
13:01one of the facts that India put out there,
13:04I think Minister Goyle himself
13:05had put this out,
13:06that the fact that India's got trade agreements,
13:08not just with the EU,
13:10but the UK and the Swiss-led EFTA group,
13:12India actually is, you know,
13:14turning Europe into a more cohesive entity
13:16because of these unique relationships
13:18India struck up.
13:18So I thought that's an interesting fact too.
13:20India has better ties across Europe
13:22than sometimes they have with each other.
13:25Right.
13:25Now, in contrast to what we saw today,
13:28let's talk about the trade philosophy on tariffs.
13:31President Trump has consistently talked about,
13:34you know, he's weaponized tariffs
13:36in the name of national security.
13:38Does this EU-India deal
13:40serve as a counter-narrative
13:42about how international trade should function?
13:44Well, you know, I think trade agreements
13:48maybe become a little bit more important
13:50because the global architecture
13:51under the World Trade Organization
13:53is working a lot less efficiently,
13:55hardly working at all,
13:56than it was in times past.
13:58And so therefore, you know,
13:59we've always had this kind of debate
14:01about, you know, global system like the WTO.
14:04Do you do mini-laterals, you know,
14:05where you get 10 or 10 or so countries together
14:07or you do bilaterals?
14:09And I think the belief always has been like,
14:11if you can get a major agreement
14:13that everybody signs on to, like the WTO,
14:15that's the gold standard.
14:16But, you know, not just the United States,
14:18but a lot of countries have been
14:19kind of walking away from that for some time.
14:20But the United States is a heavy hand.
14:22And so if we walk away,
14:24that obviously has a much bigger impact.
14:26And even mini-lateral deals are kind of tricky.
14:29I mean, I guess you could say to some extent
14:30this one is because Europe is already a grouping
14:32of a bunch of countries that agreed to kind of pool
14:34when they negotiate trade agreements with each other.
14:37But, you know, to some extent,
14:39this maybe kind of echoes that.
14:41But I think, you know, I mean,
14:43the world is moving in directions
14:45that are not always related to the mood
14:48in the United States and vice versa.
14:49There's times, I think,
14:50back to the second half of the Obama administration
14:52when the United States suddenly got very gung-ho
14:54on trade again.
14:55We had the Trans-Pacific Partnership,
14:57the EU deal that was under negotiations,
14:59and even this really significant
15:00trade and services agreement,
15:02which India was dead set against at the time.
15:05So, you know, I mean, different countries,
15:07the perspectives have changed over time.
15:08We're clearly in a stranger place
15:10in Washington right now using tariffs
15:12and kind of weaponizing the way that we have.
15:15But in terms of, like, openness to agreements
15:17and openness to trade, you know,
15:20every couple of years it's kind of rolled the dice
15:21on where countries' heads are going to be at,
15:23and we just happen to be on the less trade-interested
15:26part of the list right now.
15:28Right.
15:29Let's talk about the security dimension
15:31to this trade deal.
15:32This goes beyond commerce.
15:34We're seeing parallel defense dialogues
15:36between India and some of the European countries,
15:40you know, some of the EU nations.
15:42What's the significance of that layer?
15:46I think it's limited significance.
15:48I don't see a dramatic upside on security partnership
15:51between the European Union as a whole
15:54and even most individual European countries
15:56and India.
15:57Because when you ask both, like,
15:59where do their security interests lie,
16:01you know, for India,
16:01they think, first and foremost,
16:03it's my next-door neighbors.
16:04It's China, which, you know,
16:05you've had border conflict in recent years.
16:07It's Pakistan with multiple conflicts.
16:10You know, on China, again,
16:12half of Europe still thinks
16:13that's an economic partner
16:14and they want to take what they can get.
16:16Not been playing the big security game
16:18that the United States would like to see
16:19Europe playing in more actively,
16:20and India would like to see that too.
16:21So is Europe going to pick up the phone
16:23like the United States did
16:24next time you have a border confrontation?
16:26I don't know that they will.
16:27I don't know if they want to do that
16:30and stoke China
16:31because, you know,
16:32there still is a lot of interest
16:33in economic engagement
16:34and entanglements with China.
16:36And with Pakistan,
16:37it's kind of an issue for most of Europe.
16:39Similarly, from your vantage point,
16:41you know, they think of Russia.
16:42And is this going to trigger India
16:44to take a more aggressive posture
16:46against Russia's expansionism?
16:48Right?
16:48Because it's not just Ukraine, right?
16:49Two invasions,
16:50three invasions, really, of Ukraine,
16:51one of Georgia,
16:53threatening every single day
16:54other NATO allies,
16:55these overflights
16:56and finding Russian submarines
16:58in their waters, right?
16:59It's every single day
17:00they're putting pressure
17:01on a range of other European countries
17:02and India has no interest
17:04in playing that game.
17:05So I think ultimately
17:06you might have some co-production,
17:08you might have some additional buys
17:10moving primarily towards India,
17:12but maybe Europe buys a bit
17:13from India at some point.
17:15But deep security integration,
17:16I still think that the primary threats
17:18that drive both camps
17:20are so diffuse
17:22that I don't see quite as much overlap.
17:24France has been willing
17:25to step out a little bit more.
17:27UK on some day,
17:28it's obviously not part
17:28of the European Union,
17:30but most would prefer
17:31not to get involved in fights
17:32where they still have
17:33conflicting interests.
17:35Right.
17:36My last question is
17:37the next chapter in this deal.
17:40This marks as a major progress.
17:42You know, it's been more than two decades
17:44that they were working on this,
17:45but it's not really the final chapter.
17:48What are the next milestones
17:49and where might,
17:51there could be roadblocks ahead.
17:52What are the potential obstacles
17:54you see in this deal?
17:57Well, I mean,
17:58the deal is nice and great,
18:00but, you know,
18:01at the end of the day,
18:01India needs jobs to be created
18:03and they want to see
18:04investment coming in
18:05and they want to see
18:05Indian companies being able
18:07to take these export opportunities
18:09and markets.
18:09And, you know,
18:10there still is a lot of things.
18:13And I think, of course,
18:14I know the Indian market better.
18:15I know Europe,
18:15which still make it
18:17a difficult place to do business,
18:18even if you have a trade agreement.
18:20You know,
18:21if you're trying to invest,
18:22you're not investing in India,
18:23you're investing in different states
18:24and availability of electric power
18:26and things like that.
18:26So to really,
18:27I think,
18:28take advantage
18:28about what the trade agreement
18:30can offer,
18:31there still are a lot
18:32of domestic reforms
18:33India's got to get right
18:34to be more competitive,
18:35to attract investment,
18:36but to also make sure
18:37that Indian manufacturers, too,
18:39that want to get export markets
18:40can do so,
18:41you know,
18:42by having reliable access
18:43to electric power
18:44at reasonable rates,
18:46acquiring land
18:46cleanly and transparently.
18:50Labor, right?
18:51I mean,
18:51this groundbreaking labor reform
18:53India did,
18:54where, you know,
18:55the regulations on labor
18:56that used to be
18:57at 100 employees
18:58now are up to 300,
18:59300 still ain't a lot.
19:00I mean,
19:01if that's the groundbreaking
19:02labor deregulation,
19:04you know,
19:04there still is a lot of upside
19:05on doing more
19:06on labor deregulation, too.
19:07So I think,
19:08I think,
19:08obviously,
19:09I know the India side,
19:10but I know the Europe side.
19:12I think for India
19:12to really take advantage
19:13of some of those reforms
19:14that the Modi government
19:15has already been thinking about,
19:16some of which you saw
19:17the last session of Parliament,
19:18hopefully some of which
19:19you'll see reflected
19:20in the finance minister's
19:21budget speech
19:21and the budget itself,
19:22then I think you'll really
19:24begin to see things
19:24get unpacked
19:25in a significant way.
19:27So that, to me,
19:28is like the second shoe to drop.
19:29Big stuff in India
19:30that really makes
19:31the market more attractive
19:32and the deal becomes,
19:34really fulfills its promise.
19:37Right.
19:37On that note,
19:38thank you so much
19:39for talking to you
19:39and I really appreciate
19:40your time, Rick.
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