Dr Charles Tannock

Member of the European Parliament for London

EU, US keen on exploring the India option

Taipei Times - February 26th 2006

French President Jacques Chirac's visit to India this month to complete the sale of six attack submarines to India will confirm once more India's emergence as an economic and diplomatic powerhouse. The "strategic partnership" that both the US and the EU have at times sought with China looks both more plausible and more desirable with democratic India.

With a Muslim president, a Sikh prime minister, a Hindu foreign minister and a foreign-born Christian president of its ruling Congress party, India is as remarkable a success story as the 20-year boom that China's Communist Party has delivered. Indeed, since 1991, when a balance-of-payments crisis loomed, India has been shedding its socialist legacies and posting 7.5 percent average annual GDP growth -- only marginally slower than China. India has opened up its economy to world trade and begun to privatize many of its state-owned industries (albeit often too slowly).

High-tech businesses have helped enormously in this effort by showing that India has more to gain than lose from competing in the global marketplace. Perhaps for the first time since inventing the zero, India has a hot product to sell -- and, this time, it can keep the profits for itself. Moreover, a global bidding war has broken out for Indian brains.

The EU is keen to link into India's boom. The first EU Galileo satellite -- intended as an alternative to the US' GPS system -- was launched in late December with India as a full partner. Also last December, India became the latest nation to join the EU in the International Thermonuclear Experimental Reactor team, which aims to produce electricity using nuclear fusion, as happens in the sun.

For obvious historical reasons, the UK has led the way in building EU links with India. Indian businesses naturally chose the UK over other locations in Europe for reasons of language and cultural ties, but even that is changing, as Indian investments spread across the Continent.

In a sense, India's democracy sometimes hinders immediate growth. Unlike in China, India's government cannot simply ride roughshod over local interests by, say, leveling a village to build a roadway or a dam. But this is a sacrifice that India seems more than willing to make to safeguard its freedoms.

That sacrifice is particularly visible in today's Congress-led Indian government, which relies on support from the Left Front Communist Party. India's communists (unlike China's) remain ideologically driven, and the Left Front is resisting privatization of state assets, lifting caps on foreign direct investment, and creating a more flexible labor market.

Yet the essential reforms, which date back to Prime Minister Manmohan Singh's time as finance minister in 1991 and include liberalization of external trade and dismantling the "license raj," remain on track. It is clearly in India's interests to join forces with the EU in negotiations within the WTO to lower protectionist barriers, particularly in services such as accounting, law, and finance, as this will free up trade and generate greater investment flows.

India is already being treated with growing respect in global economic councils. When "new economy" issues such as e-commerce come up at the WTO, India, the EU and the US often find themselves on the same side. On "old economy" issues, ideological clashes have given way to tough-minded bargaining, as has happened in the Doha round of trade talks. India supports a Millennium Round of trade talks, but rejects any linkage of trade to labor standards.

The Indians want faster liberalization of the textile and clothing trades; the EU wants better enforcement of intellectual-property protection. Indeed, India is keen to share intelligence with the EU in the fight against international terrorism.

The main problem in pushing this strategic partnership ahead lies mostly within the EU, where there is a split between protectionists and advocates of free trade. In particular the EU must resist calls for higher tariffs from southern European textile manufacturers, as these businesses have failed to restructure, despite ample warnings over the last decade to do so.

Indeed, the EU should regard growth in India not as a competitive threat but as a golden opportunity that will benefit everyone. The global economy is not a zero-sum game and the challenge for European politicians will be to explain this to EU members, particularly countries like France that are resistant to globalization and keen on building a "Fortress Europe."

Chirac's visit provides a perfect moment for India to make it clear that strategic partnerships and protectionism (as seems to be occurring in the French effort to block Mittal's bid for the Belgian-French steel group Arcelor) don't mix.

The second point of convergence between Indian and Western interests is one that will probably get no public mention during Chirac's visit: India can perhaps serve as a counterweight to China. The world is beginning to notice that India has nearly the same number of people as China, plus a more benign system of government and no designs on its neighbors. China hawks in both India and the West dream that a "strategic partnership" will link the world's great democracies.

That will not happen soon. To be sure, India is as wary of China as some in Europe and the US are. After all, China supplied much of Pakistan's nuclear-weapons technology and beat India in a 1962 war; their borders remain disputed in places. Yet neither India nor the EU wants their friendship to be part of an anti-China axis. Indeed, India has mostly succeeded in ending the chill that set in after 1998, when it declared China to be the main target of its nuclear weapons. Nonetheless, Europe, India, and the US are all aware that today's friendship could become tomorrow's alliance if China turns hostile.