Why in News?

• India and the European Union (EU) have made notable headway in the 12th round of Free Trade Agreement (FTA) negotiations, with the digital trade chapter finalised in principle and substantial progress achieved on services and investment chapters.
• These developments are crucial in finalising India-EU FTA - which will be a turning point for global trade, cross-border data governance, and bilateral economic relations.

What’s in Today’s Article?

• Key Highlights of the India-EU FTA Negotiation
• India-EU Services and Investment Integration
• Cross-Border Data Flow - Strategic and Contested
• Investment and Dispute Settlement Mechanism
• Conclusion 

Key Highlights of the India-EU FTA Negotiation:

• Digital Trade Chapter - A milestone development: It covers cross-border data flows, crucial for e-commerce and digital services.
• Significance: A key enabler for India's IT and digital economy to scale up and integrate with the global services ecosystem.
• Pending disclosure: Textual positions of both parties are yet to be made public.

India-EU Services and Investment Integration:

• Services sector progress:
  • EU’s objective: To eliminate “discriminatory and disproportionate obstacles” for EU service providers.
  • India’s advantage: Rapidly expanding IT and financial services sectors could benefit from increased EU investment.
• Economic relevance: Services account for over 70% of EU’s global foreign direct investment (FDI). Deepening ties could enhance India's service export potential.

Cross-Border Data Flow - Strategic and Contested:

• AI, data localisation, and sovereignty:
  • Global context: Cross-border data flows are critical in the age of Artificial Intelligence (AI), the Fourth Industrial Revolution's cornerstone.
  • India’s position: Resistant to diluting data localisation norms, emphasizing policy space, privacy, and cyber sovereignty.
• Key policy developments:
  • India’s policy stance: India has traditionally resisted altering its stance on data localisation under any plurilateral agreements at the World Trade Organization (WTO) to preserve policy space.
  • The Reserve Bank of India’s (RBI) 2018 norms: Made it mandatory for payment system providers such as Mastercard and Visa to store payment data of Indian residents within the country.
  • UN Conference on Trade and Development's (UNCTAD) 2018 report: Stressed data’s strategic value and endorsed localisation for development and regulatory oversight.
• Global examples: Vietnam and the Philippines adopted localisation to protect nascent industries and build domestic digital capabilities.

Investment and Dispute Settlement Mechanism:

• Advances in investment text and dispute mechanism:
  • State-to-state mediation: Considerable progress reported, signalling convergence on dispute resolution.
  • Legacy issues: EU concerns persisted after India unilaterally terminated Bilateral Investment Treaties (BITs) in 2016.
• India’s revised strategy: New investment agreements under a fresh legal framework are being negotiated.
• EU’s position: Supports establishing a Multilateral Investment Court and sees the investment protection agreement as a stepping stone to deeper trade ties.

Conclusion:

• The recent progress in India-EU FTA negotiations represents a turning point, particularly in digital trade and investment.
• By balancing economic integration with regulatory sovereignty, India seeks to unlock growth opportunities while preserving national interests — a delicate equilibrium that aligns with its broader trade and digital strategy in the evolving global order.