India should tread carefully on FTA with EU – The Hindu BusinessLine

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TRADE LESSONS EU’s FTA with Korea is instructive; it has run into disputes, with non-trade issues being thrown in

The practical import of a trade treaty is better understood post-facto. The on-going India-EU Free Trade negotiations have ambitious timelines for their conclusion. It is therefore instructive to understand the outcomes of EU’s other FTAs, especially from the disputes that have arisen from those FTAs.

The 2010 EU Korea FTA was pronounced as a new generation FTA, containing a wider regulatory ambit. The European automobile manufacturers’ association (ACEA) and the German auto industry initially opposed liberalisation of the auto trade under the FTA because Korean imports were perceived as a threat. The Italians perceived a threat to Fiat and the Polish, Slovak and Czech manufacturers perceived a threat to existing foreign investments. Consequently, in the auto sector, the EU tariff lowering was defensive and slower than Korea’s.

Within three years of ratification of the FTA, in 2018, EU asked for consultations under the chapter on Trade and Sustainable Development (TSD) and subsequently launched a dispute against Korea. It was based on Korea’s inability to ratify certain ILO conventions, but as it turns out, Korean auto giants Hyundai and Kia bore the brunt. Although, as Korea submitted, the issue had nothing to do with EU-Korea trade, a panel was constituted to rule on the dispute.

Legal tangle

Korea argued that the Parties did not intend, by agreeing to the TSD chapter, to subject their labour laws and policies, to obligations that bear no connection to trade (or investment). However, the panel interpreted the provisions to mean that they would still be covered by the FTA.

Korea submitted that the words ‘Parties commit to respecting, promoting and realising, in their laws and practices, the principles concerning the fundamental rights’, was of an ‘aspirational’ or ‘make efforts in good faith’ sense. The panel however interpreted the text as a legally binding commitment.

The panel finally ruled that even self-employed, sub-contracted, dismissed or retired workers, were to be covered under the definition of worker and had the right to be part of labour unions and by implication take part in collective bargaining. Korea was forced to change its labour laws.

EU’s trade unions made an amicus curae submission to the panel, ostensibly to protect rights of Korean worker! Interestingly, no such submission by Korean Unions to protect their interest is mentioned in the panel ruling.

After the panel report, in November 2021, the Korea office of the German labour think tank, Friedrich-Ebert-Stiftung (FES), published a study. It said Korean Unions must ‘come up with ways to immediately counter the industrial reorganisation being pushed by auto industry capitalists — namely, by standing against the outsourcing of core parts and the placement of orders exclusively with parts makers that have no unions’. This is an excellent example of the potential of persuasion from various powerful agents against EU’s commercial competitors.

EU’s normative ambitions combined with its historical legal capacities make an exceptionally potent combination, especially for countries like India. The current draft texts in the India-EU FTA released by the EU, have far more stringent provisions and cover an extremely wide range of governance areas – gender, transparency, fraud, competition, digital trade, and sustainable food systems.

Indian FTA enthusiasts must carefully watch texts with the EU. They may seem aspirational, but in fact would be legally binding commitments. These could be subject to dispute settlement, panel reports, and potentially trade and other sanctions from EU.

The writer is at the Geneva Graduate Institute. She is a former IRS officer and has negotiated the India-EU and India-EFTA FTAs in the Department of Commerce

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