Helsinki, October 14:

The European Union and India took the first step toward an ambitious pact that both sides hope will clear barriers to growing trade and investment between the two economic blocs. The two sides agreed yesterday to start negotiations on a deal to scrap tariffs on most goods with the likely exception of some agriculture products, officials said.

India, which is rapidly developing into an important player on the global scene, wants EU investments in building up its infrastructure. The European bloc, already the biggest source of foreign investments in India, is hungry for more lucrative business opportunities.

They said a zero-tariff pact would supplement a deal at the World Trade Organisation (WTO) where talks have stalled over a row on farm subsidies. Both insisted that they would continue to push for a WTO breakthrough.

“We have agreed to commence negotiations on a broad-based bilateral trade and investment agreement between India and the EU, covering over 90 per cent of tariff lines and trade

volume,” said Indian prime minister Manmohan Singh. “This is indeed a very significant step.” However, he refused to call the pact a free trade deal, saying “all the relevant options will

be explored when negotiations start.” The EU must seek approval from its 25 nations before negotiations can begin. A deal could be in place by 2009 at the earliest, although it might take much longer.

New Delhi said it is ready to shed its red tape to attract foreign funds. It needs an extra $320 billion to improve transport and other facilities over the next five years or some $16 billion in foreign capital annually. This year it is set to get just $12 billion. The EU, a global economic powerhouse, is seeking guarantees that its companies will get fair trea-tment abroad. It wants bilateral deals to be more ambitious than the WTO agreement under negotiation and calls on governments to open contracts to foreign companies and open up the banking and telecommunications sectors.

Europe and India also pledged to tackle climate change by turning to low-carbon energy sources, with India stressing the importance of nuclear power and its own ‘impeccable’ nonproliferation credentials. Both see huge benefits in cutting away a raft of barriers to doing business.

“We will each gain, but so too will the rest of the world because any agreement between us will set new standards for openness and global trade rules,” EU trade commissioner Peter Mandelson said. The EU also is looking for free trade deals with South Korea, Russia and nations in South America and the Middle East to keep trade links open even if a WTO deal proves impossible in the short term. But observers warn individual free trade deals pursued by the EU and the US could hamper a global agreement intended to help the poorest countries benefit from more free trade.

Facts and figures

Helsinki: Two-way EU-India trade will total almost $62.7 billion this year up from 2005. It is estimated to reach $87.7 billion by 2008. India bought $26.4 billion worth of goods in Europe last year, mostly machinery, chemical products, gems and jewelry. Indian investments in the EU have surged in recent years to $752 million in 2004. But EU investments in India were only $1.03 billion that year. — AP