Innocent Bystanders

Implications of an EU–India Free Trade Agreement for Excluded Countries

image of Innocent Bystanders
The European Union, under its ‘Global Europe’ initiative, has since 2006 been pursuing trade agreements with its major global trading partners. An EU–India Free Trade Agreement is currently under negotiation; if successfully concluded it is likely to have knock-on effects on other countries’ trade with both India and the EU, the trade of the ‘innocent bystanders’ excluded from the agreement.

The authors consider the implications of the EU–India Free Trade Agreement for various groups of other countries, including the ACP countries and those in South Asia, the latter group being most strongly impacted. The analysis considers not only trade in goods but also trade in services, and focuses not only on quantities but also on the prices at which trade is conducted.

The authors then consider how excluded countries might respond to the Free Trade Agreement, both at an individual level and at a systemic level.



Individual excluded countries

We first consider possible policy responses for individual excluded countries. The analysis above helps to identify broad sectors in which the shock from an EU–India FTA will be largest on average. Countries concentrated more heavily in these sectors are likely to experience greater competitive pressures and hence a greater need for adjustment. However, as pointed out previously, the shocks are mostly very small – quite within the limits of normal commercial uncertainty. Thus these data alone do not point to a need for specific policies but rather for sound conditions that allow firms to weather shocks. At lower levels of disaggregation there may be larger impacts, but again provided that firms can shift to closely related yet less affected products they will often be able to adjust relatively easily.


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