Innocent Bystanders

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

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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.



The effects of a potential EU–India FTA on the EU and India

As is well known, the potential net benefits from the process of preferential liberalisation are inherently ambiguous even for the partners undertaking the integration. This arises because PTAs typically involve both trade creation18 (which is welfare increasing) and trade diversion19 (which is welfare reducing). In addition, there may be further welfare gains arising from the induced growth effects stimulated by, for example, productivity growth, increased specialisation, and/or positive externalities between firms, sectors or across sectors (e.g. between manufacturing and services) which are typically more likely to arise in the presence of deeper integration. This chapter will briefly look at these in the context of a potential EU–India FTA, first in terms of partial equilibrium analysis of shallow integration, then in terms of qualitative analysis of deep integration and finally, by looking at some quantitative results from general equilibrium modelling.


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