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.



The role of investment

The discussion so far has largely focussed on India’s market access to the EU. The other dimension is the reverse trade flow, which assumes much significance in the context of a possible EU–India agreement and its impact on excluded low-income developing countries. The EU’s strategic interests in most developing country markets are in Mode 3 and here it would be interesting to see if a possible EU–India agreement has separate provisions on investment in addition to coverage of Mode 3. In either case, given that European firms complain about being unaware of general conditions in the Indian market and the plethora of horizontal barriers plaguing investment in India, a possible agreement covering such issues could go a long way in switching the portfolio of EU investment in favour of India and possibly away from other low-income developing countries. In view of the well known positive effects of such investment in the recipient countries, such possible shifts in the flow of capital to India could be quite detrimental to the excluded low-income developing countries. The positive spill-over effects of economic integration on investment are documented in the literature (for example, see Brenton et al. 1999, Gao, 2005 and Feils and Rahman, 2008) and the excluded countries would be bereft of these as well.


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