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 welfare effects of preferential services liberalisation

Having discussed the significance of services for the EU and India, the barriers to trade that exist between them and possible areas of coverage in an EU–India FTA, we now ask whether such liberalisations would be preferential or MFN. The principle of an FTA is discrimination – the preferential liberalisation of trade – but de facto it may be difficult, if not impossible, to implement the opening up of some sectors on a preferential basis. While market access and national treatment restrictions may be relaxed on a preferential basis, the removal/reduction of most regulatory barriers has more or less to be on an MFN basis. As an example, the number of partners in Indian accountancy firms is restricted to 20. If this were to be relaxed, it would be extremely difficult to limit this to preferential suppliers. Similarly, improved regulation of banks will apply to all, not just EU and Indian, banks. In such cases, de jure preferential access becomes de facto MFN access.


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