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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.

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Conclusion

Services trade should be a major component of an EU–India FTA. Both parties have strong interest in the service sector and many barriers to mutual trade. If they achieve liberalisation, some benefits will probably spill over to other developing countries but especially some partners’ gains in competitiveness will probably redound to excluded countries’ long run disadvantage as Indian firms become established in the EU and difficult to displace. This will be more of a problem for middle-income than low-income countries, for most of the latter are not very plausible exporters in most tradable services anyway. Part of the effect may be felt via FDI, but the evidence of serious re-orientation of investment away from excluded countries is actually very weak. Finally, the chances of meaningful services liberalisation in the EU–India FTA are not particularly good.

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