Friday, November 30

The prospects for an EU-India bilateral trade agreement

This article talks about an EU-India bilateral trade agreement but says that the prospects are uncertain. Damn right they are uncertain. You see, trade agreements are usually confused by free trade agreements or customs unions. They aren't free, they aren't mainly to do with trade and they usually don't show any signs of unions. They are not, they basically entrench bad economic habits on both sides. But for what's its worth, a good overview.

Read and ponder. Some extracts:

Prospects for an agreement appear good but there are potential obstacles. The optimism comes form the fact that the EU is India’s largest trade partner and is an important provider and buyer of services and FDI. Moreover, as far as goods trade is concerned, there is little overlap in trade structures or comparative advantage between India and the EU, so liberalisation should trigger little of the sort of sectoral readjustment that can be so painful politically. Likewise, neither party is likely to ask for difficult agricultural liberalization – another standard source of conflict. More positively and perhaps decisively both sides are anxious to increase the access that their service provider have to each others’ market.

Potential obstacles stem from India’s domestic politics. There is a general suspicion of trade liberalisation in the ruling Congress party (as opposed to the government), and downright hostility to trade from other parties in the governing coalition such as the communists. The European Commission wishes the free trade agreement to address deeper integration issues such as competition policy, the rights of foreign investors, open government purchasing practices as well as environmental, social and human rights clauses. The latter in particular may cause problems in India, which may suspect that such clauses may create pretexts for future protection. India may also simply consider them patronizing given that Indian democracy is older than that of many EU member states.

The final stumbling block may be an unbridgeable expectation gap. The EU’s trade strategy commits it to ambitious and far-reaching agreements. India’s current idea of a free trade agreement is the India-Singapore deal which, though “comprehensive” in name, contains rather less liberalisation than the EU desires.

Finally, an EU-India agreement will inevitably be complicated given the very different stages of development and the size and intricacy of the two economies. The sheer complexity of the negotiations may mean they are not completed by the time of the next Indian elections. They may get held up and perhaps repudiated by any new government, particularly if dominated by left wing parties.


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