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What will India gain from the FTA with the EU?

New Europe | 13 July 2007 - Issue : 738

What will India gain from the FTA with the EU?

Indian exporters will be able to increase their exports to the 27-nation European Union (EU) by just under 20 percent, once the negotiations for a free trade agreement (FTA) between India and the EU have been successfully concluded. India’s Commerce Secretary, G. K. Pillai, and the EU’s David O’Sullivan launched these negotiations in Brussels on June 28. The next round is expected to take place in two or three months’ time in New Delhi. The agreement should be ready for signature some two years from now.

By Malcolm Subhan

Viewed from here, it is the European Commission in Brussels, the EU’s trade negotiating arm, headed by Peter Mandelson, that has set the pace so far. Its determination to secure much easier access to the burgeoning Indian market for EU exporters and investors seems to have put New Delhi on the defensive.

The stakes are high for both sides. The FTA is expected “to promote trade between India and the EU by removing barriers to trade in goods and services and investment across all sectors of the economy,” according to the brief statement issued by the two sides on June 28.
This ambitious agenda has the full support of Prime Minister Manmohan Singh and his EU counterparts. At their 2005 Summit meeting they set up a High Level Trade Group, to look into the possibility of launching negotiations for a wide-ranging trade and investment agreement.

The 2006 Summit accepted the Group’s recommendation to open negotiations for such an agreement. The Summit also called on both sides to “move towards (these) negotiations.”
The two-day meeting in Brussels seems to have made little headway, however, and this despite the admission, by the two sides, that “there has been significant preparatory work.”

The High Level Trade Group, made up of senior Indian and EU officials, has in fact been preparing the ground for these negotiations since October, 2005.

Its report, covering such key issues as trade in goods and services, investment, technical and sanitary barriers to trade, intellectual property rights and government procurement, is in the hands of the Indian and EU negotiators.

The EU’s preparations have not been limited to its projected FTA with India; the fact is that the EU plans to conclude FTA’s with not only India but also the Association of South-East Asian Nations (ASEAN) and South Korea.

These agreements could boost EU exports to India by just under 57 percent, to ASEAN by some 25 percent and to South Korea by 48 percent, according to studies carried out by two independent think-tanks on behalf of the European Commission.

The biggest gains for the EU would include a 50 percent increase, worth five billion Euro, in exports of industrial and manufactured goods to India.

Additional gains for the EU would be in the business sector: an increase of 29 percent (worth eight billion Euro) to ASEAN and one of 22 percent (worth four billion Euro) to South Korea.

The biggest gains for India would include a 46 percent increase (worth 3.6 billion Euro) in its exports to the EU of textiles and clothing.

Business services from ASEAN to the EU would rise by 80 percent (worth 14 billion Euro) and of vehicles from Korea by 40 percent (worth five billion Euro).

An EU-ASEAN agreement would see some trade diversion from China and India, and the Gulf states could see some trade diversion effects by an EU-India FTA, according to the two think-tanks.

The 27 EU governments adopted the European Commission’s recommendations to open FTA negotiations with both Asian and Latin American countries in late April.

The aim, they declared, should be “a new generation of WTO-compatible Free Trade Agreements that extend beyond present agreements.”

These FTA’s, the EU governments pointed out, “should be ambitious and comprehensive and comprise far-reaching liberalisation of trade in goods and services, and investments,” with “special attention given to the elimination of non-tariff barriers.”

The EU has brushed aside suggestions that the half dozen FTAs it is negotiating will undermine the efforts by the World Trade Organization (WTO) countries to bring the Doha Development round to a successful conclusion.

In the statement they issued here on June 28, India and the EU “reiterated their belief in the primacy of the multilateral trading system and reaffirmed their commitment to the Doha Development Agenda (DDA) round of trade negotiations.”

The EU governments, “while respecting the priority of the multilateral trade negotiations,” wanted the FTA negotiations with India, ASEAN and South Korea to “be taken forward rapidly.”

The new FTA agreements, they pointed out, would help EU industries compete more effectively against their global competitors on these three important markets.

This is because each FTA agreement would be so crafted as to promote trade between the two parties to the agreement. Thus the EU-India agreement could provide tariff cuts for products of specific export interest to each side.

These reduced tariffs would not be available to exporters from other countries, because the agreement would contain rules of origin that they would be unable to meet.

Tariff cuts made within the framework of the Doha development round would have to be extended to all WTO countries, however, under the most-favoured-nation (MFN) rule.

The negotiations for an EU-India FTA could prove even more difficult to bring to a successful conclusion than the Doha development negotiations.

The EU will be pressing for substantial tariff cuts, on the grounds that India, as well as ASEAN and South Korea, “combine high levels of protection with large market potential.”

What is more, the EU wants the FTAs to focus on areas not currently covered by WTO rules, such as investment, trade in certain services and the removal of non-tariff barriers and technical barriers to trade. It will also be seeking stronger protection of intellectual property rights.

India might be better off giving priority to the Doha development round. Except for the fact that the prospects for the round are not very good. It could either drag on for years or expire shortly. (INEPNEXT).

 source: New Europe