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EU trade policy

The EU-India FTA: initial observations from a development perspective

Which kind of agreements with the EU does India need?

Authors: S. Powell
Publisher: Traidcraft, 2008

Full text of document

This report examines various central aspects of the proposed European Union (EU)-India free trade agreement (FTA). It focuses particularly on the implications for several sectors of special relevance for poor people and the achievement of development goals.

The paper states that a number of fundamental concerns are raised, both in relation to the impacts of EU imports, and from the reduced scope for regulation that comes with the FTA. Furthermore, Key fault-lines are beginning to emerge in the negotiations. The Indian government has sought lower levels of liberalisation than initially proposed, in order to retain sufficient scope to protect its sensitive sectors. The Indian government also has stated it wants to exclude government procurement from the negotiations. However, the EU sees inclusion of government procurement as a non-negotiable and has also so far objected to asymmetry in tariff liberalisation commitments. Moreover, there are concerns that the FTA may be problematic for India, because it reduces the national policy space that can play an important role in the medium and long-term growth of domestic industries.

Similarly, initial assessments seem to indicate that the net benefits to India in the area of goods liberalisation are likely to be small. Nevertheless, the paper finds that liberalisation of certain products may directly benefit key sectors. For example, imported inputs enable industries to produce more cheaply.

Correspondingly, the paper concludes that the FTA could have a number of early-felt impacts in India:

  • immediate risks from liberalisation to EU products for a very wide range of vulnerable sectors
  • inadequate safeguards to protect vulnerable sectors in case of import surges
  • an acceleration of the entry of major European retail chains, which will drive concentration within the sector
  • the FTA may restrict India’s options for South-South partnerships or other strategic alliances
Consequently, the paper sets some recommendations for both India and the EU:
  • Indian government is recommended to make development central to any trade arrangements with the EU
  • India should allow time for deep impact assessments and wide consultations, including broad discussion with those groups most likely to be affected by the FTA
  • The EU should review its strategy, to replace it with an approach that puts development objectives at the core
The paper finally emphasises that unless India is able to negotiate an agreement that looks very different from current EU proposals, it is highly questionable whether the EU-India FTA is the best way forward for development.