Spice Route to Europe? Prospects for an India-EU Free Trade Area

Negotiations on an EU-India Free Trade Agreement (FTA) opened in June 2007. The EU and India are both pursing a policy of bilateral trade agreements against a background of faltering multilateral negotiations.

India still has a relatively low share of world trade - under 1% - of both goods exports and imports, and just over 2% of world services trade. The EU is the world's largest exporter and importer of both goods and services. It has a high, though falling, share of Indian goods imports and is an important provider of services and FDI for India.

Indian barriers to trade, in goods and services, and to inward FDI remain high despite a general liberalization and very rapid fall in applied tariffs since 2004. The EU is relatively open but India will be anxious to improve market access for manufactures, services and FDI.

For goods there is little overlap in trade structures or comparative advantage between India and the EU. Neither party is likely to press the other on agricultural liberalization - an area of extreme sensitivity for both in the Doha Development Agenda (DDA) negotiations. On services, both sides are anxious to increase their market access across all modes of provision, and negotiability is not an obvious problem.

Prospects for an agreement appear good but there are potential obstacles. These include general suspicion of trade liberalization in the Congress party across the country as well as other parties in the governing coalition; Indian lack of ambition for the agreement; the EU's requirement for environmental, social and human rights clauses in the agreements which might cause offence; the sheer complexity of the negotiations, which might mean they are overtaken by the next Indian general election campaign.