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A Quantitative Assessment of the EU–India Free Trade Agreement
With EU–India clinching a post-Brexit trade negotiation, the present paper proposes to examine whether the free trade agreement between the two regions would increase production efficiency and thereby social welfare. Using the partial equilibrium model, the study reveals that the EU–India FTA yields less positive trade and welfare gains in India after Brexit specifically, for consumer, industrial, and capital goods, whereas it would still be in India’s interest towards the specific benign impact of an FTA in raw materials, intermediate goods, and agricultural goods. From the policy perspective, India is not well-served by its pursuit of protectionist agenda and instead should push for trade liberalisation as a better path for the global trading system.
On 23 June 2016, the United Kingdom (UK) decided to exit the European Union (EU) with a majority vote of 52% in the “Brexit” referendum. Finally, on 31 January 2020, the UK formally left the EU and the immediate effects have started to be felt not only in the EU and advanced economies but also in developing and emerging economies, both in their stock markets and in the foreign exchange via the price of the pound. Brexit, as the UK’s exit from the EU has been termed, has resulted in financial markets’ volatility and has a significant effect on the Indian economy as it is the largest export market for India. Further, the Brexit decision has added new problems to the already existing issues in the EU–India free trade agreement (FTA).
Since 2007, India and the EU have been working on a broad-based trade and investment agreement but failed to reach the proposed EU–India FTA because of the inability to reach a consensus on several issues. Generally, India’s restrictive trade policy and regulatory framework have come up as hurdles related to matters such as foreign direct investment (FDI), greenhouse gas emissions, nuclear energy, farming subsidies, regulation of the financial sector, tariff and non-tariff barriers, and technology transfer. These hurdles failed to resolve the differences regarding the EU–India FTA in some specific sectors like dairy, textiles, beverages, and automobiles. Since import duties for these products are relatively high, the reduction of import tariffs is considered to affect these sectors to a large extent. On the other hand, the EU imposed a ban on 700 drugs clinically tested by an Indian drug company.1 The EU is keen that India should adopt stringent intellectual property protection standards even if that means compromising public health.2 Simultaneously there are many barriers to the movement of professionals due to cumbersome rules on work
permits, visa restrictions, and non-recognition of professional qualifications by the EU. India wants harmonised and easy access to these rules.
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