Student - November 13, 2008

FREE TRADE WITH THE EU WOULD BE BAD NEWS FOR INDIA

India has nothing to gain from a free trade agreement with the European Union. European products would wipe out Indian industry, an LEI study has concluded.

The Indian economy is gaining a steadily stronger position on the world stage. And this has prompted the EU to open negotiations about doing away with trade barriers in both directions.

The LEI has done some calculations to see whether this would be a good idea, both for India and for the EU. The conclusion is clear, says Dr. Marijke Kuiper. The total removal of trade barriers would have disastrous consequences for the Indian economy. ‘For Europe it would make very little difference. But from the Indian perspective, the conclusion is clear: Don’t do it.’

The LEI reached this conclusion after calculations based on a trade model. They looked at both a partial and a total removal of import tariffs. According to Kuiper, India’s import tariffs are relatively high, so getting rid of them would have far-reaching consequences. The best option for India would be to reduce import tariffs by thirty per cent, while the EU should get rid of these tariffs altogether.
But this doesn’t seem very feasible. Free trade agreements generally have to be across-the-board, says Kuiper. ‘There are some exceptions, though. The EU always protects its own supermarkets, for example.’

Kuiper thinks the study makes it very clear why India is so wary of open borders. ‘In WTO negotiations about trade liberalization, India always holds back. If you look at the results of our study, you can see why. They must have made a similar analysis themselves.’

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