Author: Prasanna Parandekar
Introduction
The proposed Free Trade Agreement between the European Union and India is among the most ambitious bilateral trade negotiations in recent times. After years of stalled discussions, negotiations have taken off once again, including discussions on tariff liberalisation, services, digital trade, intellectual property rights, investment protection and sustainable development. While the agreement is promising of economic benefits and strategic partnership, one important legal issue is whether the India-EU FTA violates the laws of the World Trade Organisation (WTO). This problem is not just a technical one – it is at the centre of the tensions between regional trade agreements (RTAs) and the multilateral trading system under the aegis of the World Trade Organisation.
The Multilateral Framework: WTO Principles
The system of the WTO is based on basic principles such as:
- Most Favoured Nation (MFN) Principle (Article I of GATT 1994) – All members of the WTO to be treated equally.
- National Treatment Principle (Article III of GATT 1994) – Imported goods should not be treated less favourably than domestic goods.
- Transparency and Predictability of trade regulations.
At first sight, FTAs appear to be incompatible with the MFN principle as they provide preferential treatments to selected trading partners. However, WTO law provides for such arrangements under some conditions.
Legal Underpinning of FTAs under WTO Law:
Much of the rationale for the legality of FTAs comes from:
- Article XXIV of GAT 1994 – Relates to Trade in Goods.
- Article V of GATS – covers trade in services.
- The Enabling Clause – Allows discriminatory arrangements to be made between developing countries.
Under Article XXIV, an FTA is permitted if:
- It abolished duties and restrictive regulations on “substantially all the trade” between the parties.
- It does not introduce any barriers to trade against third countries.
- It is implemented in a reasonable period of time
Therefore, the India-EU FTA is not necessarily against the WTO law. Rather, it is those provisions in the form of how they are structured and implemented.
Important Areas of Legal Examination:
- Tariff Liberalisation and ” substantially all trade”
One key issue is whether the agreement liberalises “substantially all trade.” The EU generally has ambitious objectives for the level of tariff removal (often of more than 90%). India being a developing economy tends to be a more calibrated approach, particularly for sensitive sectors of the economy such as agriculture and dairy.
If the agreement excludes important sectors without proper justification, there may be some question as to compliance with the Article XXIV standards.
- Services Liberalisation under GATS
India enjoys competitive advantage in the areas of services, particularly IT and professional services. The EU market is one which offers possibilities but liberalisation should be commensurate with article V of GATS as this includes substantial coverage of the sectors and no discrimination between the parties.
The structure for mutual recognition agreements (MRAs) for professional qualifications is also to come under a prism of scrutiny, to ensure consistency with WTO transparency obligations.
- Intellectual Property and TRIPS-Plus Issues
The EU is known to argue for “TRIPS-plus” provisions – i.e. higher standards of intellectual property protection than required under the WTO’s Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).
In particular, if the FTA includes extended terms of patents or increased data exclusivity requirements, there are questions as to what effect it will have on public health and access to medicines. While it is open to impose higher standards under the WTO law, the higher standards must not compromise on higher standards under more general multilateral commitments or public policy safeguards under the TRIPS Agreement.
- Geographical Indications (GIs)
A particularly sensitive issue between India and the EU is that of protection of Geographical Indications. The EU wants to have a strong GI protection for products such as cheeses and wines, whereas for India, the recognition of its own GIs, including agricultural and handicraft products, is what is sought.
Any GI framework has to be consistent with the TRIPS Agreement, and should not discriminate in favor of or against non-parties. This area appears to provide an opportunity for legal innovation within the context of the WTO.
- Investment Protection and Dispute Settlement
Modern agreements for trade between EU countries are often supplemented with what is called an Investment Court System (ICS). India has, however, adopted the revised Model Bilateral Investment Treaty (BIT) framework after it lost to adverse arbitration awards.
The issue of compatibility in this case may not be of WTO law but fragmentation of international economic law. If dispute settlement provisions put in place parallel enforcement regimes that are also incompatible with WTO dispute settlement procedures, then systemic coherence is challenged.
Regionalism vs. Multilateralism: Systemic Issue
The proliferation of FTAs around the world raises greater concerns with the future of multilateral trade governance. With problems in the operation of the WTO Appellate Body, regional agreements have been more attractive as alternative frameworks.
However, there may be too much reliance on bilateral or regional agreements, which could result in the creation of a “spaghetti bowl” of overlapping trade rules and possible lack of predictability and uniformity in international trade law.
The India-EU FTA must therefore be viewed not as a unilateral economic tool only but as part of a larger structural evolution in the trade governance of the world.
Dimension of Development and Equity Considerations
As a developing country, India can avail the principle of Special and Differential Treatment (SDT). Although Article XXIV is not expressly providing SDT to FTAs between developed and developing countries, the spirit of the WTO law recognises asymmetries in development.
The agreement must balance:
- India’s need for flexibility on industrial policy,
- The need for regulatory alignment imposed by the EU, and
- WTO’s need for non-discriminatory trade liberalisation.
A well-designed FTA can be an intermediary between development priorities and international trade integration.
Conclusion
The India-European Union Free Trade Agreement is legally so permissible under the WTO law, provided it meets the conditions laid down in Article XXIV of GATT and in Article V of GATS. The critical issue is not whether FTAs are permitted – they clearly are – but whether they enlarge or diminish the multilateral trading system.
If structured transparently, covering all trade substantially, not raising additional barriers against third parties and also keeping coherence with WTO principles, the India-EU FTA can function as a complementary tool in the WTO framework.
However, if it leads to regulatory fragmentation as well as excessive TRIPS-plus obligations or discriminatory market practices, it may contribute to the slow erosion of multilateralism.
Ultimately, the success of the India-EU FTA will hinge not just on economic benefits, but also on the ability of the FTA to support the international trading order of the rule-based type. In the context of changing geopolitical alliances and institutional uncertainty, such an agreement is both an opportunity and a test for the future of global trade law.
