Public Meeting TSIA EU-IndiaPhase 2 Report

By: Paul Wijmenga & Koen Berden

Brussels, 6th of November 2008

Overview

1. Introduction

2. Selected sectors

3. Selected horizontal issues

4. FDI, gravity and NTB analysis

5. Consultations with Civil Society

6. Conclusions

7. Policy recommendations

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1. Introduction: 2nd Public Meeting

Goals of this meeting

1. Presentation of the second set of study results (Phase 2 – Interim Report);

2. Presentation of gravity estimation results on NTBs, FDI and investments;

3. Getting feedback, comments and suggestions for the study from civil society;

4. Initial discussion on policy recommendations and flanking measures

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1. Introduction: TSIA Methodology

• TSIA: look at economic, social and environmental sustainability impacts of trade measures negotiated within the EU-India FTA;

• TSIA quantitative and qualitative approach (CGE, Causal Chain Analysis and expert interviews);

• The TSIA is 50% modeling and analysis and 50% consultations: www.tsia.ecorys.com/india

• Phase 1: screening and scoping (GAR); Phase 2: in-depth studies of screened sectors/issues; Phase 3: policy recommendations and enhancement or mitigating measures

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Phase 2: In-depth studies into sectors and horizontal

issues1. Screening: Size as share of GDP, Expected Economic Impact,

Social/Environmental Impact, Civil Society

2. Sectors: Grains, Motor Vehicles & Automotives, Textiles & Clothing,

OBS, Financial & Banking services; Horizontal issues: Investment

Conditions, Technical regulations Industrial Products, SPS, Trade

Facilitation, IPR

3. Changes due to Civil Society comments: include IPR, make CGE

more dynamic, more clearly present assumptions and restrictions of

CGE, look at poverty aspects, ecological outcomes, horticulture is a

case study, CO2 analysis for both EU and India

1. Introduction: TSIA Methodology

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2. Selected sectors - Grains

- Overall positive impact economically, socially – small

effects – effect on poverty;

- CGE outcomes an upper limit (due to inefficiencies,

hidden unemployment);

- Remaining NTBs related to SPS issues – effect on

poverty;

- Expected growth in the Indian rice sector as a

consequence of liberalisation;

- Environmentally: eutrophication, chemicals, pesticides

and projected increase in GHG emissions.

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2. Selected sectors - Automotives

- Overall small mutually positive impact economically – larger if we

factor in FDI flows – larger impacts for India (31% tariff reduced);

- Expected reallocation of parts of the (labour-intensive) production

process from the EU to India;

- Combination of EU investments (including R&D) and Indian cheap

labour for (for example) assembly – strong combination;

- Issues related to technical regulations – NTBs – if addressed lead

to large two-way gains as costs of doing business/trade drop;

- Very small negative employment effects in India – efficiency – but:

excluding FDI factor;

- Environmentally: no significant projected primary impacts –

secondary: products produced are polluting.

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2. Selected sectors – Textiles & clothing

- Overall effects expected to be modest – regional effects may be more pronounced (lower output and employment in the EU);

- Investment flows EU to India expected to increase (for larger EU firms – not SMEs);

- Expected further specialisation of EU production into high-end and technical textiles;

- Strong positive economic effects in India: output, employment, real income growth;

- Positive effects in India for gender equality (female participation) and migrant workers;

- Small negative expected environmental impacts through bio-diversity, atmosphere, and water quality (industry) – most impact in apparel that is relatively least polluting

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2. Selected sectors – Finance & banking

- Note: with current financial crisis – interpret these

conclusions with caution – sector is very much in flux;

- Key aspect: to what extent does FTA increase FDI from

EU to India in financial & banking? If so, capital and small

employment gains (EU) and employment and technology

and cost gains (India);

- More competitive banking sector in India – lower costs of

transactions carry over to sectors in the economy;

- Important factor: how do – in parallel to FTA – Indian

banks connect to people (especially in rural areas)?

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2. Selected sectors - OBS

- Direct economic FTA effects for EU small – crucial is

how FDI flows increase because of more integration

and Indian openness on some OBS;

- Outsourcing and offshoring of EU OBS to India

expected to increase pace;

- Related to investment is mobility of experts and

contract workers with respect to OBS – there is a

potential economic impact based on UK example;

- Environmental effects expected to be negligible.

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3. Selected HIs: Investment conditions

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- Addressing investment conditions: NTBs (e.g. OBS)

- Increased investment flows into India – especially into

competitive sectors (e.g. Automotives, financial services,

chemicals, textiles) – for EU: firms more market access (not

only through trade – also investment);

- Positive social impacts – employment generation in sectors

(but efficiency vs. more jobs and agriculture not much effect

– some growth vs. mechanisation);

- Long run: positive R&D and technology effects;

- Overall environmental impact is negative: higher national

income more resource consumption

emissions/pollution.

3. Selected HIs: Technical regulations industrial products

KB

- Overall EU effects small – regional impacts to manufacturing industries (e.g.

Automotive, machinery);

- In India: lack of awareness of (EU) technical regulations – improve awareness

and understanding;

- TIDP – EU provides assistance to India to help upgrade TBT;

- Potential economic gains for Indian manufacturing (not so much agriculture) are

large – more trade with EU (market access);

- Social gains may follow economic gains: cleaner technologies, higher quality

products, cleaner production environment, etc.

- No direct environmental impacts, but indirectly – if TR cause growth in

manufacturing industries, negative impacts may follow (wastewater, air

pollution).

3. Selected HIs: SPS

KB

- Large divergence in SPS standards between the EU and India – large NTB in

agricultural sector;

- SPS harmonisation gains: EU: market access processed foods; India: market

access for raw agricultural materials and primary products;

- More beneficial effects for India than EU (based on trade flow analysis that

relates to SPS);

- Primary social impact small, but secondary effect substantial since it lowers

health risks (food safety higher, lower chance for diseases);

- Issue: base SPS standards on scientific evidence;

- FTA can make contribution to SME growth in agriculture (major achievement!)

if SPS harmonisation occurs and SMEs are allowed to benefit;

- Issue: implementation & enforcement

3. Selected HIs: Trade facilitation

KB

- EU advanced in aspects related to trade facilitation – if

addressed, Indian exports expected to benefit much more

than EU exports (in size) – EU: very small production effects

(in sectors where trade with India is relatively larger);

- The more ambitious the FTA, the more positive the

economic potential effects are (both EU/India);

- In India some social impacts (employment) in sectors that

benefit from lower transport costs and shorter waiting lines

(e.g. fresh fruits, fisheries);

- Environmental impacts are considered negligible;

3. Selected HIs: IPR

KB

- Issue: regulation, but also implementation and enforcement;

- Direct economic impact for EU very small;

- In longer run: dynamic effects through higher incentive to

invest in R&D – positive;

- For EU services and industry: more ‘fair’ level playing field

internationally (against counterfeiting);

- For India IPR enforcement among Indian firms can lead

(LR) to higher TFP growth through enhanced innovation

and R&D;

4. FDI, investment and NTB analysis (1)

KB

- Strongly increasing FDI into India (e.g. €13.6 bn – 2005 –

lower estimate) and much lower back (€200mln average);

Rank Sector Share of total FDI inflow (%)

1 Services sector (financial and non financial; other than computer services, construction and telecomm.)

20

2 Computer software and hardware 16

3 Telecommunications 8

4 Construction activities 5     

4. FDI, investment and NTB analysis (2)

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4. FDI, investment and NTB analysis (3)

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5. Consultations with civil society (1)

1. Formal parts from ToR of the TSIA EU India: Public

Meeting 1 (GAR), Workshop Delhi, Public Meeting 2 (Phase 2)

2. To come: Public Meeting 3 (Phase 3)

3. Website consultations – feedback, online visits,

consultation round (6th – 27th November 2008)

4. Report and survey designed – will be sent out for

comments (in EU & India) – to European Services Forum,

Business Europe, Bureau Europeen des Unions des

Consommateurs, etc. etc. + to those who ask for it via Public

Meeting or website (list going around to sign up)

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5. Consultations with civil society (2)

5. Face-to-face meetings (upcoming based on Phase 2 report):a. In India with: UNDP, Center Int Trade - Agri, Federation of Trade

Unions, Federation Indian SMEs, NASSCOM, Energy &

resources Institute, etc.

b. In the EU with: Business Europe, Foreign Trade Association, EU

business & industry associations, Various DG experts

Comments deadline Phase 2: 13th of November – through

www.tsia.ecorys.com/india;

Comments deadline Phase 3: 27th of November – through

www.tsia.ecorys.com/india

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6. Contact

For more information or giving feedback, contact us:

Website: www.tsia.ecorys.com/india

Email address: tsiaindia@ecorys.com

THANKS FOR YOUR ATTENTION

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QUESTIONS?

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7. Policy recommendations

For Phase 3: policy recommendations and flanking measures (enhancing mitigating).

We launch an official consultation round for comments on policy recommendations from 6th November – 27th November 2008

To address the following questions:1. How can the strengths of the FTA (see Phase 2 report) be enhanced

by further policy action?2. How can the negative impacts of the FTA (see Phase 2 report) be

mitigated by additional policy action?3. What other policy recommendations do you have (at sector level!) to

maximise the potential gains from the EU-India FTA?

Go to: www.tsia.ecorys.com/india - to give your replies.We send you the final TSIA EU-India report in response to your

comments.

PW