India and the European Union have decided to grant each other Most-Favoured-Nation (MFN) status for five years post the implementation of their proposed free trade agreement (FTA). This move is intended to ensure equitable trade in services between the two parties. Under the MFN provision, service sectors and providers from both India and the EU will receive treatment at least as favorable as those from any other nation.
The MFN treatment prohibits either side from offering better terms to a third country without extending the same benefits to the other party, with certain conditions and restrictions in place. However, this treatment does not cover issues related to taxation treaties, mutual recognition of standards, or dispute resolution procedures. Additionally, the agreement permits both sides to provide special advantages in border regions for services produced and consumed locally.
This provision is a part of the Trade in Services section of the FTA text, which was disclosed on January 27. A Joint Committee will oversee a review in the fourth year of the agreement, focusing on matters like the entry and rights of Indian students in the EU, their employment rights, and regulations concerning the temporary movement of service providers. Following this review, the Joint Committee will determine whether to extend the MFN treatment beyond the initial five-year term.
Either party can request a review if circumstances arise that negatively impact their interests. If the Committee chooses not to prolong the agreement, the obligation to provide MFN treatment will cease, while already granted benefits will remain intact. Last month, India and the European Union finalized a long-pending free trade agreement with the goal of reducing tariffs, enhancing market access, and fostering trade and investment between the two economies.
