The recently released text of the India-EU Free Trade Agreement (FTA) reveals a significant but time-bound commitment regarding "Most Favoured Nation" (MFN) status in the services sector.
Under this deal, both parties are planning to give each other MFN treatment for an initial period of five years from the date the agreement officially starts.
So, what makes a "Most Favoured Nation"? The MFN status means that if India or the EU gives a better trade deal to any other country in the future, they must offer those same improved terms to each other. This ensures that Indian service providers, such as IT professionals or engineers, are not at a disadvantage if the EU later signs a more generous deal with a different nation.
However, this specific MFN rule only applies to new trade agreements signed after this FTA comes into force. The agreement includes a "trial" approach to this status. According to the text, the MFN benefit will automatically stop after five years unless both sides mutually agree to keep it going. To decide this, a high-level Joint Committee will conduct a major review at the beginning of the fourth year.
This review is particularly important for India because it will look at how the EU is treating Indian students, specifically regarding their rights to stay and work after finishing their studies. The committee will also evaluate progress on social security agreements, which help Indian professionals working in Europe avoid paying double social security taxes.
There are certain exceptions to this rule. For example, any special benefits shared through international tax treaties or agreements that recognise professional degrees do not have to be extended to the other party under this MFN clause. If the review in the fourth year is not successful, neither India nor the EU will be required to offer this "most favoured" treatment once the five-year clock runs out.