India and the European Union have agreed to give each other Most-Favoured-Nation (MFN) treatment for five years after their proposed free trade agreement (FTA) comes into force. 

The move is aimed at ensuring fair and equal treatment in trade in services between both sides.

Under the MFN provision, service sectors and service providers from India and the European Union will be treated at least as favourably as those from any other country.

This means neither side can give better treatment to a third country without extending the same benefit to the other party, subject to certain conditions and limits.

However, the MFN treatment will not apply to matters related to taxation treaties, mutual recognition of standards or authorisations, and dispute settlement procedures.

The agreement also allows both sides to provide special advantages in border areas for services that are produced and consumed locally.

The provision is part of the Trade in Services chapter of the FTA text that was made public on January 27.

As part of the arrangement, a Joint Committee will conduct a review in the fourth year of the agreement.

The review will focus on issues such as the entry and stay of Indian students in the EU, their rights to work, and rules governing the temporary movement of service providers.

Based on this review, the Joint Committee will decide whether to continue the MFN treatment beyond the initial five-year period.

Either side can also request a review if circumstances arise that negatively impact their interests. If the Committee decides not to extend the arrangement, the obligation to provide MFN treatment will end, although benefits already granted will remain in place.

India and the European Union had reached the long-pending free trade agreement last month. The deal aims to lower tariffs, improve market access and boost overall trade and investment between the two economies.