Be suspicious of India-EU pact
Economic Times | 2 Dec 2008
Be suspicious of India-EU pact
ET Bureau
NEW DELHI: There is an outcry over the proposed India-EU free trade agreement, the contents of which are being ‘secretly’ negotiated by the two governments. Last week, an outfit called Forum on FTAs—which says it’s a coalition of over 75 organisations including trade unions, farmer and fishermen groups and other civil society organisations—demanded that the talks be halted immediately.
(India and EU are set to commence the sixth round of negotiations for this agreement shortly). The Forum says the agreement would only harm India in various ways going by the report of the high-level trade group comprising the EU and India which drew its broad contours. It fears India’s autonomous policy space would be reduced seriously and irretrievably if the agreement is signed.
Denouncing the proposed agreement, the forum listed out its possible adverse consequences: Large-scale job losses in the unorganised sector, serious undermining of India’s development goals in agriculture, healthcare and access to knowledge (in the form of denial of farmers’ right to seeds, increase in prices of medicines etc.), a detrimental impact on small and medium enterprises of the proposed opening up of government procurement to EU companies, an exacerbation of financial exclusion.
Don’t be quick to dismiss the Forum’s views as negativist and representing the characteristically protectionist brigade. It’s not merely making sweeping comments. The forum quotes a study saying, “the FTA would increase EU exports to India by $17-18 billion while India’s exports (to EU) would increase by only $5 billion.”
The FTA would, as things stand now, allow India to keep just 10% of the tariff lines—which include both agricultural and industrial goods—outside its scope. It may be noted that India has been resisting the multilateral (WTO) trade liberalisation deal even as did not have to cut tariffs on 11% of its agricultural tariff lines and looked close to getting the freedom to keep 5% of industrial tariff lines outside tariff reductions.
The question is if the country is willing to allow such flexibilities to EU, its largest trading partner—India-EU trade is over $50 billion now—why did have it to show obduracy in the WTO forums? In terms of the actual effect of tariff reductions also, New Delhi would require to do much more than the EU. India’s average applied tariff on agricultural goods is around 34-35% and on industrial goods it is nearly10%.
Compare this with EU’s average tariff of 2%. So bringing tariffs down to zero for 90% of the tariff lines—which is what the proposed agreement would require both parties to do—is a far more sizeable measure for New Delhi than Brussels. True, Europe’s tariff levels are a bit higher than the average for certain industrial items of export interest to India like textiles and garments, chemicals and farm/marine products. But that, trade experts say, would not mean our gains would outweigh the losses.
Importantly, the ongoing India-EU negotiations are also focussing on government procurement, investment and competition policy, referred to as Singapore issues in the WTO terminology. And the EU, it is apprehended, is putting tremendous pressure on Indian negotiators with a view to gaining liberal access for European firms to Indian economy, a move which is perceived as harmful for many segments of the Indian industry, especially the SME sector. It may be noted that Singapore issues were anyway a European rather than American agenda and the stiff resistance by India was one reason why these were temporarily excluded from WTO talks.
Besides, the EU is asking for TRIPS-plus flexibilities including a further strengthening of the India’s IPR regime and grant of data exclusivity for European firms. This is even as New Delhi has been able to put in place an IPR law that is finely balanced between its domestic constituency and multilateral obligation. To give additional flexibility on this front to the largest trading partner EU would negate the rationale of the present policy which is deemed wise.
Since government procurement is an important tool for domestic production (it accounts for some 13% of the GDP) giving European companies unhampered opportunity on this front might not be prudent policy either. One must note that in the light of the global financial crisis, India’s policymakers are congratulating themselves for what they call carefully calibrated opening up of the economy to the global markets and systems.
Clearly, a wide divergence between the country’s approach to the multilateral and bilateral arenas of trade liberalisation efforts would call for reason.
