Why India’s FTA with EU is very bad for its people

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Demonstrators carry a giant inflatable medicine pill during a protest against the EU-India summit. Reuters

First Post | Mar 26, 2013

Why India’s FTA with EU is very bad for its people

by G Pramod Kumar

Even as India enters the final phase of the negotiations for its controversial Free Trade Agreement (FTA) with European Union (EU), the country hasn’t taken into account the red flags raised by citizens’ groups and development specialists.

It’s not just some irrational fear based on any ideology, but a real danger that emanates from conditions that India is willing to agree with the EU. These conditions will seriously compromise the interests of its people at no obvious gain in trade or economic expansion. It will also have tremendous impact on India’d development sector, including food security and access to treatment.

FTAs are bilateral agreements between countries. When it is between rich and poor countries, one cannot expect the rich to be ethical and compassionate. When the rich is habitually exploitative, the poor has to be careful. Unfortunately, India is not.

Its policy mandarins are too eager to integrate its poor with the rich of the North for no apparent gains other than perhaps sharpening its neo-liberal image and ratings.

In a world which already has 356 FTAs between countries, even the little gains that India seems to gain on paper will erode (preference erosion) fast — because of the same countries’ agreement with other countries — while the country will never get back the policy-space that it lost to such treaties. As noted by UNCTAD, “the gains for developing countries from improved market access through FTAs are not guaranteed, and may be short-lived, but the loss of policy space is certain.”

The UPA government is allowing its policy to be dictated by the EU.

The EU-India FTA is a North-South (the treaty between the developed world and a developing country such as India) agreement and hence the alarm. The rich countries don’t get into trade-agreements to help the poor countries, but will want to gain market access in the latter and throttle their internationally agreed trade flexibilities to survive. India, in the process, will squander the benefits it has under international agreements for silly benefits.

In this FTA, India stands to gain very little because close to 69 percent of its agricultural exports and 65 percent of its non-agricultural export already enter the European markets without duties, whereas it allows only less than six percent of the former’s products without duty. Therefore, what the EU is looking for is India lowering its tariffs and allowing easy flow of their products in to the country, which already has a bad trade deficit with all its FTA partners except Singapore and Sri Lanka.

As a Third World Network (TWN) note highlights, India’s additional market gain is very little while it has to significantly open its markets.

India is justified of this present asymmetry because of the huge subsidies and other hidden incentives that the EU products enjoy in their countries. Asking for symmetry is unequal because our tariffs are visible while their subsidies and incentives are invisible.

Under the proposed FTA, India has to remove 90 percent of the tariff, but will the EU lift its subsidies that are disadvantageous to Indian agriculture? No, there is no provision to discuss subsidies in the FTA. So, in the short and long run, it will be bad for both farmers and agro-industries in India.

Once the FTA becomes active, the EU will flood the market with products in dairy, poultry, sugar, wheat, confectionary, oilseeds, plantation products and fisheries, some of which are strategic for India. This will directly compromise India’s agricultural sovereignty and its food security. Obviously, an FTA which talks only about tariffs, and not about trade-distorting tricks such as subsidies and other incentives is detrimental to our agriculture.

Incidentally, access to food is a human right under the Universal Declaration of Human Rights and the International Covenant on Economic, Social and Cultural Rights (ICESCR) of the United Nations (UN).

Another area that will impact India is opening up of procurement in central and state government institutions. This is the lifeline of many of Indian industries and medium and small enterprises, including small businesses run by women and other disadvantaged communities. If this is opened to the EU, the SMEs will find it extremely hard to survive.

Imagine a situation when our small vendors have to compete with EU for contracts in Railways or other public sector undertakings. India hasn’t so far given this facility to any other FTA-partner, and acceding to the EU will lead to demands by others. Small town Indian vendors competing with a high-tech vendor in Japan for government contracts doesn’t sound like level-playing field. It’s not about exclusive, technologically demanding areas, but routine contracts.

Another hidden danger that will directly affect millions of Indians is on public health and access to medicines. If India gives into the machinations of the EU in intellectual properties, it will seriously affect manufacture of generic medicines as it will override TRIPS (Trade-Related Aspects of Intellectual Property Rights) flexibilities (such as compulsory licensing on life-saving drugs) allowed by the WTO.

In addition to medicines, the intellectual property provisions under the FTA cover a whole lot of areas that are detrimental to India. Therefore, activists demand that the provisions should not go beyond what is contained in India’s FTA with Japan.

What has bothered the activists is that the negotiations that began in 2007 have hardly been transparent. Nobody clearly knows what exactly the FTA entails. Signing up with an influential economic block without debate and transparency is not consistent with the principles of a democracy that with India’s level of poverty and socio-economic inequality.

In the recent past, citizen groups have blocked an FTA of Thailand with the US because it compromised the country’s interests. They literally laid siege to the venue of negotiations.
Interestingly India’s concerns come from within.

India’s Economic Survey (2010-11) notes: “While there are benefits from these FTAs for Indian exports, in some cases the benefits to the partner countries are much more, with net gains of incremental exports from India being small or negative. FTAs also lead to a new type of inverted duty structure with duties for final products being lower from FTA partners compared to duties for the previous-stage raw materials imported from non-FTA countries. This acts as a disincentive to local manufacturing which is not competitive against FTA imports because of the inverted duty structure. …… The policy challenge related to FTAs/CECAs should take note of specific concerns of the domestic sector and ensure FTAs do not mushroom. Instead they should lead to higher trade particularly higher net exports from India.”

Who is Manmohan Singh listening to?

What exactly is happening in this government?

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