Background Note on Indian FTAs

India’s Free Trade Agreements For Whom?

Undemocratic—Impacting Our Lives and Livelihoods!

Introduction

Little light has been shed on the secretive and rapid rise of Free Trade Agreements (FTAs) in India, though protests have been held against India’s involvement in the World Trade Organization (WTO). Free Trade Agreements are bilateral trade and investment treaties with other countries or regional blocks. These treaties, like the WTO, unjustly impact important public interest laws, regulations, policies and our import duty structure in ways that virtually touch all aspects of our lives. However, FTAs are worse than the WTO because they demand much more. The GOI is hoping to conclude this year two of the biggest FTAs proposed—one with the European Union and the other with Japan. The GOI is in the process of either negotiating, expanding or developing at least 24 FTAs (see box below).

FTAs create legally binding obligations on the government such that livelihoods related to agriculture, fisheries and manufacturing stand to be severely affected. FTA demands in trade in services, investment and intellectual property rights impact our ability to access affordable healthcare, medicines, education, and municipal services such as water and sanitation, to name a few examples. Farmers Rights to save seeds and the ability of our citizens to prevent theft of our traditional knowledge is also under attack through FTAs. Though there was much resistance to TRIPS, Investment and Government Procurement (the government’s purchases of goods and services) in the WTO, TRIPS plus and these other problematic areas are parts of many FTAs (particularly with developed countries) that India is negotiating.

And if FTA demands in areas related to food imports and finance are accepted, then the country risks becoming even more vulnerable to global food and financial crises. Import dependency on food and agriculture would ensure that India loses its ability to produce adequate and affordable food. This would not only impact 55% of our population that still depends on food production as a means of income, but would also create greater food insecurity in the country because world market prices will remain high and volatile in the future. FTA demands in finance would make it difficult to control the rapid influx and exit of risky investors, a major reason for financial crises in Asia and around the world. In the wake of the global financial crisis, a serious rethinking on opening financial services must take place. The crisis has delegitimized the “best practices” of European banks and calls for expansion of domestic regulatory space which FTAs restrict.

The Proliferation of FTAs

9 Ongoing FTA Negotiations:

  • EU (27 European countries)
  • Japan
  • EFTA (Iceland, Norway, Liechtenstein, Switzerland)
  • New Zealand
  • Malaysia
  • Gulf Cooperation Council
  • BIMSTEC (Bangladesh, Myanmar, Sri Lanka, Thailand, Bhutan and Nepal)
  • Mauritius
  • SACU (South Africa, Botswana, Lesotho, Namibia)

4 FTAs signed, but under negotiation for expansion:

  • Sri Lanka (1998)
  • Thailand (2003)
  • SAFTA (2004)
  • ASEAN (2009)

11 FTAs under consideration and/or at various stages of development:

  • Australia
  • Canada
  • Chile
  • China
  • Colombia
  • Egypt
  • Hong Kong
  • Israel
  • Russia
  • Uruguay
  • Venezuela

India has also launched the process for a potential FTA with the United States through the “Framework for Cooperation on Trade and Investment”

The first Indian FTAs that include trade in services and investment: Singapore (2005) Korea (2009)

Other Signed FTAs: Nepal (07 ), Bhutan (06)

Total FTAs signed: 8

Total FTAs (signed, negotiating or at various stages of development/consideration): 29

Immediate Cause for Concern: EU-India FTA

In June 2007, the European Commission and the GOI started negotiating the EU-India FTA. One of the most ambitious negotiations, the FTA will mean a massive slashing of our import duties (up to 95% of all goods produced) and include trade in services, investment, intellectual property rights, competition policy and government procurement. The FTA will have far reaching consequences on national, state and local laws and policies that are seen to restrict free trade of European imports and therefore, on the lives and livelihoods of Indian citizens. The Commerce Ministry hopes to conclude the FTA by October 2010. Nine Rounds of talks will have been completed in secrecy by April 2010. A similar end of 2010 deadline has been set for the India-Japan FTA.

Context of EU-India FTA negotiations: Hungry for Markets and Raw Materials

The EU’s push for ambitious FTAs is corporate Europe’s agenda to maintain a competitive edge in the world economy. Key targets are so-called “advanced emerging economies” such as India. However, the EU’s is negotiating 108 such agreements worldwide after the FTA it has signed with 15 Caribbean countries—with demands that the combined economic power of 27 European countries be treated on an equal basis as India. All of these FTAs will erode any special access India could hope to gain in the EU market through the FTA. Therefore, our domestic economy will be sacrificed for no real gains.

The European Commission’s 2006 document ‘Global Europe: Competing in a Globalized World’ outlines the EU’s strategy for aggressively opening developing country markets for EU imports of goods and services, while dismantling export restrictions and duties for raw materials from developing countries. The document notes:

“Measures taken by some of our biggest trading partners to restrict access to their supplies of these inputs (raw materials) are causing some EU industries major problems. Unless justified for security or environmental reasons, restrictions on access to resources should be removed.”

Major issues of concern in the EU-India FTA:

  • Impact on livelihoods: According to a study commissioned by the European Commission itself, the FTA would increase EU exports to India by $17-18 billion while India’s export would increase by around $5 billion. The impact of reducing as many as 95% of our import duties down to zero or close to zero percent in seven years will result in import surges—especially since EU agriculture imports in particular are heavily subsidized in a wide range of products such as sugar, dairy, tomato paste, poultry, to name a few. Because the EU FTA will do nothing to curb EU subsidies—farmers and farm workers will be hard hit by our steep reduction of import duties to the EU. Moreover, a rapid reduction of import duties, combined with ease of entry of European agro-processing and retail firms through the services and investment chapter of the FTA will dramatically impact how food is produced and sold in this country. Indian farmers and workers will not be able to bargain against the power of Europe’s multinational retail firms.

The ability of Indians to develop value-added agriculture products and other agriculture related services and industries in the future will also be severely undermined because the EU wants to export value-added agriculture products and will dominate in this area. Signing the FTA will severely undermine the growth of rural industries related to agriculture and further worsen rural migration and joblessness. Liberalisation of distribution services such as those linked up and down the food distribution chain will threaten the livelihoods of small retailers and street vendors in urban areas as well. Though official estimates state that there are over 12 million small retail outlets in India, this number is grossly underestimated as large informal networks exist around retail, often composed of the poorest of the poor.

Similarly, India’s formal manufacturing sector has suffered from job loss and jobless growth in the past two decades—the flooding of EU manufactured goods and capital-intensive manufacturing firms, at a time when India’s manufacturing sector needs to create more and decent work, not less jobs, will further devastate livelihoods.

Ninety-two percent of India’s 457 million strong workforce is in the informal sector with no job security and little income. It is this sector that will be the hardest hit from an EU-India FTA whose objectives are incongruent with development objectives and India’s 11th year plan. The Indian Government estimates that it needs to create 200 million jobs by 2020 to deal with current unemployment rates and absorb new workforce entrants—particularly to help workers get out of “low” or “unskilled” work and low wages. With the EU-India FTA threatening even more jobs, the livelihood situation is likely to become even grimmer in the coming years.

  • EU firms hungry for our minerals and other resources: India is the third largest producer of “metallic minerals” including “chromite” and other “rare earth” minerals and currently restricts exports of iron ore, non iron metal scraps and hides and skins (raw leather). European industries are hungry for metallic minerals. The FTA will be one of the key avenues for obtaining access to these natural resources both through targeting our export restrictions and through the investment provisions of the FTA. On-going land and livelihood struggles related to mineral extraction are thus likely to be increased if mining concessions to European companies are eased through the investment chapter or these raw materials are exported to the European Market.
  • Trading Away Livelihoods for unclear gains: Our import duties are higher in comparison to the EU. Up to a third of our exports receive duty free access to the EU. The biggest stumbling block to our exports to the EU are not their level of import duties, but rather their levels of food, health, environment, labeling, packaging and other standards that block our exports on various grounds. Yet, the FTA will force us to cut our import duties, jeopardizing local production, without really affecting their standards in any meaningful way to allow for our exports. India’s average import duties are 32% for agriculture and 10% for industrial and fisheries imports. In contrast, the EU’s simple average import duties were 16% for agriculture and a mere 4% for industrial imports.

Import duties are the easiest way of collecting taxes for the government since goods cannot enter without the necessary duty. However, the EU India FTA along with the others that the government is negotiating will create a major loss of import duty income for the government and affect our national budget. This in turn is likely to have serious impacts on Government spending in social sectors like education and health. The government is also likely to compensate for this loss by raising domestic taxes.

  • Expansive liberalization in services and investment: Europe’s multinational companies dominate global services trade and investment. The FTA’s services and investment provisions would ensure their ease of entry with severe implications for India’s existing and future small and homegrown industries and businesses related to agriculture, manufacturing and services. The EU pushes for a broad definition of investment that can include “every kind of asset” such as “movable and immovable property,” stocks, intellectual property rights and concessions to search for minerals. Such a broad definition of investment could commodify and thus put to risk virtually every kind of national asset. Moreover, with a change in European governance due to the Lisbon treaty, the European Commission may have greater powers to negotiate investment. This may mean that an “investor to state” clause, whereby a European company has the right to sue the Indian government in case of loss of predicted profits, may be part of the FTA negotiations. The EU’s services and investment liberalization formula is WTO plus and as stated above virtually affects all public services and national, state and local laws that are seen as barriers to free trade.

The liberal entry of European banks may also further constrict the access of banking services in the country: geographically, socially and functionally. The urban-centric European banks largely serve the niche market segments consisting of high-net-worth individuals and large corporations in India. Time and again, European and other foreign banks have demanded removal of priority sector lending requirements and other riders related to social and development banking in India. This will lead to further exclusion of the poor and rural areas from affordable credit

  • TRIPS-plus intellectual property protection: The EU’s demands for TRIPS-plus intellectual property rights would lead to legislative and policy changes in India with regard to the scope of intellectual property protection and enforcement. For instance, the EU is likely to demand that India accede to the ‘International Convention for the Protection Of New Varieties Of Plants’ (UPOV 1991) or at least comply with a system of plant variety protection that favours plant breeders’ rights over farmers rights to seeds. India would then have to change its Protection of Plant Varieties and Farmers’ Rights Act 2001. Such changes would have an adverse impact not only on the cost of commercial seeds but also on biodiversity. The EU’s demand for data exclusivity and increased demands for enforcement of intellectual property rights would also limit India’s ability to provide access to affordable medicines. In India, prices of medicines are the leading cause of rural indebtedness. An estimated 70% of out of pocket spending on healthcare is on the prices of medicines alone. Any adverse changes in the availability and affordability of medicines would be catastrophic for the majority of Indians. EU demands would further limit the ability of the Government to issue compulsory licenses on medicines. EU’s TRIPS plus demands in copyright protection will reduce access to knowledge.
  • Liberalising government procurement: The EU is also insisting that government procurement which accounts for nearly 13% of India’s GDP be opened up to EU companies. Government procurement helps revive under-developed economic regions, boosts domestic production and thus helps fight against economic recession in the country. Government contracts can also help support Small and Medium Enterprises, marginalized constituencies and poorer states by channeling money through local firms for goods and services. Opening this sector to powerful European companies takes away these necessary tools for dealing with economic recession and fostering development of marginalized constituencies and regions.
  • Creating advantages for EU MNCs through ‘effective competition’: Competition law and policy is also part of the negotiations with the EU. While competition policy has the potential to contribute to a country’s development, the model proposed by developed countries would have the opposite result. The EU is reportedly demanding that India’s competition policy should provide ‘effective opportunity for competition’ in the local market thus helping big EU-based multinational corporations. The EU may further attempt to harmonise India’s competition law with EU competition law thus reducing the flexibility required for India to design a competition law and policy suitable for its economic development.
  • Undemocratic and Unaccountable Process of Negotiating FTAS: The government has yet to articulate its medium to long term strategy behind negotiating FTAs, let alone share any concrete details about the content of each FTA negotiation. The ASEAN FTA was signed without even Chief Ministers of different states seeing the offer of goods to ten ASEAN countries. The Korea India FTA is over 1200 pages long and was signed in complete secrecy by the government in August 2009. Many of the subjects that the GOI is negotiating are state and concurrent subjects in the constitution, yet consultations with states and the parliament has been neglected. Both the GOI and the European Commission have consistently refused to share information with civil society groups and the general public. Repeated calls for transparency and accountability have been ignored undermining the basic tenets of democratic process, policy making and law. The government has failed to even share its studies regarding the FTAs it is negotiating.

Livelihoods, food security, access to healthcare and financial stability threatened by EU-India FTA

In addition to creating macro-economic vulnerability, India’s FTA strategy could have major food security, healthcare and livelihood implications that must be assessed in detail. Current “free” trade and investment policies are proving to be highly costly to citizens worldwide as governments negotiate away their right to regulate and as public funds are used to bailout corporate crimes. It is of grave concern that the GOI has had no public debate on its FTA strategy and that the EU-India FTA and other negotiations till date have been marked by a gross absence of transparency and public debate.

For more information please visit Forum Against FTAs

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