NTUI letter to PM on EU-India FTA negotiations: 9 February 2012
9 February 2012
The Hon’ble Dr. Manmohan Singh M. P.
Prime Minister of India
New Delhi
Dear Dr. Singh,
The NTUI is deeply concerned with the ongoing trade negotiations between India and the European Union for a comprehensive Bilateral Investment and Trade Agreement (BITA). The proposed BITA with the EU will grievously affect the livelihoods of working people. In particular it will affect the lives of the most marginal workers, farmers and petty producers and service providers and especially amongst them women, dalits, adivasis and religious and regional minorities.
Hence we write to bring to your attention the concerns of our membership in advance of the EU-India Summit to be held in New Delhi tomorrow, 10 February 2012. We call upon government to address these concerns before proceeding with the BITA with the EU.
Our objections are as follows:
Democracy and Federalism: The Government of India has consistently refused to share information on the BITA negotiations with the Parliament, trade unions, and the public undermining the basic tenets of democratic process, policy making and law. In recent applications filed under the Right to Information Act, the GoI has said that it is bound by an agreement of confidentiality, with the EU, until the end of the negotiations. Yet, leading business and industry associations and business houses enjoy preferential access to the negotiation texts. Many of the subjects that the GoI is negotiating are state and concurrent subjects in the Constitution, yet consultations with state government and through them consultation with state assemblies have not been undertaken. The prerogative of the executive over signing international agreements assumes that such agreements would not include state or concurrent subjects. The situation now is far different and the prerogative of the executive to sign international agreements is not any more compatible with the democratic and federal system in our country. Worryingly, the provisions included in the BITA tend to reinforce the Union government’s decision making powers, to the exclusion of State governments leading to a centralisation of policy making powers that is extremely unhealthy for a country as rich in its diversity as ours and vocative of the core principles of our constitution.
The NTUI is deeply concerned by the bias attitude which the government shows towards business houses and completely excludes working people and their trade unions in the process of consultation and negotiation. We believe that a system of affected parties’ participation in trade negotiations has to be set up in order to ensure that trade unions, along with other affected parties, can be part of an informed debate on the content and scope of ongoing trade negotiations, within a framework that provides for an accountability mechanism. Equally importantly, the responsibility rests with the Union Government to ensure that issues which are part of the mandate of state governments should go forward only with the consent of the state governments, and the complete agreement should be brought to the Parliament for debate. It is to be noted that the Members of the European Parliament have already debated the text twice, and the final text of the agreement will be voted by the European Parliament before it can be finalised and signed.
Expansion of MNCs legal rights: The draft chapter on investment right, as it stands, seeks to establish Transnational Corporations (TNCs) control over ownership of assets and resources, including IPR in the definition of “investment”. It will expand the investment rights, opportunities and unduly favorable environments for TNCs. While the GoI has argued that such rights will also protect growing Indian companies in their trajectory to become powerful TNCs, the sheer inequality in size, scale and spread between EU and Indian TNC will defeat this purpose. What this will lead to is the private control over public assets and thereby undermining the public interest and replacing the mediatory role of the state with a profit motive. Additionally, these investment agreements give TNCs extraordinary rights without binding obligations and allow corporations to bypass local and national law and courts and sue sovereign states for large indemnities before private international arbitration tribunals. “Investor to state” dispute settlement clauses have been in effect in other FTAs and hundreds of cases have been brought in front of private arbitration courts that are beyond the public scrutiny. The proposed framework undermines the countries’ sovereignty and constitution, democratic governance and people’s interests while it creates an architecture of impunity for TNCs.
TNCs have used the unprecedented powers granted by FTAs and BITs to discipline and pressurise governments, by holding governments to ransom in the capacity to pursue public policy objectives. While most of the cases are related to challenges of environmental laws and public health, labour laws will also come to be challenged for creating loss of “predicted profits” to investors. A model that enshrines companies’ profits as rights and allows for institutionalising a decreasing share of wages in national income can only be perilous for an economy like ours given the low wages and the persistent lack of demand. In the context of the European economic crisis which includes a crisis of consumption capacity at home, this also allows to institutionalise bilateral economic relations within a paradigm where the Northern model of development relies on the work of the Southern working class.
Expansion of trade agreements into comprehensive economic agreements: With the broadening of the General Agreement on Tariffs and Trade into the World Trade Organisation and with the wide spreading of bilateral trade agreements that go beyond the WTO agreements (Free Trade Agreements), many non-trade issues and domestic regulations are now included within so called “trade” agreements. There are many types of regulations that the government can use towards industrial policy and national development, some have been forbidden or limited by the WTO, but others are still “WTO-compatible”, such as increasing or reducing import duties or export duties, or content requirements provisions linked with foreign direct investments. An important instance of this is liberalizing government procurement – which accounts for nearly 13% of India’s GDP – to EU companies and is of great concern. Government procurement helps revive under-developed economic regions, develop domestic industries, boost domestic output, employment and demand and thus aids the process of endogenous drivers of growth. Government contracts, if evolved with sufficient care, can help foster the expansion of Micro, Small and Medium Enterprises, marginalized constituencies and poorer states in the production of goods and services. Changing the procedures related to government procurements with an aim that they are more accessible to European companies takes away the necessary anchor for advancing economic growth and fostering development of marginalized constituencies and regions. The EU is also reportedly demanding that India’s competition policy should be harmonised with EU competition law thus reducing the flexibility required for India to design a competition law and policy suitable for its economic development.
It is imperative that the government retains the capacity to use these tools for designing industrial policies and fostering national autonomy and development. By including rules that concern domestic regulations within bilateral agreements, the Indian Government is giving a say to foreign governments on domestic policies. This weakens the autonomy of the government and its capacity to decide on its own path of development, as well as curtailing people’s capacity to participate in both.
Capital controls restrictions: As per official documents, within the framework of the of the EU-India BITA under negotiation the EU is proposing to restrict currency and capital controls through comprehensive cross-border investment liberalization and investment protection provisions, leading to situations where India would have to compensate EU investors for defending its economy from external shocks through currency and capital control. The EU demands that all transfers (including profits, dividends, capital gains, royalties, fees and returns in kind) related to investments between India and Europe should be made “freely”, therefore enacting the right of investor to transfer capital and investment returns into and out of host country without delay and restrictions. The case of Argentina, against whom numerous investor-state claims were filed stating that capital restrictions introduced to maintain financial stability in the wake of the 2001 financial crisis breached commitments of the US Argentina BIT, is a case in point.
Capital controls (on both inflows and outflows) are indispensable monetary policy instruments to protect and insulate the domestic economy and financial systems from short-term secondary market investments that are looking for quick and speculative returns. In 2010, a number of developing countries, including India, introduced various kinds of capital controls to tame surging hot money flows which could pose a threat to their economies and financial systems. India imposed restrictions on transfers of capital and investment-related returns and exchange restrictions were mostly related to remittance of dividends and profits from foreign investments. According to experts, given the overriding presence of short-term volatile capital flows in its foreign exchange reserves, the Indian economy remains vulnerable to a sudden reversal of capital inflows.
It would be a grave mistake for India to surrender the ability to impose currency and capital controls when faced with sudden stops and reversals of capital inflows or trade shocks. New Delhi should not only refuse legally binding provisions on capital transfers under the BITAs (and BITs) but also drop the discredited framework of unrestrained investments across borders from the ambit of bilateral trade and investment agreements.
Sector specific issues
Model of economic development: The importance of Non Agricultural Trade to India is apparent from the fact that the share of manufactured goods in the total exports from India is around 74% as against 16.8% cent of agricultural products. India’s manufacturing sector is the most integrated into the global economy, however, it’s most dynamic sectors are still low added value sectors. In order to promote an increase in the export of medium or high value added manufacturing products from India to the EU, specific sectors need to be targeted and sector wise policies are needed to tackle the complexities of the European market. The EU-India BITA provides a framework in which there is no industry specific targeted strategy, but a general liberalisation of trading and economic rules, including drastic cuts in import tariffs across sectors. This means that it is mostly sectors that are currently dynamic, but low value added, that would be able to continue to expand. Rapidly growing high value added sectors, yet small right now, will be unable to withstand the pressure of competition in the first instance and are likely to be undermined. Additionally, the Government of India is stating to aim at high benefits in the services sector to balance possible losses in other areas. However, the European services sector is highly fragmented and there is no sign that an BITA with the block as a whole would bring any tangible market access in specific countries.
Within heavy industries, the auto sector and the machinery and electrical machinery sectors are important in terms of employment and contribution to the economy. The automobile sector provides direct employment to 6 lakh people according to NSSO data, and indirect employment to an estimated Rs 1.25 crore more as per Ministry of Heavy Industry (as per 2006 data) and created a turnover of Rs 1,65,000 crore in 2005-06. The EU 27 is an important trade partner of India in both these sectors, as it counts for close to 30% of India’s total trade in vehicles and 25% of trade in machinery and electrical machinery. While India maintains a trade surplus in its automobile trade with the EU 27, this was deeply eroded in 2010-11. Contrary to expectations, exports to the EU have increased since the global economic crisis hit. The sharp erosion of the trade surplus in 2010-11 is due to a sharper increase in imports from the EU. More than half of this erosion is due to a sharp increase in the trade deficit in India’s trade with Germany, from a trade deficit of Rs 64 crore to more than Rs 2,000 crore between 2009-10 and 2010-11 respectively. This is as the EU economies are still in a deep crisis and EU companies are seeking to build profits on the back of growing economies like India, which is neither sustainable nor desirable.
On the longer term, there is a change in the production structure of key industrial sectors towards higher import dependence which is worrisome, and can be seen in the case of India’s trade with the EU in both automobiles and machinery. The ratio of import of vehicles to export of vehicles has increased in the period of high growth of the economy (between 2003-04 to 2007-08) from less than 0.4 in 2003-04 to more than 0.6 in 2007-08, showing that for every rupees of export, the import component has increased from less than 40 paisa to more than 60 paisa. The share of imports of components from the EU in vehicles trade has also increased from less than 50% on an average for the period from 2003-04 to 2007-08, to more than 60% in the last fiscal year, showing an increasing importance of the import of components in the vehicle trade with the EU. The trade in components for vehicles shows that while in the period of high growth, both imports and exports with the EU increased simultaneously, ensuring a low trade surplus, since 2008-09 imports from the EU have increased significantly more than exports to the EU, creating a trade deficit of more than Rs 1,600 crore. The ratio of imports of components to export of components was 1 rupee of import for 1 rupee of export in average in the period of high growth and has increased substantially to 1.60 rupees of imports to 1 rupee of export, in 2010-11. It needs to be remembered that in order to ensure the development of the industry, the indigenisation of components for automobiles was a stated policy of the Government in the 90s, as imports of cars were subjected to the condition of “a minimum of 50% of indigenous components in the third year after starting imports, and 70% in the fifth year or earlier.” The gains of this policy seem to be eroding with more than one key partner in this sector. The machinery sector shows a similar picture, with imports increasing far faster than then exports and resulting in an increasing trade deficit of more than Rs 30,000 crore in 2008-09. The electrical machinery sector, saw the same evolution, with a trade deficit of close to Rs 15,000 crore the same fiscal year. It is to be seen if the improvement witnessed since the last fiscal year are going to be maintained.
Additionally, the EU’s demand for “disciplines on performance requirements” to foreign investors under the proposed BITA with India, including on local content requirements, export obligations, preference to local people in employment, location of an industry in ‘backward’ regions, and mandatory technology transfer is a matter of concern. Evidence points to the contributions of these policies in fostering the host country’s economic development, for instance by helping to establish industrial linkages upstream and downstream. In the absence of local content requirements, a foreign corporation is likely to source many inputs from outside the country, which could impede the development of local clusters in the host countries. In the past, India had extensively imposed performance requirements in the form of export obligations on foreign companies to ensure that they earn enough foreign exchange to balance foreign exchange outgoings via repatriation of profits, royalty, and other payments.
Imports and displacement of workers: The manufacturing sector absorbs a huge labour force moving away from agriculture. Negotiations aimed at elimination or harmonization of tariffs in labour intensive sectors that form vital source of livelihood and formal and informal employment for millions of people in India are of deep concern for the NTUI. Increase imports leads to lesser local production and displacement of workers the increase of the pool of distressed labour, which is more amenable to exploitative working conditions, especially into the large and increasing informal industrial work.
Employment in auto and auto parts manufacturing: The discussion over the opening of the automobile sector is of particular concern to our membership, and market access in this sector is one of the key priorities for the EU. India currently applies an import tariff of 60% for new (other than CKD) and 100% for second hand passenger cars, and multi-utility vehicles (MUVs) among others. Components for auto and two wheelers attract a lower import duty of between 10% and 12.5%. The EU has been demanding for these import tariffs to be brought down to zero per cent. According to news reports, the Government of India has agreed to decrease the import tariffs of passenger vehicles to 30%, despite that it has not given this concession to any other trade partner in the recently signed Free Trade Agreements. However, several auto maker associations, especially the German car makers association, have voiced their expectation of further concession to be granted in this area. An economic study of this BITA projects that, with the implementation of the BITA, EU export of auto and auto parts to India will increase by 690% to become 82.5 percent of Indian imports in auto and auto parts ($1.8 billion by 2020). India’s increase in EU market share would be negligible (0.1% increase, $87 million by 2020) and the Indian production in auto and auto parts would decrease by $1.3 billion. Another study predicts an expansion of EU outsourcing to India in the automotive sector, as EU investment and affiliates sales are expected to increase. It can be expected that this will result in shortage of jobs and bring an added pressure on wages, as merger and acquisitions would intensify. India’s capacity to build new industries would be undermined, compromising the objective of Auto Mission Plan intended to provide 10 million new jobs, as well as its ability to restrict imports from the main source of imports in this sector, threatening, on the long run, the bulk of the present employment of 13.1 million (estimated), most of them in SMEs.
Rural livelihoods: The EU-India BITA will ensure a reduction of 95% of import duties of India to zero or close to it while leaving the heavy subsidies on European agricultural goods unaffected. This will hit the Indian agricultural sector hard impacting lives and livelihoods dependent on it. In addition the services and investment chapter of the BITA will make the entry of European agro-processing and retail firms easy thereby impacting how food is produced and sold in the country. The EU is also demanding that India accede to the ‘International Convention for the Protection of New Varieties of Plants’ (UPOV 1991) or 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 to adjust to this demand. This would cause cost of commercial seeds to shoot up. Other TRIPS-plus provisions would also intensify monopolies over seed, pesticides, fertilisers and animal vaccines and encourages proprietary agriculture technologies – such as GM crops. India’s agricultural workers’ livelihoods will be lost and wages will be compressed, while small and marginal farmers in India will be pitched against the power of agribusiness and multinational retail firms.
Forest dwellers rights: India is the third largest producer of “metallic minerals” including “chromite” and other “rare earth” minerals and currently restricts exports of iron ore and non iron metal scraps. The EU-India BITA will be one of the key avenues for obtaining access to these natural resources both through targeting India’s export restrictions and through the investment provisions in the BITA. Displacement of forest dwellers and other forest workers due to mining by local and foreign companies is already a wide spread issue in India. Increasing the rights of the EU companies, through the provisions on investments, will create new roadblocks to the recognition of forest dwellers’ forest rights and the implementation of the Forest Right Act 2006. Under the EU-India BITA provisions on investment, the implementation of the FRA 2006 could be challenged by foreign companies considering that this Act reduces their ‘expected profits’.
*_Fishworkers rights and livelihoods:_ * Foreign vessels are forbidden to enter the Indian fishing Exclusive Economic Zone (EEZ) baring exception for joint ventures based on application to the Union Agriculture Ministry, for a limited kind of operations and a share of foreign equity involved in the Joint Venture capped at 49 percent – under the Letter of Permit (LoP) Scheme. The rules on investment to be included in the EU-India BITA, if they apply to the fisheries sector, would invalidate the current LoP scheme and open the Indian EEZ to EU vessels, as well as granting them access to India’s interior waters and territorial sea, extractive industrial fishing activities, fish landing, including first landing of fish processed at sea, access to Indian ports facilities. This would strongly impact fishworkers livelihoods and their right to Indian fishing grounds.
Access to and production of generic medicines: Today 98% of Indian pharmaceuticals market is dominated by branded generics (the rest 2% is being occupied by patented drugs and generic – generics) and India is a major exporter of generic medicines (Rs 52.8 thousand crore between September 2008 and 2009). Additionally, the generics field is also much sought after by Multinational pharmaceutical companies and India generic majors are under threats of take over and ties up, which would in turn further affect the workforce, as well as the production of affordable and good quality medicines. Leading pharmaceutical companies are based in Europe and are using the EU-India BITA to ensure their rights and profits. The EU is demanding for TRIPS-plus IPRs, including “data exclusivity”. Data exclusivity is a form of monopoly on the trial data of the health impact of the medicine before its commercialization – as oppose to patents which are monopolies on the medicines composition. This new monopoly system would limit the ability of generic companies to commercialise generic forms of new medicines, threatening both employment in the pharmaceutical sector, especially through the exclusion of SMEs, and access to affordable good quality medicines, including life saving medicines.
Access to banking: With a severe crisis at home, many European banks are seeking licenses to expand in India, as a counterweight to ailing domestic markets. Foreign banks tend to follow exclusive banking by offering services to a few clients, instead of inclusive banking. For instance, the French BNP Paribas wealth management service serves just 800 clients with net worth of above 10 million rupees each. No EU-based bank operating in India has opened a branch in a rural area so far, despite that several EU banks operate in India for more than 140 years. Since foreign banks have no branches in rural areas, they are not obliged to serve this vast market that is excluded from the formal banking system. Financial services firms see regulation as the biggest obstacle to their global ambitions. With the help of a BITA with India, the EU would like to achieve significant liberalisation of India’s banking sector. Some of the key demands include complete market access for banks (commercial presence, cross-border supply and consumption), national treatment and the removal of regulations pertaining to bank branches, numerical quotas, foreign ownership, equity ceilings, voting rights and investment by state-owned companies in foreign banks in India. The liberalised entry of European banks would further restrict the access of banking services in the country. Experience over the last two decades has shown that the Indian working people, who remain the single largest source of domestic savings, squarely place their faith in the public sector banks, insurance companies and financial institutions. Further, the experience has also shown that India, in relative terms, was able to insulate itself from both the Asian Crisis of the late 1990s and the present Global Crisis. This was a result of its calibrated approach in opening up the financial sector and maintaining the ownership and control of vast section of this sector in the public sphere.
NTUI believes that trade negotiations between the Global North and the Global South should be based on:
• A guaranteed economic sovereignty of developing countries in negotiations by ensuring that they have the policy space to adopt context specific industrial development strategies and have the flexibility to alter tariffs on developmental grounds.
• Multilateral and national impact assessments of the outcomes on development, the quality and quantity of employment and impacts on people living in poverty, with the full involvement of trade unions. Specific attention should be given to labour-intensive and environmentally sensitive sectors, and gender impact, as called for in para 16 of the Doha Declaration which states that the modalities should include appropriate studies and capacity-building measures.
In view of the foregoing and the direct impact of the BITA with the EU, as proposed at the present will gravely undermine the livelihoods and therefore lives of working people and reduce the autonomy of government in policy making. Therefore the NTUI:
• Opposes the expansion of the legal rights of MNC, especially through the reference of disputes to corporations to state arbitration tribunals.
• Opposes the policy of the government to favour comprehensive Free trade agreements and demand that instead, the government favours trade agreements focusing on specific sectors. A general liberalisation of trade relations and the economy can not replace targeted industrial policy.
• Opposes the use of bilateral trade agreements as a route to further non-trade issues, such as IPR, investments, Government Procurement and Competition policy.
Further, the NTUI demands the Government of India to halt the negotiations with the EU until a democratic and participative process is instituted, which should include:
• All current proposals and negotiating drafts are placed before Parliament and at every stage hereafter;
• A white paper is released and discussed in Parliament on the cumulative socio-economic and ecological impacts of all FTAs that the GOI is negotiating, especially addressing social inequality and discrimination. A separate white paper on the EU-India BITA should be released.
• The Union Government initiates a process of consultation with the state governments, including the sharing of draft texts;
• Extensive consultation should be ensured, including sharing of the negotiating texts with affected parties, including trade union;
• The reports of these consultations should be placed before parliament;
• There should be a reference to the Parliament and State Assemblies before an agreement can be signed and necessary procedures for such a reference be evolved;
Sincerely,
Gautam Mody
Secretary
New Trade Union Initiative