In a recent comment, the Gujarat Chief Minister Narendra Modi expressed grave concerns on the outcome of a little known Free Trade Agreement (FTA) that the Indian government is hastily attempting to sign with the the European Union. His concern was that the impact of this proposed EU FTA on the domestic dairy and animal husbandry industry in India would be debilitating if cheap European dairy products supported heavily by EU subsidies get inroads to Indian consumers. His fears are not unfounded. Indeed, if top European multinational dairy brands like Lactalis, Friesland Campina or Arla Foods with turnovers of $12.7 billion, $11.2 billion and $8.7 billion respectively get access to the Indian market on the backs of zero or minimal import duties, India’s biggest dairy brand Amul (Gujarat Cooperative Milk Marketing Federation) providing livelihood to more than 1.5 crore dairy farmers in rural India might not survive for long. True, Nestle, one of the world’s biggest food products companies, has definitive footholds in India – but Nestle India has entered India through the FDI route than the FTA route, it purchases products significantly produced within India, provides massive employment in and around production plants built in India, even though its holding company is the Nestle S.A. Of course, Nestle too would be advantaged by the proposed EU-India FTA, but it’s a different ballgame when EU-government subsidised products are imported directly from Europe with little entry barriers. Digest this figure. In February this year, the EU 2014-20 budget was announced. Of the 960 billion euros budget, a mammoth 38%, or 363 billion euros, was allocated purely for farm subsidies, which will without doubt make EU farm and dairy products ridiculously cheap compared to Indian products which any way suffer from massive cost additions due to various infrastructure issues. If these are the things to come, then the so-called ‘Free’ Trade Agreement could well turn out to be our costliest trade agreement.
The EU-India FTA discussions caught steam back in 2008. However, because of the sensitivity of the issue, the progress had been shrouded in utmost secrecy with little or no data available. Of late, the discussions progressed more, so much so that the Prime Minister, Dr. Manmohan Singh, even came out with a surprisingly strong statement in July 2013, “We have entered into Comprehensive Economic Partnership Agreements with the ASEAN countries as well as the Republic of Korea. We are hoping to conclude a similar agreement with the European Union soon”. Most political parties are silent on the issue despite the fact that the implication of such an agreement is enormous. An FTA generally means the lifting of trade barriers and an unhindered flow of goods and services with minimum import duties, intellectual property rights, government procurement, and competition policies between the nations bound by the agreement. So, if the EU-India FTA gets signed, then one could well imagine world class corporations like IKEA and Carrefour competing with domestic brands at prices that are cheaper than those of domestic products! Can our indigenous brands compete with these behemoths? Since any FTA encourages direct imports, it is not a natural builder of employment, rather a reducer of the same, as over time, domestic industries shut down giving way to cheaper imports. Thus, it is ridiculous to tom tom the point that FTAs eliminate poverty and help the destitute with a better living; they clearly don’t do that.
Various reports mention how FTAs in Senegal in 1990s led to employment cuts by 30-35 per cent, especially in the manufacturing sector. Similar trends were observed in Sierra Leone, Uganda, Sudan, Ghana and other African nations. Due to the influx of foreign goods, the domestic industries and markets in these regions either collapsed or never had the minimal support to even start.
In the year 2000, EU and Mexico signed a so-called ‘Global Trade Agreement’, which was trumpeted as the beacon of development and economic success. As per the agreement, Mexico had to deregulate 95 per cent of their goods and services industries in order to allow foreign goods into their markets. However, within three years post-GTA, Mexico’s GDP growth was crawling at 1 per cent, with their trade deficit touching a figure of 80 per cent. The rural-urban employment gap got wider, thus creating lot of social and local tension in the region. Eventually, the quality of basic goods deteriorated and created an oligarchic market where the access to water and electricity became tough and inaccessible to the poor. Mexico destroyed employment, domestic trade and became a nation that is today being tormented both economically and socially. Still, Mexico currently has FTAs with around 44 countries. Significantly due to this, they were one of the hardest hit during the economic slowdown, wherein their GDP plummeted by more than 6% during 2008-09. As per economic surveys, the poverty level on absolute terms has gone up from 35 to 46% during the period 2006-2010. Of course, the rich in Mexico have become richer during the same time.
Indian FTAs are leading to similar results only. A joint study by Corporate Europe Observatory and FDI Watch slammed the proposed EU-India FTA. The authors of the study mention, “The EU and the Indian government have handed the negotiation agenda over to corporate lobby groups, ignoring the needs of their citizens. It is an outrage that two of the world’s biggest so-called democracies should behave in this way.” And the issue is not just limited to dairy and agricultural products. A paper titled ‘India-EU free trade agreement – should India open up banking sector?’ concludes the following, “The proposed India-EU trade agreement is likely to further constrict the access to banking services in the country, geographically, socially and functionally... The provisions in FTAs are likely to further destabilise the financial system and so make future crises more likely.”
Médecins Sans Frontières (MSF) wrote an open letter to the Indian Prime Minister last year drawing attention to “specific harmful provisions in the proposed intellectual property (IP) and investment chapters [of the EU-India FTA], that if included would have serious implications for access to affordable medicines in India and throughout the developing world.” Similar have been the arguments of global aid agencies like Oxfam, Stop AIDS Campaign, Health Action International (HAI) Europe and Act-Up Paris who protested against the EU-India FTA outside the European Parliament in April 2013.
An April 2013 paper by Indian automobile industry body SIAM on the EU-India FTA mentions, “Opening the [automobile industry] to imports/lowering import duties under the EU FTA is a retrograde step and will have a severely damaging and long term irreversible effect in several ways for the Indian economy, auto industry and consumer at large.” Similar are the statements of other industry bodies like CII, FIEO etc which are strongly cautioning the government against signing FTAs. India signed an FTA with Japan in 2011. Imports from Japan grew by over 3 per cent to $12.5 billion in 2012-13, while our exports to Japan fell down to $6.26 billion from $6.32 billion one year ago. India signed a free trade agreement with ASEAN nations in 2009. Look at the economics since then. India’s trade deficit with the ASEAN group has increased to $18 billion in 2012-13 from $14.9 billion in 2009-10. Is it any wonder that in the year 2012-13, India’s current account deficit reached a historic high of 4.3% of GDP? We cannot afford to continue with these FTAs which are not only destroying employment and domestic industries, but also are devastating our foreign exchange reserves, one reason the rupee has now plummeted to record lows (and was Rs.61.86 per dollar on August 7, 2013, a never before seen low).
When it comes to poverty reduction, the world doesn’t really require such hollow and lopsided policies like FTAs, rather what we require are fairer wealth distribution policies. Today, the wealth accumulated by the hundred richest persons in the world is enough to end global poverty four times over! Shockingly, the wealth of the top 1 per cent has increased by 60 per cent over the last two decades and was not even affected by the last financial crisis. And there is every likelihood that any FTA-driven Indian economic growth, if at all, would be a jobless one, and might not be sustained in the long run. We don’t need FTAs with other nations to increase their wealth; we need poverty reduction policies for our people; and the government should realise this at the soonest.
- 08 August 2013 |
- Dr. Arindam on Indian Economy