India buckles before European Union. Is ready to sign a 'no-win' free trade agreement that benefits EU mainly

Some years back, a top Indian negotiator for the Indo-Asean Free Trade Agreement (FTA) shared with me an interesting insight. As is the normal practice, the negotiating team went to meet Prime Minister Manmohan Singh, before leaving for the talks. The underlying idea being to get the final limit -- where to draw the Lakshman Rekha -- to which India can agree to on several tricky issues during the negotiations.

The Prime Minister listened to them, and finally said: "Just go and sign."

The negotiators were shocked. But I wasn't even surprised. The little that I know of Manmohan Singh, our ever obliging Prime Minister has been too ignorant (or is it deliberate?) about the dangers of acceding India's interests at international trade negotiations. At the time of the Uruguay Round discussions of the World Trade Organisation (WTO), I recall his statement in Parliament (as the country's Finance Minister) that those who are concerned about the negative fallout of WTO have actually not read the WTO documents. 

I bet if Manmohan Singh had ever read the WTO papers. I doubt if he even knows what is being negotiated at the FTAs. All he knows for sure is which Head of the State has been wanting what kind of concessions from India. And he has been more than willing to oblige.

We are now in 2013, and the Doha Development Round has failed. Even now, there is so much of mistrust in what is going on at the WTO talks, where the rich industrialized countries have still not given up on the grip, that many believe the talks have reached a dead end. In any case, the United States and European Union, the two prime pushers for an unjust and unequal trade regime, have meanwhile shifted gears to focus on bilateral and regional trade agreements. Free Trade Agreements therefore are part of the Plan B and are being pursued aggressively.

While India is in an undue haste in signing an FTA with European Union, reports have now started appearing that most of the signed FTAs have turned out to be a win-lose proposition -- win for the trading partner, and loss for India. The Economic Survey 2013 observes: "Trade deficit (on customs basis) reached a peak of US$ 184.6 billion in 2011-12 from US$ 118.6 billion in 2010-11 with the highest growth of 55.6 per cent since 1950-51." (Page 156 para 7.18). This itself should be a cause for greater worry. 

In a report entitled: Foreign trading partners getting more out of free trade agreements (Times of India, April 15, 2013. http://bit.ly/129rTqO): "Experience with half-a-dozen pacts that India has signed since 2004-05 shows that usually, it is the trading partner that ends up being the winner. Be it Thailand, Asean, South Korea, Japan, Singapore or Malaysia, in almost all cases, imports have grown at a faster pace than exports after the government agreed to slash tariffs. In case of Singapore, where the spurt did not take place in the first year, the growth in imports from the island nation in the second and third years more than made up for the absence of the trend at the start." 

The EU-India free trade agreement is no exception. The trade agreement is being signed to boost employment and prosperity in both the EU and in India. But the way the negotiations are going about, with the EU making it abundantly clear that the hiking of FDI in insurance from 26 to 49 per cent is an absolute must, and with the concerns being expressed by the domestic auto industry in India, the Gujarat Cooperative Milk Marketing Federation (GCMMF) and the Indian Pharma Alliance, it is quite clear as to whose interests the EU-India FTA will serve. 

In reply to a question (E-009465/12 and E-009466/12) in EU Parliament, the European Commission's response was: "A comprehensive coverage for the EU would imply a meaningful package on tariffs (industrial and agricultural goods), high level of ambition in services, public procurement, sustainable development etc. India has an average applied tariff rate of 14.1% (wines & spirits: 150% and cars: 60% to 75%) and a substantial reduction in these tariffs would be necessary. In services, India will need to take commitments in sectors of EU interest such as retail banking and insurance. Legal certainty for EU companies is invaluable as they contemplate investments in these sectors which are just opening in India. As regards public procurement and sustainable development, this is the first time India is including these issues in a Free Trade Agreement. Public procurement could be a significant opportunity as India has forecast an expenditure of 1 trillion USD in the next five years, a significant portion of which will be spent by public authorities."

The Indian Pharma industry is therefore rightly worried about the introduction of an IPR clause that leads to seizure of a generic manufacturer's bank accounts and immovable property on mere suspicion of a patent infringement. Such a step can imperil local industry. At the same time, imports of highly subsidised and cheaper dairy and poultry products from EU, the Indian dairy industry, employing 3.2 million farmers, will be hurt. India is the biggest producer and consumer of milk and dairy products. So far India has been protecting its dairy industry. But with pressure mounting from European Union, Australia and New Zealand for opening up the dairy sector, India is giving in. Similarly, the sharp cut in import duties for cars will impact job creation in the automobile sector. These are just broad three concerns that India cannot afford to overlook.