When it comes to poverty reduction, the world doesn't really require such hollow and lopsided policies like free trade agreements. Rather, what we require are fairer wealth distribution programmes
In a recent comment, the Gujarat Chief Minister Narendra Modi expressed grave concerns on the outcome of a little known Free Trade Agreement that the Indian Government is hastily attempting to sign with 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. 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 2014-2020 budget was announced. Of the 960 billion euros budget, a mammoth 38 per cent, 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 anyway 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 gathered 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 Prime Minister Manmohan Singh even came out with a surprisingly strong statement in July, “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 behemothsIJ 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.
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 sectorIJ’ 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.” Similar have been the arguments of global aid agencies like Oxfam, Stop AIDS Campaign, Health Action International 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 Confederation of Indian Industry, Federation of Indian Export Organisations etc which are strongly cautioning the Government against signing FTAs. India signed an FTA with Japan in 2011. Imports from Japan grew by over three per cent to $12.5 billion in 2012-2013, while our exports to Japan fell down to $6.26 billion from $6.32 billion a 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 2012-2013 from $14.9 billion in 2009-2010. Is it any wonder that in the year 2012-2013, India’s current account deficit reached a historic high of 4.3 per cent of GDPIJ 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 a record 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 one 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.
(The author is a management guru and honorary director of IIPM Think Tank)