Global Policy Forum

EU-India Free Trade Talks: In Whose Interest?


Market Access at The Expense of The People

By Christa Wichterich

World Economy & Development
January - February, 2008

"The Indian middle class is hungry for exciting food and drink experiences" - at least according to Mariann Fischer Boel, the EU Commissioner for Agriculture. When it is signed and sealed by the end of 2008, the free trade agreement between the EU and India is supposed to help quench this appetite. The EU wants to export wine, whisky, olive oil and 40 types of fish, among other things, to India when the customs barriers fall. Yet to whom such treaties are really helpful, Christa Wichterich asks.

Since the WTO Doha development round has reached a dead end, the EU wants to accelerate the advance of European corporations against its US competitors in the world market with the help of bilateral free trade agreements (FTAs). The powerful business lobby in Brussels is pushing for new treaties that include even those "WTO-plus" areas where countries of the South have steadfastly refused to budge: services, investment protection, intellectual property rights and public procurement. India with growth rates of more than 9%, a huge consumer market and still high tariffs and trade barriers, is one of the EU's top objects of desire as far as market access is concerned.

* Emerging world power...

India considers herself as an "emerging world power" and wants to follow the Chinese model, focusing on export orientation to become a global hub for manufacturing, trading and services and to attract investors and create millions of jobs with 500 special economic zones. Trade minister Kamal Nath calls the pact with the EU the most comprehensive of the 27 treaties India is currently negotiating and is also interested in a WTO-plus agenda to generate an additional boom in the Indian economy.The High-level Trade Group that prepared the negotiations in 2006 identified nine sectors of "reciprocal interest" beginning with elimination of 90% of the tariffs applied to 5000 product lines, a comprehensive liberalisation of services (all 4 GATS modes), national treatment of foreign enterprises and repeal of the controls for financial capital. The transition period until full implementation is set at a brief seven years.

* ... but still an unequal partner

Whereas official rhetoric celebrates this commercial camaraderie among "natural partners" and "allies at the world stage", these are really two extremely unequal partners. India's GDP is only about 7% of the EU's. Still some 80% of India's population have to survive on less than two dollars a day. The UN's Human Development Index shows India at rank 128. For decades the EU has financially supported India through development programmes from education to infrastructure with combating poverty as its highest objective. Now trade is supposed to continue to fuel Indian growth and thereby reduce poverty. The most recent EU development programme for India, the Country Strategy Paper 2007-13 sees India nearly as an emerging economy and is mainly focused on economic cooperation.Two impact studies show that the gains from free trade will by no means equally shared: India has to open its borders more since its tariffs are higher than in the EU and will have to absorb the corresponding reductions in state revenues. The EU will increase its exports to India by 57%. The best India can hope for is a 19% increase, primarily in textiles.

* Controversial issues

After the first three negotiating rounds several crucial issues have emerged: The EU insists on the principle of reciprocity while India demands concessions: the EU should further reduce its import tariffs and lower the safety standards (SPS) for Indian agricultural exports. The EU doesn't want to negotiate a "blue card" which would allow India to export IT specialists to Europe and India flatly refuses to discuss public procurement and is extremely hesitant with patent rights. The EU's intention, in contrast to WTO agreements, to integrate "sustainable development", environmental and labour standards in all bilateral trade agreements triggered an open controversy. The negotiating mandate for the EU commission not only includes the directive to find "new ways of addressing non-tariff barriers" but also emphasises eradication of poverty, full employment, ILO core labourstandards, and "decent work". True, the High-level Trade Group views favourably that both India and the EU follow a "model of growth with equity, which is socially inclusive" and aims at fair distribution. Yet India accuses the EU of insisting on social and environmental clauses for purely protectionist purposes and refuses to include standards in the agreement. Trade minister Nath seems to consider labour laws as an impediment to competition: recently he intervened in various EU trade ministries to prevent activists of the Clean Clothes Campaign from publishing labour law violations by an Indian jeans manufacturer in the internet since this would damage India's export industry.

* Conflicting with poverty eradication

In India itself the voices of those who fear that corporate liberalisation is at the expense of the small and weak market participants are getting louder. Currently Indian small merchants and middlemen, who previously dominated retail business in the country side, are protesting against wholesalers, hypermarkets and supermarkets such as the German retail group Metro. Their advance means that entire domestic value-added chains and marketing channels will be out-leveraged and local producers and petty merchants will be marginalised and driven off the market.These displacement effects will create new poverty. Trade liberalisation thus stands in open contradiction to EU-supported poverty eradication projects which aimed to integrate the poor, women and members of lower castes into the market by providing micro-credits and promoting self-reliant initiatives so that they could secure their livelihood as self-employed or small businesses in the informal sector. Whereas business federationsfrom the EU and India advocate increasing "deep" liberalisation, fishermen and fishmongers in South Indian Kerala fear for their existence and the survival of traditional small-scale fishing, given the EU's fish export plans. They demand that fish be placed on the "sensitive" list of those 10% out of 5000 products that are exempt from the 90% tariff reductions.

* Behind closed doors

Protests are intensifying - against market opening, against the expropriation of resources belonging to farmers and fishermen in order to create special economic zones for investors and against an industrialisation that continues to weaken agriculture. A leading Gandhian social activist, Smitu Khotari, accused European investors of predatory behaviour profiteering from resources and labour in India. Many development NGOs fear that further liberalisation of agriculture, the financial sector, intellectual property rights in particular in the seed and pharmaceutical sector as well as exploitation of minerals will undermine the objectives of poverty elimination, food security and social balance. Critical voices ask whether EU demands for trade liberalisation of environmental goods and services also include opening and privatisation of water supply. The Centre for Education and Communication in New Delhi, primarily representing farmers' and workers' rights, put it this way: "If the agreement sets to benefit people does it have to be kept secret"? Paradoxically indeed all the negotiations between the "two largest democracies in the world" are conducted behind closed doors. Whereas the private sector is granted plenty of room for lobbying almost no information seeps through to the Indian and EU public. Civil society organisations in India, representatives of the informal sector, farmers' union or women's networks receive no information at all about the negotiations and have no opportunity to advocate their interests. The EU's Directorate-General for Trade is planning to invite NGOs for one single discussion when the Sustainability Impact Assessment (SIA) commissioned is to be presented. Obviously, to date these negotiations lack any democratic legitimacy by parliaments and civil society.

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