The Case of the Proposed EU-India Free Trade Agreement

When the European Union and India launched talks on a bilateral trade and investment agreement in 2007, the negotiations were expected by most stakeholders to be long and complex. However, the negotiation process turned out to be not only complex but non-transparent and thus its development implications have been of increasing concern to stakeholders, policy analysts and civil society in India and Europe.

The FTA includes chapters and provisions on goods (both agricultural and industrial commodities), services and intellectual property rights that go way beyond the WTO. In addition, the agreement addresses issues which are left untouched in the WTO as these were considered sensitive for developing countries; namely investment, public procurement and competition policy. Agriculture and food security emerge as critical issues in the India’s FTA negotiations as well as at the WTO. India has often taken strong positions at the WTO to safeguard its farmer’s livelihoods, be it from import surges, from western subsidies or on development and food security considerations. Considering that the EU Indian FTA goes way beyond the WTO framework for agriculture, the impact of such liberalisation on this sector remains critical. In addition, this particular FTA brings together many interlinked chapters all of which can have a combined and cumulative impact on not only the way India trades but on its entire production and distribution systems.

Agriculture remains a sensitive issue in India with almost 70 percent of its population still directly dependent on it. Indian agriculture revolves around numerous small farmers who earn their livelihoods from cultivating small plots of land, and with limited access to resources like water, seed and fertiliser. 83695 thousand marginal farmers (those own less than 1 hectare of land) who represent 65 percent of farmers in India, own only 20 percent of total land, with an average holding size of 0.38 hectares. Only 46.13 percent of the area under such holdings receives any form of irrigation. Rural poverty estimates vary between 28.3 percent and 87 percent. The agriculture sector also has a higher proportion of women workers compared to other sectors. Tribal, indigenous communities also form a sizeable chunk. All these are constituencies with low education, skills and low productive resources.

India’s agriculture sector has also suffered from low investment and policy neglect, and farmers’ productive ability is constrained by grossly inadequate infrastructural facilities like road and transport systems, marketing and storage facilities. The institutional credit system, technology development and extension services are still weak. Unlike Europe, Indian farmers enjoy very little direct subsidy on agriculture. The Indian farmer is still largely left to fend for himself and to eke out a living by producing food both for his own consumption as well as for the market. Their ability to feed themselves is intrinsically linked to their ability to sell, and therefore, to produce.

Therefore there are several features of the EU India FTA that must be looked at in detail in order to have an understanding of the possible consequences on Indian agriculture, poverty and food security.

The Provisions in EU-India FTA and Impact on Agriculture

India’s current agricultural trade is low and accounts for only 2.9 percent of its merchandise imports. But that is also because India still imposes quite a high applied tariff (duty) at a simple average of 31.8 percent (2009) on agricultural products while its notified bound or maximum duty is 113.1 percent. On the other hand, Indian products face a much lower duty of 13.8 percent in EU markets of agricultural products. However, even though the EU has low tariffs, it gives high subsidies to its agricultural producers which work both as a protective instrument in its domestic market, as well as a competitiveness enhancing instrument for EU’s exporters. Indian products also face high non tariff barriers (NTBs) like food and other standards as well as technical barriers in EU, making exports difficult, while NTBs are lower in India. Given the tariff and NTB structures in the two countries, the EU obviously has much more to gain if tariffs are cut while India can gain if and only if NTBs and subsidies are significantly reduced.

But what does the FTA contain?

• Tariff reduction to zero is included on at least 90 percent of tariff lines.
• Export taxes have to be totally removed, threatening the government’s control over domestic food supply even in times of a crisis.
• There may even be a standstill on the exempted tariff lines, i.e. duties cannot be raised from current MFN levels.
• Non tariff barriers in the form of standards, sanitary and phyto sanitary measures and technical barriers (TBTs) are also being discussed but are unlikely to be significantly reduced
• The Special Safeguard Mechanism (SSM), over which India took a strong stand in the WTO, is also much diluted. Apparently, EU has allowed only a volume trigger4 but not a price trigger.

However removal of EU’s agricultural subsidies is not on the cards as subsidies are accepted as a multilateral issue negotiable only at the WTO. Under the Common Agricultural Policy (CAP) which still takes up 32 percent of EU budget, EU still gives huge amounts of subsidy in forms of direct payment to its farmers. Enough literature exists to show that even decoupled domestic subsidies are very much trade distorting and affect global prices. This finally ends up in reducing competitiveness of smaller producers in developing countries.

What is likely to happen? Some Projections

Impact assessment studies suggest very little gain for India in commodity trade. Current trade surplus in agriculture is likely to turn into a trade deficit and a long run fall in agricultural employment is predicted. A small increase in agricultural exports will be countered by a larger increase in agricultural imports.

While India’s share in EU’s markets in cereals, other crops, agro-food and products from animal origin will remain constant, EU will increase its share in all these markets as a result of the FTA. Projections indicate that EU’s share in primary products is likely to increase from 4.9 percent to 16.7 percent by 2020, and from 17.6 percent to 23.5 percent in cereals. In products of animal origin, EU’s share is projected to increase from 7.5 percent to 10.4 percent by 2020 and from 2.9 to 5.3 percent in agro-food.

The asymmetric gains of this agreement are expected to hurt commodity producers in agriculture and industry in India, including dairy, poultry, wheat, sugar and confectionary, oilseeds, plantation products and fisheries. Apart from EU’s subsidised competitiveness in dairy and poultry products, EU’s global trade patterns show increasing exports in commodities such as wheat, oilseeds, plantation products; commodities which still enjoy high applied tariffs in India. EU is also interested in selling wines and spirits to India, where India’s current applied tariff is a high 70.8 percent (on beverages and tobacco).

EU has signalled that meaningful market access by India for wines, beer and spirits and in other areas of key offensive interests to EU like dairy, poultry, cereals, fisheries, and processed agricultural products (PAPs), often by removing them from the negative list, is essential for the conclusion of the FTA.

Once these protections are removed, EU products are likely to flood Indian markets in these segments. European exports can also destroy value added agro processing in India, as well as basic crops by destroying the linkage with local processing industry.

A Skill Biased FTA

The structure of this FTA benefits Indian services compared to agriculture and even manufacturing. Even within services, the benefits are likely to accrue only to skilled areas such as IT and banking. With literacy rate just above 60 percent, the lack of these skills among large sections of the population, especially among farmers and agricultural workers, makes it difficult for them to shift between sectors. They will most likely end up among India’s growing informal workers which accounts for 92 percent of India’s total employment (420 million) and poverty among non-agricultural unorganized workers (both men and women) is estimated at 20.6 percent (NCEUS 2007). Women are special victims of such shifts.

TRIPS plus Intellectual Property Rights

The EU has been quite insistent on its requirement for TRIPS plus Intellectual Property (IP) protection. This affects agriculture and food related issues. For example ratifying UPOV 1991 according to EU’s demands, will prevent Indian farmers from saving, using and freely exchanging seeds. In addition, the IPR text also includes patent term extension by five years which also refers to plant protection products (Correa 2009). All such measures could affect Indian farmers’ access to seeds, traditional cultivation systems, encourages monoculture, and adversely affect bio diversity.

Investment rights

Strong investment provisions that allow foreign access to land, minerals, water and forest products will surely threaten livelihoods, food security and basic sustenance of small farmers, tribal communities, women and children who already have unequal access. It can heighten land grabbing in resource rich areas, thus taking away critical access to cultivable land and other productive resources from tribal, indigenous and rural communities as well as raw material from the domestic industry.

Services

The liberalisation of retail services can also put pressure on small farmers’ livelihoods. Not only do big supermarkets ask for very high standards and reject produce on grounds of not meeting that quality, they can gradually take away farmer’s access to local markets. Sometimes farmers are initially given high prices but with increasing dependence on big buyers from retail chains, the prices have often come down.

The Process of Negotiations and the Democratic Rights of Stakeholders

When do we sign the deal? Alternative information shows the deal is expected to be concluded March/ April or June this year. However final signing may have to wait till the end of the year.

While a lot of the talks in agriculture and NAMA are now over, differences remain over some sensitive segments like dairy, poultry, wines and spirits. It is obvious that EU will not give up on its demands in the agriculture sector. In exchange for giving significant market access India wants an asymmetrical package from EU on agriculture. This consists of longer implementation periods and asymmetrical coverage expressed. However, EU actually wants India to improve its offer on tariff line coverage, and increase its offer to 95 percent. EU also wants its agricultural GIs (highly relevant to wines and spirits) to be recognised in exchange for recognition of India’s non-agricultural GIs, a contentious demand that India has refused to grant.

The lack of transparency and adequate consultation with all stakeholders, especially vulnerable groups like farmers, indigenous groups, women, patients groups, MSMEs, during the process of these negotiations has been a consistent worry to CSOs and development policy analysts. In India, neither the draft text nor the impact assessment studies have been shared with stakeholders, state governments or with civil society, making alternative development friendly analyses by independent non government agencies very difficult. Final sensitive lists are not made public, and there has been almost no effort on the part of the government to prepare affected stakeholders for dealing with the impact of such agreements.

The political process surrounding such negotiations remains undemocratic and non-transparent. There is no parliamentary oversight and ratification of this and other FTAs in India. Even state (or provincial) governments are not consulted in this process nor are their ratifications mandatory. This is in conflict with the fact that agriculture is a ëstate subject’ in India. In Europe while the European Parliament has ratification mandate, their ability to ask for changes in the text remains limited.

In conclusion, the EU-India FTA is expected to have significant impact on livelihoods, access to food and productive resources in Indian agriculture, especially of the poor and marginalised. That such an important policy measure can be introduced without transparent and extensive consultations with stakeholders undermines Indian democracy. In terms of EU’s trade policy, the joint perusal of CAP and the demands made in its FTAs with developing countries seriously undermines EU’s image of being supportive of sustainable development in the Third World.

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By Ranja Sengupta
Senior Researcher, Third World Network

This article first appeared in Ecofair Trade Dialogue Newsletter May 2011.

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Photo: Rice grinding in India. Copyright: Achim Pohl/MISEREOR