India Free Trade Agreement

MEP Hautala signed a joint letter to Commissioner Gucht on the detrimental impacts of the proposed free trade agreement with India.

Brussels, November 2010 [:]RE: EU-India Summit and EU-India FTA negotiations

Dear Trade Commissioner Karel de Gucht

We would like to share some of our concerns regarding the forthcoming EU-India summit which will take place on 10 December and is expected to push the ongoing FTA negotiations between the EU and India towards conclusion.

As you are aware, civil society both in India and the EU are increasingly concerned that the FTA with its current provisions is not the best way forward for development. A growing body of literature[1] draws attention to the potential detrimental impacts of the proposed FTA on people’s livelihoods in India. One major criticism is that the negotiating agenda mainly reflects European and Indian large business interests while general public concerns, including poverty eradication and sustainable development, are not central to the negotiations. In addition, they call attention to the erosion of government policy space that is essential to manage trade and investment in the interest of development with social and gender-just as well as environmentally sustainable outcomes.

While the EU insists that India and the EU are ‘equal partners’ in this negotiation, the reality behind India’s impressive levels of growth, includes following sober characteristics:

– India’s GDP is 6% of the size of the EU. Its per capita income ranks it alongside Nicaragua, Angola and Vietnam.

– India has the largest number of poor people of any country in the world. According to Asian Development Bank estimates, 792 million people (nearly three quarters of the population) live below poverty line. This is equivalent to the entire population of Africa, the Caribbean and pacific countries combined.

– For the EU trade with India currently makes up 1.3% of its total trade, while for India the EU is its largest trading partner, making up 20% of its total trade.

– Estimations suggest that 92% of the Indian workforce find work in the informal sector, the majority of them being employed in the agricultural or in the retail sector.

Demanding reciprocal trade liberalisation and forging equal treatment between unequal partners disregards both the existing economic disparities and special development needs of individual countries. As Stiglitz and Charlton point out, the principle of reciprocity between unequal trade partners is an impediment to fair trade and just distribution of wealth, and an anti-development principle.

We therefore call for the design of EU-India relations that truly reflect the commitments by both parties to sustainable development which includes economic development, poverty eradication, adherence to human and women rights, full and productive employment and decent work for all as well as the protection and preservation of the environment and natural resources.

This would include addressing following imbalances in the current provisions of the FTA negotiations:

– Extension and enforcement of Intellectual Property Rights through provisions that go beyond what is required under World Trade Organisation agreements. TRIPS+ provisions such as data exclusivity, patent extension, and border protection measures would severely affect India’s ability to provide affordable medicines for the treatment of AIDS, malaria and cancer, not only for Indian patients but worldwide; they would contribute to hunger and malnutrition by denying small scale and subsistence farmers’ rights to seeds and sharing of knowledge. This would undermine people’s basic rights to livelihoods, to food and access to healthcare, education and research.

– Further liberalisation and deregulation of financial services: The EU is likely to demand the opening of the Indian market for risky financial products and the removal of certain regulations that limit the foreign ownership or size of a bank. This could not only further destabilize the financial system, but also reduces access to banking services and lending in rural areas, for the poor, socially disadvantaged sectors and for agricultural production. Unlike their domestic counterparts, foreign banks are not required to open bank offices in rural areas nor to provide agricultural loans nor to lend to people below the poverty line. Under the FTA, European banks would most likely continue to focus on “class banking” instead of “mass banking”. According to the EU‘s own FTA impact assessment, this could increase the pressure on domestic banks to also “concentrate more on profitable segment of urban and semi-urban markets”. Moreover, financial sector liberalisation would reduce government policy space to respond to financial crises.

– Liberalization of trade in goods: The abolition of protective tariffs might trigger surges of cheap imports from the EU, with negative impacts on employment and working conditions. There are no adequate safeguards foreseen to protect vulnerable sectors in case of import surges, even so India has fought hard for these at the WTO. This is particularly worrying for the 92% of India‘s 457 million workforce who are in the informal sector, with no job security and little income. The fisheries sector, for example, a powerful income and employment generator for a large section of economically marginal population in the country, might suffer from the import of cheap EU fish products. The consequences for the agricultural sector seem equally disturbing as Indian farmers will be forced to compete with EU products such as dairy and dairy products, poultry, coffee, tea, sugar, cereals, fruits and vegetables, some of them heavily subsidised. Temporary quantitative restrictions on harmful import surges as currently proposed in the 2009 Foreign Trade (Development and regulation) Amendment Bill would no longer be an option. Not only would tariffs and other trade barriers have to be eliminated on at least 90% of all trade – across both agricultural and industrial sectors – but the scope to raise them in the future would be removed.

– An acceleration of the entry of major European retail chains, which will drive concentration within this sector. This is likely to exacerbate the already negative impacts for the informal sector, which includes millions of India’s poorest people, whilst also tying farmers into greater dependency and vulnerability. Massive job and livelihood losses can be expected. Several studies have shown that they are adversely affected by the market entry of corporate retailers. Street vendors, in particular women, Muslims and those selling fruits and vegetables, name the competition with Big Retail as the number one reason for declines in their income.

– Further liberalisation of investment would remove important government policy tools that protect and build domestic industries; that foster domestic value-addition and shield vulnerable sectors of society specifically in times of crisis. Provisions on investor protection and on investor-to-state dispute settlement would grant corporations the right to challenge the Indian government and the EU over any regulatory measures that diminishes their returns. This would grant corporations the right to directly challenge the Indian government and the EU at international tribunals in case of a loss of predicted profits. Moreover, liberalising foreign direct investment in land, fisheries and other natural resources will deprive millions of people of access to the resources they depend on for their livelihoods.

– Liberalising government procurement: Government procurement in India constitutes nearly 13% of India’s GDP and was therefore identified as a priority for the EU. The EU has long been an advocate of the liberalization of government procurement in the WTO, however, developing countries have rejected this and consequently the WTO only covers procurement through a voluntary (plurilateral) agreement to which few developing countries – not including India – are signatories. Government procurement in India is carried out across a wide range of ministries, department, municipalities and other local bodies, statuary corporations and public undertakings both at federal and at state level. It involves the purchase of a vast range of goods and services from paper products for schools to the supply of small components for various forms of infrastructure (e.g. railways) to the delivery of major infrastructure projects. The EU perceives India’s procurement market as to close to bids from foreigners, and is therefore seeking the fullest access to the Indian government procurement market ‘through progressive liberalization at all levels of government’. However, this would seriously undermine India‘s policy space to channel public spending to SMEs, marginalized groups such as women and to poorer regions to reduce social and economic inequality. In the current economic crisis, countries have widely used this policy space to stimulate domestic economies. In addition, European trade unions have warned that the liberalisation of public procurement markets can lead to a bias in favour of low wage, lost cost producers, including in the delivery of essential services.

– Undermining the scope to export restrictions: Through the FTA, the EU also aims to ban India’s export restrictions, including export taxes on raw materials to secure reliable and undistorted access to cheap manufacturing inputs for European industry. India is among the world‘s largest producers of minerals like iron ore, chromium, rare earth, graphite and barite. The country has regularly limited the export of raw materials like rice, cotton, leather, iron ore and iron products to raise government revenue during commodity booms, encourage value-added sectors, protect natural resources, or for reasons of price stability and food security. Denying India the right to restrict its exports would deprive the country of important policy space as well as contribute to strengthening an impoverishing trade pattern between India and the EU, according to which India exports raw products to the EU and imports processed, value-added products. Moreover, it would undermine governments’ rights to regulate the use of raw materials in favour of domestic development, it would exacerbate ongoing land displacement struggles and undermine people’s rights for their habitats and produce.

– Sustainable development chapter in the FTA: The European Commission repeatedly stated that ‘an ambitious chapter on sustainable development is an important objective of the EU in bilateral trade negotiations’; and promotion of the four core labour standards is a ‘key objective’. It is clear that India is not interested in a sustainable development chapter; there is almost unanimous agreement in India in saying that in no circumstances do they want integrate such a chapter in the free trade agreement. Economic arguments against the inclusion generally involve concerns that linking trade and labour standards will have the effect of protecting domestic markets in the EU from cheap goods, thereby adversely impacting trade and employment in India.

– The lack of transparency, public debate and democratic process surrounding the negotiations and the privileged access granted to business interests must be resolved. Up until now, the trade talks have been conducted behind closed doors, with no negotiating text or position made available to the public. Requests for access to meaningful information by parliamentarians, state governments and civil society both in India and the EU have repeatedly been turned down. Instead, business interests have been granted privileged access to policy makers on both sides, allowing them to effectively set the FTA agenda.

We wish you a fruitful summit and count on you to address these pressing issues of interest for European and Indian people in your deliberations with your Indian counterparts. In the light of the new role of the European Parliament regarding trade issues and the upcoming new mandate for investment protection negotiations we kindly ask you for greater information sharing between Commission and European Parliament. This could for example take the form of a debriefing in the parliament after each negotiation round. We find it necessary that the EU conduct a new impact assessment given that the last one ignored both the implications of the global economic crisis as well as FTA implications for the informal sector. We look forward to discussing the details of the negotiations in different fora.


[1] Polaski S. Et alt. (2008): India’s trade policy choices: Managing diverse challenges, Carnegie endowment for international peace; Powell S. (2008): The EU India FTA: Initial observations from a development perspective, Traidcraft. London, UK; Wichterich C. (2009): Trade liberalisation, gender equality, policy space: the case of the contested EU-India FTA, WIDE; Singh, K. (2009): India-EU FTA: Should India Open Up Banking Sector? Special Report. Delhi, India: Madhyam; CEO/India FDI Watch (2010): Trade Invaders: How big business is driving the EU-India FTA negotiations. And other studies.