August 9, 2013

There is nothing called a Free Trade Agreement!

In a recent comment, the Gujarat Chief Minister Narendra Modi expressed grave concerns on the outcome of a little known Free Trade Agreement (FTA) that the Indian government is hastily attempting to sign with the 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 – but Nestle India has entered India through the FDI route than the FTA route, it purchases products significantly produced within India, provides massive employment in and around production plants built in India, even though its holding company is the Nestle S.A. 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 2014-20 budget was announced. Of the 960 billion euros budget, a mammoth 38%, 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 any way 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 caught 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 the Prime Minister, Dr. Manmohan Singh, even came out with a surprisingly strong statement in July 2013, “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 behemoths? 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.

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3 comments:

dipesh kumar said...
This comment has been removed by the author.
radhe mohan said...

I agree with your views on FTA. A very well written piece, full of revealing facts and figures. Thanks for an eye-opener piece on such an important issue.

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