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Posted April 28, 2009
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In June 2007, the European Commission and the government of India started negotiating a far-reaching Free Trade Agreement which could have significant effects on the Indian economy and poverty reduction efforts.
India is seeking lower levels of liberalisation than initially proposed, in order to protect its sensitive sectors, and wants to exclude key areas - for example government procurement - from the negotiations altogether. Thus far, the EC has rejected these proposals and has insisted that India and the European Union (EU) are 'equal players in this negotiation and should have a high level of ambition'.
Yet India's GDP is 6% of the size of the EU's and it has the largest numbers of poor people of any country in the world. 792 million (nearly three quarters of the population) live on less than a dollar a day. This is equivalent to the entire population of Africa, the Caribbean and Pacific countries combined. For the EU, trade with India makes up 2% of its total trade, while for India the EU is its largest trading partner, making up 20% of its total trade.
Developing countries entering into trade agreements with richer country partners which lock in far-reaching liberalisation and de-regulation commitments face serious risks to their vulnerable sectors - such as small farmers, small and medium enterprises (SMEs) and workers - as well as reduced flexibility to implement national policies.
The FTA could harm India's interests:
. Immediate risks from liberalisation to a wide range of vulnerable sectors - from agricultural products, including dairy, to light manufactured products such as paper. In the auto-parts sector the EU's own assessment predicts that the FTA will have a 'notably negative' short-run impact and cause a significant loss of jobs.
. Less government revenue, increasing the pressure on the Indian government to either cut public spending or increase taxes to compensate.
. The potential for India to use its vast government procurement market to address inequalities by directing spending towards marginalised sectors could be curbed.
. The potential to oblige banks to lend loans to SMEs and rural customers - as was successfully undertaken by India in the past - could become more difficult.
North-South FTAs harm the less developed partner - because they reduce the national self-reliance that is vital to the growth of domestic industries. The proposed EU-India FTA - based on the EU's Global Europe Strategy - would strip India of the policy tools that it needs to grow and to reduce poverty.
The EU sees its free access to other countries' natural resources as its right. The EU's 'Global Europe' strategy is an aggressive agenda to secure access for European companies to markets in the developing world. It strengthens the EU's drive to reduce tariffs in third countries and to attack national regulations that it calls 'barriers to trade'. It wants 'the ability to invest freely in third markets' on behalf of its companies and to be able to open public procurement markets to its companies. The 'Global Europe' strategy is about as close as it is possible to get to a plan for entrenching European economic dominance without using the military.