Free Trade Agreements (FTAs) & India: Dangers of the proposed Regional Comprehensive Economic Partnership (RCEP) for agriculture & smallholder farmers
Free Trade Agreements (FTAs) are arrangements between two or more countries or trading blocs that primarily agree to reduce or eliminate customs tariff and non-tariff barriers (NTBs) on their imports and exports. The value of imports and exports determine a country’s trade balance, if imports exceed exports, then it has a trade deficit; and if exports are more than country’s import, then it has trade surplus.
The Economic Survey of 2015-16 stated that since the mid 2000s till February 2016, India’s FTAs have doubled to about 42, which led to more imports than exports. It said, “Increased trade has been more on the import than export side, because India maintains relatively high tariffs and hence, had larger tariff reductions than its FTA partners.” The NITI Aayog’s “Note on Free Trade Agreements and Their Costs” expressed similar concern that India’s trade deficit with ASEAN, South Korea and Japan has widened, post-FTAs.
FTAs generally reduce or remove restrictions that hamper free flow of goods and services between the negotiating nations. This includes tariff (duties, surcharges and export subsidies) and non-tariff barriers (like licensing rules and regulations, quotas and, other requirements like quality standards). However, unlike in the World Trade Organisation (WTO), in FTAs tariff reduction is undertaken with reference to a tariff base rate mutually agreed upon by both countries to grant “most favoured nation” (MFN) status to the parties concerned. In WTO, tariff reductions are always from the “bound tariff rates” determined by the country as part of WTO commitments, and not from the MFN base tariffs in other FTAs.
Depending on the bargaining power of the countries involved, FTAs go much further in liberalising trade, services and investments than multilateral trade agreements like the WTO. FTAs are another way to ensure that governments implement the liberalisation, privatisation and deregulation measures of the corporate globalisation agenda. Traditionally North-South FTAs are quite comprehensive and are intended to open up new opportunities for transnational corporations (TNCs) to extract more profits from developing countries. In fact, North-South FTAs are neo-colonial. They turn developing countries into a pool of natural resources or cheap labour for the benefit of northern TNCs. On the other hand, the South-South FTAs (like the India-Sri Lanka FTA) tend to be less comprehensive and less oriented towards an overhaul of national laws, but their impacts on livelihoods of farmers and workers can and have been devastating.
However, in recent years the nature and scope of FTAs among Southern (or developing) countries are becoming similar to FTAs between developed (North) and developing (South) countries because other than covering trade in goods (such as agricultural or industrial products) or trade in services (such as banking, construction, trading, education and other public services, consultancy etc.), almost every FTA today covers intellectual property rights (IPRs), investment, global value chain, government procurement, and competition policy, etc. Therefore, most of the FTAs today go beyond WTO rules and create legally binding obligations on their member/s, restricting their policy space, and have far reaching impacts on livelihoods, access to affordable healthcare, medicines and public services, and protection of traditional knowledge systems. In agriculture, FTAs leads to drastic reduction of import tariffs, facilitate entry of agro-processing and retail firms, and provides for strict IPR provisions that could adversely impact small and marginal farmers, including their rights to save and sell seeds.
There are different kinds of FTAs: bilateral, regional or multilateral. India has signed all these different kinds of FTAs. For example, India has separate bilateral trade agreement with Sri Lanka, South Korea, Japan, and Malaysia where both trading partners agree to reduce trade barriers and confer preferred trade status to each other. Some bilateral trade agreements are also for facilitating investment, called “bilateral investment treaties” (BITs), between a home country and a foreign country or a bloc of countries like the European Union (EU).
The Regional Trade Agreements (RTAs) are treaties between three or more neighbouring countries that agree to offer more favourable treatment to trade amongst themselves than they do to goods/services from countries outside the region. India has signed an RTA with its neighbours in South Asia in 2004, known as South Asian Free Trade Agreement (SAFTA) in order to improve trade and economic relations amongst the member nations of SAARC (South Asian Association for Regional Cooperation).
In the last few years, a new trend has been to negotiate free trade agreements where member countries (i) comprises of more than two; (ii) who are not strictly from the same region or continent; and (iii) the subject matter that goes much beyond the WTO in both coverage and scope. These plurilateral/multilateral trade agreements are referred as “new age” mega regional FTAs not only because of their size in terms of multiple and geographically diverse member countries, but also because of ambitious coverage of issues, which are often referred as ‘WTO-plus’ issues. For example, India is currently negotiating a plurilateral trade agreement known as Regional Comprehensive Economic Partnership (RCEP), which has sixteen members that include ten members of Association of Southeast Nations (ASEAN: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) plus Australia, China, Japan, New Zealand and South Korea.
The RCEP reflects the emerging global trade and economic architecture. The “Guiding Principles and Objectives for Negotiating RCEP” lays down some principles like broader and deeper engagement with significant improvements over the existing FTAs while recognising the individual and diverse circumstances of countries; facilitating countries’ engagement in global and regional supply chains; and taking into account the different levels of development of participating countries. It also identifies the areas for negotiations such as goods, services, investment, economic & technical cooperation, intellectual property, competition, and dispute settlement, with a flexibility to identify other areas. Once the RCEP is finalised, it would be one of the largest trading blocs in the world, covering 45% of the global population, 30% of the global GDP, 27.4% of the world trade in goods, and 23% of the world trade in services.
The RCEP negotiations among the 16 nations are moving at a fast pace, with 23 rounds of talks as of September 2018, apart from six rounds of minister-level meetings. The next round of talks at the chief negotiators level is scheduled to be held in Auckland in October 2018. It was expected that the RCEP negotiations will be concluded by December this year. Howver, India’s commerce minister recently announced that negotiations won’t be concluded this year because discussions on tariff reduction remain unfinished, and there are still differences among members on trade in services, investment and other issues.
Impact of Current FTAs
India is already facing severe impact of FTAs in the industrial and agricultural sectors. In last few years, India’s industry groups have constantly raised their concerns on the impact of FTAs with Sri Lanka (1998), Thailand (2003), Singapore (2005), South Korea (2009), ASEAN (2009), Japan (2011), and Malaysia (2011). In almost all these FTAs, imports have grown at a faster pace than exports after the India government agreed to slash tariffs. India’s trade deficit with Japan was at $3.6 billion in 2010-11 but rose to almost double at $6.3 billion in 2012-13 after the FTA. Similarly, India’s imports from South Korea increased from $7.8 billion (2007-08 to 2009-10) to $12.1 billion (2010-11 to 2012-13). By comparison, India’s exports to South Korea moved up marginally from $3.4 billion to $4.1 billion and its trade deficit widened from $4.4 billion (pre-FTA) to $8 billion (post-FTA) during the same period.
RCEP would be India’s biggest FTA and the country may have to offer much deeper commitments than already made under its existing FTAs with ASEAN, South Korea, Japan, Malaysia and Singapore.
India’s largest and oldest apex business body, the Federation of Indian Chambers of Commerce and Industry (FICCI) had demanded for a moratorium on signing of new FTAs. In August 2013, FICCI issued a 12 Point Manufacturing Mandate which said “these FTAs are supposed to provide mutually beneficial results, but experience so far has not been very healthy particularly with regard to manufacturing sector. Hence, it calls for review of existing FTAs and till the time [an] assessment is done Government should have a moratorium on further FTAs”. More recently, on 6th January 2016, the Indian Industry Chambers once again raised their concern against FTAs. In a meeting with the former Commerce and Industry Minister Nirmala Sitharaman, the Industry Chambers said that these agreements benefited the partner nations more. FICCI also repeated its suggestion for a review of existing FTAs before signing of new ones. It said that in many cases, domestic input cost increase is impacting cost of manufacturing while the selling price linked to cost of imports leads to erosion of industry’s pricing power and squeeze in margins to uneconomic levels
In agriculture sector as well, the consequences of FTAs are quite worse. Tariffs are commonly not only reduced (as it is the case in WTO) but most often completely eliminated. After the signing of India-Sri Lanka FTA, the state of Kerala was severely hit by the increasing imports of cheap black pepper and cardamom from Sri Lanka, after these were imported on a duty-free basis. As of 2015, imports of black pepper from Sri Lanka are still high with the price for the cheaper crop variety being $9,500-9,750 per tonne against the Indian offer of $11,400 per tonne. The Indian pepper farmers were further hit by the signing of the India ASEAN FTA, with most of pepper imports now coming from Vietnam (the world’s largest exporter of black pepper) and Indonesia. In 2015, Vietnam exported black pepper for $9,800 a tonne and Indonesia for $9,700-9,800, which are both still far below the Indian price. The excessive imports of pepper caused a fall in market prices in India. In 2011-12, local black pepper was 240 rupees (INR) per kilo, but fell to 80 INR in January 2016.
Other than pepper farmers, the FTA with ASEAN also impacted the India’s rubber growers. Till now more than a million rubber farmers have lost their livelihoods due to cheap rubber imports from Vietnam and Indonesia. India was self-sufficient in rubber production until 2013, but is now becoming more and more dependent on imports. Between 2013 to 2015, rubber imports almost doubled from 26 lakh (260,000) metric tonnes in 2013 to 44 lakh (440,000) metric tonnes at the end of 2015. Exports of rubber are at a record low. India exported a mere 1,002 tonnes of rubber in 2015 against 30,549 tonne in 2013, even as the price of Indian rubber dropped from 207 INR per kilo to 132.6 INR per kilo.
Following the signing of the India-ASEAN FTA, coconut farmers in South India also witnessed an unprecedented crisis, with procurement prices of coconut hitting an all-time low of 3 INR per piece. The primary reason for drop in coconut prices was attributed to the cheap import of coconut oil cakes from Southeast Asian countries like the Philippines and Indonesia.
Despite these serious impacts of FTAs on Indian industry and agriculture, the Indian government is quite enthusiastically negotiating around 18 more FTAs concurrently, including with the European Free Trade Association (EFTA), the European Union (EU), Israel, New Zealand, Australia, Canada, Colombia, African Continental Free Trade Agreement, Uruguay, Mercosur, and Venezuela.
Besides the impact, the process of negotiating these FTAs is also quite problematic and undemocratic—in complete secrecy. During the negotiations, the general public and their parliamentary representatives are denied the right to see any text of these secret trade deals. As a result, none of these bilateral trade agreements faced any kind of stiff opposition from any state government, political party or mass movement. The only notable exception is the India-ASEAN FTA which faced political opposition (from the Left Democratic Front Government of Kerala) as well as resistance from farmers and fishworkers groups of southern India states including Kerala. In India, there is no process of ratification of these FTAs by the National Parliament. In almost every FTA, state governments are excluded from any process of consultation and ratification, even on subjects like agriculture which directly affects their constituents and economies.
Major Concerns about RCEP
Like any other FTA negotiation, the RCEP negotiations completely lack any amount of transparency. No text has been made available to the public or to the sectoral groups who would be impacted by this trade deal, like the farmers, women, labour, health groups, and neither were they consulted to assess the impact. Though RCEP covers an extensive range of topics, the 23 rounds of negotiations have been conducted without any public disclosure. Some leaked documents of RCEP negotiations, however, indicate how far reaching the impacts the RCEP will be on the access to medicine, tax policy, investor rights, and farmers’ access to seeds. In last six years of negotiations, RCEP was never discussed on the floor of Indian Parliament, nor was any state government consulted. The consultations are always limited to the business communities in the member nations.
Another concern is ASEAN, which is at the centre of the RCEP. The 16-member FTA is as much about further integrating ASEAN as a group, as it is about deepening and broadening economic integration amongst the ASEAN Plus Six members. India already has an FTA with ASEAN and it never benefited the country. After signing of FTA, India’s trade deficit with ASEAN surged from $4.98 billion in 2010-11 to $9.56 billion in 2016-17. There cannot be a more cogent statement on the inability of Indian producers to compete with their counterparts in this 16-nation mega trade agreement. It will be a disaster for India’s agriculture and manufacturing sector if it agrees to the 92 per cent elimination/reduction of tariff on products under RCEP.
Another big concern is China, which is a key member of this mega FTA. Even without an FTA, India’s trade deficit with China has reached $63 billion in 2017-18, from $16 billion ten years ago in 2007-08. Chinese products have already flooded the Indian consumer market, with the impact most visible in India’s toy industry, lock industry, textile machinery sector, bicycle manufacturing, diesel-engine pump sets and others. A study (2013) by the Associated Chambers of Commerce and Industry (Assocham) on the Indian toy industry stated that, “the Indian market is flooded with Chinese toy imports and that Indian toy manufacturers are being decimated as a result”. Similarly, the Textile Machinery Manufacturers Association (TMMA) objected to the low-cost and low-tech textile machine imports from China, which are between 30 and 50 per cent cheaper. India’s bicycle industry has been drastically impacted by Chinese imports. According to United Bicycle and Parts Manufacturers Association, “Five to six years ago (around 2008-09), the total volume of exports from Ludhiana was about Rs 1,500 crore (15 billion INR). But it is reversed in 2013-14. Export volume has been replaced by imports which range from Rs 1,500 to Rs 2,000 crore” (15 billion to 20 billion INR). Reduction or elimination of tariff under RCEP would drastically impact India’s manufacturing sector. Furthermore, there is another provision in RCEP which restricts India from having any kind of export restrictions on minerals and raw material, which may threaten domestic raw material availability for industrialisation and encourage over-mining. Moreover, RCEP will most likely also bring an end to export bans on food (mainly wheat and rice), which India has used strategically in the past to ensure food security.
Another important concern about RCEP is the demand from member countries, especially Japan and South Korea, for ‘TRIPS-plus’ intellectual property (IP) protection for seeds, medicines and agrochemicals. This will be disastrous for Indian farmers because the country is under pressure to accede to the 1991 International Union for the Protection of New Plant Varieties Convention (UPOV)and comply with its standards. UPOV is a system of seed patenting that undermines farmers’ rights to save and share patented seeds and plant materials, thus compromising seed sovereignty. UPOV 1991 gives primacy to corporate plant breeders, and restricts freedom of researchers and breeders to access protected plant varieties for further research and development. TRIPS-plus provisions also intensify monopolies over seed, pesticides, fertilisers and animal vaccines, and encourages proprietary agriculture technologies. Whilst TRIPs-plus provisions extend the monopoly rights of large corporations, they offer no such protection for the vast amounts of indigenous knowledge held by Indian farmers and local communities.
Meanwhile, TRIPS-plus provisions in the health sector would mean agreeing to data exclusivity, extending patent terms as well as allowing strong enforcement measures. TRIPS-plus would also weaken the entire generic medicine sector, as it would make generic medicines inaccessible not only for Indian patients but for those in the entire developing world. This would also limit the ability of the Indian government to issue compulsory licenses on medicines as well as compromise the health safeguards provided under India’s Patent Act, notably section 3(d) which prohibits the evergreening of patents.
RCEP’s impact on the dairy industry is another big concern for India. Two RCEP member countries, New Zealand and Australia, have aggressive interest in dairy sector. And if Indian government decides to slash duty on dairy products—especially liquid milk, milk powder [skimmed milk powder (SMP), whole milk powder (WMP)], butter, AMF (anhydrous milk fat or butter oil), and cheddar cheese—the Indian dairy industry will be heavily impacted because all these products are important export products for New Zealand and Australian dairy industry. Compared to India’s 150 million dairy farmers, there are only 12,000 in New Zealand and 6,300 in Australia. India is the world’s largest milk producer, with an annual production of 156 million metric tonnes (MMT), with most of it consumed domestically. There is negligible export of milk or milk products from India. On the other hand, New Zealand produces 22 MMT and exports around 19 MMT while Australia produces 15 MMT and exports 4 MMT. For this reason, dairy corporations like Fonterra (New Zealand) and Saputo (Australia) are looking to RCEP to access India’s massive dairy market to dump their products. India’s dairy cooperatives, like Amul, fear that if import duties on milk and milk products were eliminated under RCEP, it will severely hit not only the dairy industry and cooperatives but also the livelihoods of around 150 million dairy farmers.
On the pretext of boosting trade among the sixteen nations, RCEP will undoubtedly deepen corporate concentration in the food and agriculture sector, and offer powerful rights and profitable market to multinational corporations (MNCs). And to protect their rights and investment, RCEP has a provision for investor-state dispute settlement (ISDS) which gives any investor the right to raise claims against a state. If a member does not follow the commitment made under RCEP, a foreign (or domestic!) company has the right to sue the government for damages incurred by the company due to a government policy or intervention. This provision greatly undermines policy space and sovereignty of national governments and places unbridled power in the hands of MNCs. At present, India is already facing around 20 cases of investors suing the government under bilateral investment treaties (BIT). With the RCEP, there is heavy pressure on India to agree to more ISDS provisions.
It is expected that RCEP will be finalised by early next year (2019) and therefore, there is an urgent need to raise awareness about the harmful impact of this mega FTA among the people.
- The Indian government must put a moratorium immediately on new FTAs.
- The Indian government must conduct comprehensive review of all existing FTAs.
- The Indian government should also conduct an ecological and social impact assessment study to assess the costs and benefits of all FTAs including RCEP, which India is currently negotiating, and make it available for public scrutiny.
- The Indian government must bring transparency in FTA negotiating process and make all FTAs (including RCEP) negotiating texts publicly available.
- The Indian government must institute a mechanism for time to time broader public consultations on FTAs with all stakeholders including farmers organizations, trade unions, civil society organizations, and representatives of small and medium enterprises to take their concerns and views.
- In the spirit of federal polity, the central government must duly consult state governments and gain their consensus on issues that are in the state or concurrent lists such as agriculture, seeds or health.
- India should not open up for negotiation the critical sectors such as dairy and agriculture; agriculture must be kept out of any FTA negotiations.
- The coverage of FTAs should be strictly limited. India should not agree to open up 92%-97% of its goods under any FTA.
- There should be no ‘TRIPS-plus’ obligations in agriculture for either data exclusivity or patents on seeds or breeds, etc.
- There should be no commitment related to mandatory UPOV Convention (whether 1978 or 1991) membership in any agreement.
- There should be no patents to be allowed on any seed/planting material-related technologies.
- Exclude essential public services such as education, health, water and sanitation as well as government procurement from FTA negotiations.
- End the excessive investor protection and corporations’ right to sue governments, especially for necessary laws that protect their population or the environment.
- Given that intellectual property are included in the definition of investor rights, no ISDS provisions should be accepted.
- We also demand for a ratification process for approving FTAs in the Parliament of India.
 NITI Aayog is the National Institution for Transforming India, also called NITI Aayog, the premier policy think tank of the government.
 Base rate is the applied MFN duty of any year, which is decided mutually.
 “Bound tariff or Bound duty rate” are highest level of duty notified in the WTO that a country can impose and cannot exceed at any point in time. By contrast, “applied rate” refer to tariff that are actually applied at any given point in time. The basic rule is: applied rate may be lower but must not exceed the bound rate. Hence bound rate have special significance as they limit the ability of a country to vary tariff.
 The idea of RCEP was first introduced at an ASEAN Summit in 2011. The formal negotiations for RCEP were launched at an ASEAN Summit in 2012.
 Among the 16 RCEP members, only Australia, Japan, Republic of Korea, Singapore and Vietnam are parties to UPOV 1991. China and New Zealand are members of the UPOV but have not signed the 1991 version.