Making Indian trade policy: Indian NGOs demand access to India’s FTA negotiations
The sixth round of India-EU FTA negotiations in New Delhi has Indian NGOs demanding access to “secret” FTA negotiating texts. The Times of India reports that protestors were detained outside the office of the European Commission in New Delhi. A body called the Forum on FTAs (described elsewhere as an umbrella group of 75 organizations) is spearheading these Indian civil society protests. An entity called FTA Watch-India has sprung up recently.
While I cannot comment specifically on the demands of this group in the EU-India FTA context, a discussion on how India makes its trade policy and whether it adequately consults with domestic stakeholders in formulating negotiating positions is much needed. Domestic stakeholders who ought to be consulted include not only NGOs, but also parliament, business, labor unions, farmers groups and consumers. Not much literature is available on the Indian trade policy-making process. There is however an interesting paper by Biswajit Dhar on this in a publication by IISD available here. See Biswajit Dhar and Murali Kallummal, “Trade policy off the hook: The making of Indian trade policy since the Uruguay Round”, in Halle and Wolfe (eds.) Process Matters: Sustainable Development and Domestic Trade Transparency, IISD 2007.
I had earlier posted on a news report on the low appetite in India these days for new FTA commitments given imminent elections and the domestic impact of the global economic downturn. An Economic Times story shows that the concerns about the EU-India negotiations are not limited to civil society, but also emanate from business and agricultural economic interests.
Speaking to ET last week, a commerce ministry official sought to allay the growing concerns in domestic circles over the proposed India-EU economic agreement. “There are strong complementarities between the EU and India. After all, we have not yet reached the stage of making the trade-offs and so the fears being expressed now are unfounded,” said the official, who was busy preparing for the sixth round of India-EU bilateral talks beginning Tuesday.
This, however, could be an over-simplistic view. There is clearly a need for greater involvement of all stakeholders in the negotiation process. The high-level trade group which had drawn the broad contours of the agreement was not representative enough.
The EU is India’s largest trading partner, accounting for a fifth of India’s total trade and also one of the largest sources of foreign investment in India. As opposed to this, India currently accounts for less than 2% of the EU’s total trade.
Clearly, as things stand now, India has much to lose (or gain) from the agreement as compared to the EU. Note that the agreement would cover a gamut of areas—trade in goods and services, IPRs, cross-border investments, competition policy, government procurement etc. So India’s policymakers ought to be more chary of the proposed pact than their European counterparts. There is a need for more transparency as well as greater involvement of all stakeholders in the negotiations.
Going by the high-level group’s report, India might need to go WTO-plus in the area of trade in goods, with no commensurate reciprocal gestures from the EU side. The agreement would, as things stand now, allow India to keep just 10% of the tariff lines—which include both agricultural and industrial goods—outside its scope.
It may be noted that India has been resisting the multilateral (WTO) trade liberalisation deal even as it did not have to cut tariffs on 5%f agricultural tariff lines and only make less-than-average reductions in another 7%, and looked close to getting the freedom to keep 5% of industrial tariff lines outside tariff reduction formula. Besides, India has already got preferential (zero) access to EU in case of several tariff lines under the GSP system, which reduces the scope for India to gain in terms of reduction in tariff barriers by the EU.
Indian FTAs – little success
The Business Standard has an article with an update on India’s FTA negotiations. The outgoing government has only signed 1 out of the 15 proposed FTAs on which it initiated talks.
Here’s the article in full:
UPA’s FTA success rate 1 out of 15
Rituparna Bhuyan / New Delhi February 25, 2009, 0:56 IST
The United Progressive Alliance (UPA) government, which initiated talks on about 15 free trade agreements (FTAs), could sign only one of them during its current tenure.
Opposition from the domestic industry lobby in some FTAs and inconclusive negotiations in other cases were reasons for slow progress in finalising FTAs with trade partners, experts said.
Government sources said that at least three of the proposed trade treaties, negotiations on which were concluded last year, would be cleared by the new government that takes charge at the Centre in a few months.
The present regime signed the Comprehensive Economic Partnership Agreement (CEPA) — which covers goods, services and investment — with Singapore in mid-2005.
* Talks Completed with Asean (FTA on goods), South Korea and Sri Lanka
* Ongoing talks with Japan, European Union, European Free Trade Association, Southern African Customs Union, Gulf Co-operation Council, Malaysia, Thailand and New Zealand
* Joint study group formed with China, Australia , Russia and Indonesia
“The fact that not many FTAs were sealed shows the cautious approach of the policy makers,” said Ram Upendra Das, fellow, Research and Information System for Developing Countries (RIS). “But India has recognised that these duty-free agreements are the order of the day as other countries are engaging in similar deals. Indian exporters will be left out if the nation does not engage in these type of agreements with its trading partners”, he added.
Government sources said that the ambitious FTA with the Association of South-East Asian Nations (Asean) and a CEPA with South Korea were unlikely to be cleared by the Union Cabinet. Talks on both these agreements were concluded successfully in 2008. After successful conclusion of talks, the agreement has to be approved by the Union Cabinet before it can be signed.
“The call on these two agreements is likely to be taken by the next government,” said a government official, adding the Cabinet had met probably for the last time on Monday before dates for the elections are announced next week.
There was no announcement on the South Korean and Asean duty-free agreements. Once elections are announced, the Cabinet will not be able to clear any proposals.
Sources added that the government was facing a lot of opposition from the industry on these two FTAs, as it is wary of any cheap imports at a time when the domestic economy is going through a downturn in the wake of the global economic crisis. The Asean FTA was to be signed in December 2008, but was postponed because of a domestic strife in Thailand, an Asean member.
Moreover, a separate CEPA with Thailand could not materialise as India first wants to sign the deal with Asean. “Thailand has also asked for some additional concessions,” officials said. Meanwhile, Both the countries have are trading through a Early Harvest Scheme (EHS), which translates to duty free trade of about 84 goods.
Experts maintain that given the present economic situation, FTAs could wait. “We do not know how things will shape up in the near future. It probably makes sense at times of uncertainty to calibrate policy to suit domestic needs,” said Bishwajit Dhar, head of centre for WTO studies at Indian Institute of Foreign Trade.
But Das feels that as the United States and Europe see a downturn, India needs to diversify its exports and imports.
Significantly, a CEPA with Sri Lanka could not materialise because of the political developments in the island nation. The agreement was to be signed on the sidelines of the SAARC meeting in Colombo in August 2008. Government officials maintained that Sri Lanka did not want the CEPA due to opposition by some political parties. Both the countries already have an operational FTA, covering goods, since 1998.
An agreement with Japan, which was scheduled to be concluded by the end of 2008, is also stuck. The bone of contention was the reluctance of the island country to allow easy market access of Indian pharmaceutical products.
On EU-India FTA
IPS in a report on the EU’s ambitions on FTAs with Asian partners writes about the FTA with India that the EU is currently negotiating. Some excerpts:
Mauro Petriccione, a director in the European Commission’s trade division, said on Oct. 6 that the lack of progress made in discussions with ASEAN has meant that the idea of negotiating a deal with just a few of its 10 member countries is being explored. ASEAN groups Singapore, Malaysia, Thailand, Burma, Vietnam, Laos, Cambodia, the Philippines, Brunei and Indonesia.
And while the European Parliament, the EU’s only directly-elected institution, called last month for an FTA with India to be finalised by the end of 2008, Petriccione acknowledged that attaining such a deal will be very difficult.
One of the problems is that the EU had started the negotiations on the tail of a reform movement in India, he told a seminar organised by the European Policy Centre, a think tank in Brussels. ‘’If it (the movement) is not stopping, it is at least slowing down.’’”
Petriccione was alluding to an economic liberalisation process initiated by Manmohan Singh, now India’s prime minister, when he held the finance portfolio in the 1990s. Under this process, the country’s investment rules were relaxed in order to entice multinational firms into the country.
In recent times, however, the Indian government has adopted a more cautious approach towards international commerce. India’s demand that it be allowed to restrict food imports in order to protect its farmers was blamed by the United States for the failure of efforts to revive the Doha round of world trade talks in July.
India has also taken a tough line in its bilateral dealings with the EU. It has, for example, been urging that the liberalisation of trade in services should enable its skilled professionals to work freely in the EU, despite efforts by the Union to curb immigration.
A paper published by the European Commission last year predicted that securing trade deals with Asia would bring major benefits to both continents. The combined effect of agreements with India, South Korea and ASEAN should be worth an extra 40 billion euros (54 billion dollars) to EU exporters per annum, the paper predicted. The Asian economies, meanwhile, should see their exports to the Union grow by between 18 and 36 percent, according to the Commission.
But a new analysis by ‘Traidcraft’, a British organisation promoting fair trade, contends that a free trade deal with India could have harmful consequences for the country’s poor. Losses in government revenue due to a lowering in tariffs on imports could lead to cutbacks in spending on health and education, says the report, while the opening up of the economy to large retail chains could jeopardise up to 40 million small shopkeepers or hawkers.
Sophie Powell, a Traidcraft campaigner and author of the report, said that the EU is wrong to depict India as its economic equal. Even though it has more than double the EU’s population size, India’s gross domestic product is only about six percent of the Union’s. Powell noted, too, that the EU’s own assessments of the likely implications of a free trade deal forecast that millions of Indians will lose their jobs in sectors ranging from paper to car-making.
The EC’s gung-ho approach to trade negotiations with India present clear risks to millions of India’s most marginalised people, she said. A fundamental rethink of EU trade policy is needed.”
Razeen Sally, an academic working in the University of Hong Kong, said it was probably a mistake to launch free trade negotiations between the EU and India.
India is not serious about FTAs, he claimed. Its unilateral reforms have stalled under the present government since 2004. India has been very defensive in the WTO (World Trade Organisation) and its track record on existing FTAs, except for one with Singapore, has been very bad, he added. ”
The Traidcraft report can be found here.
Interesting article on the future of India-China trade
Continuing on the topic of the previous post, an American Professor of Strategy and Organization, School of Business, University of Maryland, (Ralph J Tyler) had an interesting opinion piece in the Economic Times earlier this year in January. He writes that by 2050, the bilateral trade relationship between India and China will be the most important economic relationship in the world. Tyler argues that India should grant China market economy status because:
While government subsidies do remain an issue in some industries in China, there is no evidence that this problem is endemic throughout large sectors of the Chinese economy. Also, other countries (such as Russia) which suffer from similar problems already enjoy a Market Economy Status.
Whether or not a country grants MES to China has minimal impact on trade balance with China. Take the US as an example. Even though the US has not granted MES to China, its trade deficit with China was $162 billion in 2004, $202 billion in 2005, and $232 billion in 2006. Thus, from China’s point of view, whether or not a country grants MES to it has little substantive value. The value is entirely “symbolic” and, as we know well, symbolism is a hugely valued commodity in China.
In any case, China will automatically get the Market Economy Status around 2015-16. Thus, for China, the symbolic value of getting MES goes down with each passing year. If India were to grant MES to China now (rather than after Japan, the US, or the EU have done so), the symbolic value to China will be much greater than if India were to be a mere follower.
Granting MES to China will not take away India’s rights to file legitimate anti-dumping cases. Even after China is granted MES, it has to provide verifiable information to the country filing an anti-dumping complaint. If such information is not provided, the latter retains the right to use the best information available, including third-country (surrogate) information. As it is, the current anti-dumping cases filed by India against China total less than 5% of China’s annual exports to India. In short, the substantive value of granting or not granting MES to China is insignificant not just for China but also for India. Yes, India will have a $9-10 billion trade deficit with China in 2007; however, MES has little if anything to do with the trade deficit.
Substance aside, if India were to grant MES to China before Japan, the US, and the EU do so, the symbolic value to China will be very high. If India is smart, it should exploit this opportunity to the maximum by getting quid-pro-quo concessions from China on issues that matter enormously to India (e.g., a settlement of the border disputes). In essence, India should look at MES for China as an issue whose salience rests almost totally in non-economic rather than economic domains.
We agree that, at the margins, granting MES to China will put greater pressure on Indian manufacturers to become more efficient (and on the Indian government to accelerate the elimination of India’s disadvantage in infrastructure).
However, this pressure is likely to be a net plus. India’s political and business leaders have always responded with vigour to external economic pressures and competition. Look at the country’s response in 1991. Or, look at the accelerated pace with which India’s IT giants are globalising their footprint and moving up the value chain in response to an appreciation of the rupee and growing competition from other countries.
On the growing importance of India China trade he writes:
Each country’s aggregate international trade is expanding by 23-24% annually. In comparison, India-China trade grew at a 50% rate during 2002-2006 and will increase by a further 54% during 2007 to reach $37 billion.
Second, after adjusting for partner GDP (i.e., bilateral trade divided by the trading partner’s GDP), India’s trade with China is greater than that with Japan, the US, or the entire world. After similar adjustments, China’s trade with India is only slightly below that with Japan, the US, or the entire world.
Third, China already is (or will shortly become) India’s number one trading partner. From China’s side, India already is one of its top ten trading partners. Also, China’s trade with India is growing much faster than with any of the other nine. Thus, India is rapidly becoming an increasingly important trading partner for China.
Fourth, India’s overall international trade is significantly below that of China’s, in terms of both absolute figures (for 2006, $306 billion vs $1,760 billion) as well as relative to GDP (34% of GDP vs. 65% of GDP).
Fifth, even if the growth rate in India-China trade slows down to 25% annually (a conservative projection) from the current rate of over 50%, bilateral trade between them will be almost $75 billion in 2010 and $225 billion in 2015, i.e., as large as China-US trade just three years ago. These are very large numbers. Political and business leaders need to start getting ready now for this radically different world.
Trade theory tells us that, in an increasingly flat world, trade between two countries should be a multiplicative function of their GDPs. Since it is almost certain that, by 2050, China and India will be the two largest economies in the world, it is inevitable that bilateral trade between them will become the most important economic relationship in the world.
Tyler offers an interesting stance on investment ties between India and China:
At present, investment links between the two countries are relatively modest. Haier and Huawei have significant presence in India. Similarly, Bharat Forge, TCS, and Infosys are building a noteworthy presence in China.
These types of greenfield investments will continue to grow. However, the quantum leap will come as some of the bigger companies from India and China acquire third-country companies that already have a significant presence in the other country (e.g., if an Indian auto company were to acquire a western auto company with significant presence in China). It is certain that, over just the next five years, we will see a growing number of foreign acquisitions by Indian and Chinese companies. As these acquisitions materialise, it is inevitable that investment linkages between India and China will grow rapidly.
India China sign trade deals
According to CCTV.com, India China trade was 39 billion US dollars in 2007 (a 50% increase over 2006). Both countries want to raise this to 60 billion US dollars by 2010. A high level business delegation is visiting India and a number of deals have been signed to help achieve this. CCTV.com writes:
The deals signed covered different sectors including textile machinery, garments, steel, agriculture, and electronics. The total value was about 370 million US dollars.
Besides bolstering two way trade, the deals are also considered a way to escape the deadlock that scuppered ministerial talks at the World Trade Organization in July.
G. K. Pillai Indian, Commerce Secretary, said, “India and China have had a very close cooperation in the WTO as we have supported each other in ensuing a development dimension to the Doha round of talks and we hope to take this cooperation further in our bilateral relationship to increase trade between our two countries.”
The Chinese delegation says the documents signed can help reduce the trade deficit, by at least nine billion dollars, if not more. India has accused China of dumping at WTO conferences, and the Chinese side said increased negotiation and cooperation is important to resolve the problem.
The Financial Express has more:
Opening a new chapter in the India-China business relations, the two countries are expected to sign at least 36 memorandum of understandings (MoU) in different sectors that would be worth $370 million during the maiden Chinese business delegation’s visit to India scheduled for next week.
Talking to FE, sources in Ficci said that the 60-member delegation coming from China will be inking MoUs in various sectors including: Textile machinery, garments, steel, agriculture, science and technology and electronics.
Business delegation from China, comprising all the major Chinese companies, is arriving here next week on the first-ever ‘government procurement’ mission to India that Beijing hopes will reduce the nine-billion dollar plus trade gap that exists between the countries. Chinese vice minister of commerce Gao Hucheng is leading the impressive delegation that will have senior executives of China Chemicals, China Petrol, China Machinery, China Grid and Sino Steel, Sinochem Corporation—all leading state-owned enterprises—as well as other representatives of key Chinese companies.
Representatives from some of the Indian companies which will be signing the MoUs include Reliance Industries Ltd, Allianz India, Bharat Mining Co, Ranbaxy Laboratories Ltd and Kotak Ginning and Pressing Ind Ltd.
The EU is at present India’s largest business partner with trade worth 56 billion Euro. Indian trade with both China and the EU is targetting 100 billion $/Euro by 2013. It is also being reported that a feasibility study for an India China FTA is now complete.
The Economic Times had a few weeks ago, reported on how Indian buyers were increasingly sourcing from low-cost China to beat inflation.
India importers are looking to China manufacturers more and more to fight rising costs, according to dual surveys released by trade publisher and trade show organizer Global Sources.
The surveys, conducted in July and August, tracked the views of thousands of volume importers and purchasing managers who supply India’s retail distribution channels. The surveys focused on consumer electronics and hardware and building materials – two of India’s fastest growing segments.…
“Supply-chain management is becoming more efficient in India. And these buyers are looking to China manufacturers to supply this ever-changing need for products.” Around 90 percent of survey respondents said they felt China suppliers offered end-consumer a wider selection of products at reasonable prices. Over 95 percent of respondents to both surveys indicated they would increase their purchases of products from China in the coming year.
This report also has some more statistics on India China trade:
Last year, China became India’s largest trading partner – overtaking the United States. While Indo-US aggregate international trade is expanding by 23-24 per cent annually, India-China trade grew at 50 per cent during 2002-2006 and increased by 54 per cent during 2007 to reach 37 billion dollar.
And here the Economic Times writes about how China and India need to understand each other better:
Two “distant” neighbours. Decades of communication gap. Lack of connectivity. Inadequate understanding of each other’s cultures, systems and orientation. This is the India-China relationship, or lack thereof, since the early 60s.
In the late 90s, Indian Industry was running scared of competition from China, partly out of ignorance and partly because of lack of competitiveness.
Much of this is past — trade and investment have taken quantum leaps. From $40 bn bilateral trade in 2007 its heading towards $60 bn now. But the basic problem remains. There is still lack of understanding of the Chinese — and China — in India, among Indians.
India-ASEAN FTA talks conclude – deal to be signed in December at ASEAN’s bangkok summit.
Kamal Nath and the Singapore trade minister announced the successful end of the talks in Singpore today. Read more here. Some facts:
Total trade between the 10-member ASEAN and India amounted to 37 billion US dollars in 2007, up 29 percent from the previous year.
India is seventh on the list of ASEAN’s biggest trading partners, trailing Australia, South Korea, China and others, according to ASEAN figures.
The FTA covers only goods, but talks are expected to follow on a services and investment agreement.
The Business Standard reports on the renewed urgency that the Geneva Doha failure of July lent to these talks being finally concluded after having been delayed. It also has more information on what the deal contains:
India, on its part, has agreed to lower import duties on nearly 96 per cent of the items it trades with Asean, while protecting nearly 490 highly sensitive products in the agriculture, textile and chemicals sectors. Asean, too, has shown ample flexibility in accepting some Indian positions though it had, in the last annual India-Asean summit in Singapore in November, virtually ruled out further negotiations until India came up with substantially better offers. Most of the group’s members were unwilling to allow protection for over 400 items and especially not to the ones of interest to them in agriculture as well textile and chemicals. These included, besides palm oil, items like pepper, tea and coffee. However, all that is past, though in the process Asean has also got concessions from India to shield its turf when it comes to automobiles and steel. In the case of the almost intractable issue of duties on palm oil and its derivatives, equally critical for a major importer like India as it is for exporters like Malaysia and Indonesia, the two sides have agreed to follow a middle path, agreeing to a tariff ceiling of 37.5 per cent for crude palm oil and 45 per cent on its refined version. In the event, this turned out to be the clinching point for the pact.
Is the future an Asian common market, with Asean already having signed agreements with South Korea, China and Japan, and negotiating with Australia and New Zealand?
India keen on FTA with Australia
According to The Australian, Minister Kamal Nath would like India to conclude an FTA with Australia by 2010. India and Australia are carrying out a joint feasibility study for an FTA. Here’s an extract from this report:
In an interview with The Australian, Mr Nath said that because the Indian and Australian economies were so complementary, an FTA should be relatively easy to achieve.
He believed it should cover trade in merchandise and services and two-way investment.
“We should try and conclude it by mid-2010, or even by the end of next year,” Mr Nath said.
India also wants Australian Uranium for its civil nuclear energy program and Nath touched on this issue as well.
Mr Nath also wants Australia to sell uranium to India, although the Rudd Government has reversed Howard government policy and said it will not sell uranium to India, even if India completes its nuclear energy deal with the US and wins approval for this from the International Atomic Energy Association.
“We do ask Australia to take a practical and realistic view (of uranium sales),” Mr Nath said.
“Australia is not the only source of uranium for India, but (it should be viewed) in the larger context of global warming and the larger relationship between Indian and Australia.”
And what do we make of this comparison with China. (It always used to be India versus Pakistan and now comparisons with China are common.)
Mr Nath said he wanted a much stronger relationship between India and Australia.
The New Delhi Government is known to believe the Rudd Government is obsessed with China and has an unbalanced foreign policy. Mr Nath would not be drawn on such subjects, but said: “The China story is an old story, while the India story is a new story. China opened up earlier so it obviously got a head start.”
India and a future multilateral agreement on investment
Another interesting India related paper on SSRN:
Julien Chaisse, Debashis Chakraborty, Arup Gupta, “Prospects for a Multilateral Framework on Investment – The Indian Bolt” NCCR Trade Regulation Working Paper No. 2007/37
Abstract:
The potential inclusion of a multilateral framework for investment at the WTO aims to coordinate the global regulation on trade and investment. In addition to the difficulties arising during these negotiations, one major concern is the fact that certain countries like India do not have an interest to go for a full-scale Capital Account Convertibility. As a part of the G4, India is currently a major player in the trade-related international regulatory framework. It is argued here that the question of a multilateral framework for investment cannot be solved without taking into account the Indian reluctance to a freer investment regime. There is a historical reluctance of developing countries to establish freer investment regimes. The project on a New International Economic Order already put as a pre-eminent point the sovereignty of States and their necessary control of the private sector notably of foreign capital. But that political approach is reinforced by objective arguments analysed here. First we briefly discuss the debate on having a freer investment framework and foreign investment regime in India. India’s submissions to the WTO on this front are reviewed next. Finally in order to evaluate the legitimacy of India’s concerns, through an empirical model the potential impact of a destabilizing shock on her capital account is analysed. Finally based on the findings, the policy lessons are drawn.
India Africa April summit could see deeper India Africa trade ties
An India-Africa forum in early April is all set to follow in the foot-steps of last years Africa summit in Beijing. According to a report
India is likely to announce duty free import of select items from some African countries at its first-ever summit with 14 African countries in April here.
The April 8 summit will come out with an action plan for reinvigorating India-Africa ties and a political declaration that will encapsulate broad directions of this partnership in the 21st century, a top official source said.
The action plan will include a broad spectrum of areas, including trade, investment, education, agriculture, mining, infrastructure, education and culture.
‘We are working on a package of duty concessions that may cover some agricultural items for least developed countries of Africa,’ official source said.
Total trade with Africa for 2006-07 was estimated at around $20 billion with exports to Africa growing by more than 180 percent.
The duty-free and quota-free regime for some African countries will be a big step to energise trade ties between India and Africa.
India is leaving no stone unturned to make the upcoming India-Africa forum summit a big success and expects it to be a precursor to a bigger summit with the 53-nation African continent.
Algeria, Burkina Faso, Democratic Republic of Congo, Egypt, Ethiopia, Ghana, Libya, Nigeria, Senegal, South Africa, Uganda and Zambia are among the countries to attend the summit. The participating countries have been chosen by the African Union.
The summit has been structured as a three-tier interaction between senior officials (April 4), foreign ministers (April 7) and 17 heads of states/government of the two sides…
Indian officials differentiate between China’s approach to Africa and that of India. The same report continues:
Although the move appears to have been inspired by a similar summit China held with African states, Indian officials are keen to distinguish their approach, of capacity building and empowerment towards Africa, as different from the trade-driven Chinese approach.
India sees its partnership with Africa as one of empowerment and meeting genuine African needs. Nearly 15,000 African students study in India every year.
‘The summit will showcase the brand image of India in Africa. Africa has changed and so has India. The forum will be appropriate to give a new direction to the partnership between the two sides,’ said an official.
It will also be attended by heads of sub-regional groupings like the Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA) and the Economic Community for West African States (ECOWAS).
India’s help in setting up the Pan-Africa e-network that will electronically link 53 countries of Africa and bring them benefits of tele-education and tele-medicine highlights the new thrust of Indian diplomacy in Africa.
Besides, India has given generous lines of credit to assist the New Partnership for Africa’s Development (NEPAD) and written off the debt owed by the African countries under the HIPC (Heavily Indebted Poor Countries) Paris Initiative.
India has also spent more than $1 billion on providing training to more than 1,000 officials from sub-Saharan Africa under the Indian Technical and Economic Cooperation Programme (ITEC).
Here is what another source had to say
Recognising the immense opportunities for cooperation with Africa, India is likely to announce duty cuts for certain imports from Africa and assistance in developmental projects. As per the official sources, the core of the discussion will be how India and Africa can develop partnership in the first part of 21st century.
“We don’t want our approach tainted by the West approach. We’ll talk about Africa to Africans; we will talk to Brazil about Africa but not to these countries. We should not be seen as exploiters in Africa. We want to be partners in the genuine sense of the word,” said a senior official of the External Affairs Ministry.
While 48 African nations had participated in Beijing summit, only 14 are going to be a part of the Delhi summit. But these countries will have the mandate of the entire continent as they have been chosen by the African Union itself.
However, the significance does not lie in number; in fact it lays in the opinion that Africans hold themselves and who are eager to balance China’s overwhelming and aggressive moves in their continent with India’s gentle touch.
The Beijing summit produced wave of growing concerns for the western countries that realised grip over Africa has been steadily slipping into Chinese hands.
The Beijing summit had culminated into the commercial deals worth $1.9 billion with the African countries and eventually China offered credit lines worth $5 billion. It also declared that it would double aid to Africa by 2009 and pledged to push trade to the USD 100 billion mark by 2010.
Comparatively, India is a rather nervous investor in Africa in all sectors comprising petroleum. Over the past few years, China has managed to edge India out of many contracts. That must change. Indian companies must overcome its fear and lethargic way of dealing trade with foreign countries. They must go forward and forge aggressive step in their engagement with African nations for mutual advantage.
Very few countries in Africa are moving forward with development. Rest of the African countries has been sluggish in mobilizing private sector participation in infrastructure development.
What is significant here is Africa’s development can be accelerated with investments and technology transfer. It has plenty of natural resources comprising crude oil and minerals and the closer relations with the African continents will be proved beneficial for both the nations-India and Africa.
Africa’s demand for manufactured goods and services is on the elevated scale. The region also has millions of young literate and talented people who can be employed in the manufacturing and services sector.
As per the official sources, an Action Plan for furthering cooperation in areas like environment, health, education, energy and mining will be announced at the Summit, which could form a precursor for broader India-Africa Summit.
India has been having low-profile engagement with Africa for the last six decades mainly in terms of assistance in developmental projects and peacekeeping operations. Now the apt time has arrived for the country to grow financial relations with the African countries and Indian companies need to expand their presence overseas, step up and diversify trade with Africa.
Jairam Ramesh, India’s Minister of State for Commerce will visit Africa in March with a trade delegation. The focus will be on collaboration in diamond production and polishing. He was quoted as saying:
“We will visit diamond producing countries of Namibia, South Africa, Botswana and Angola from March 21 to 28 and explore possibilities for partnership for the Indian diamond industry,” Ramesh said on the sidelines of Gems and Jewellery Export Promotion Council function on Friday.
The four African countries are emerging as the key diamond producing regions, with several global firms planning to set up polishing units in the region.
India has been a traditional cutting and polishing hub for diamonds and in return for the rough diamonds that it would import from the African countries, it would provide training in cutting and polishing as well as technical assistance to set up local units there, he said.
Lower freight rates between India and Africa provide an advantage to Indian agri exporters. The Economic Times reports
The low freight advantage that India enjoys over other Asian countries especially China, has boosted commodity exports to Africa. Also substantial quantities of maize and soybean meal have been contracted for exports to South East Asia and Middle East due to low freight costs.
“In addition to other benefits a big factor for trade with India are the low freight charges,” Samwel E Dyelu, the general manager of a Tanzania based company told ET. Citing an example he said, a 20 ft container from China to Africa attracts a freight charge of $2000 while a container being imported from Mauritius would cost around $1000. The Indian freight cost should be around the Mauritius figure, he said.…
The commodities that are now been imported by the African countries include meat, eggs, processed food, non basmati rice and milk powder. “Earlier China had the price advantage but now with increase in freight cost it is losing its share to Indian products which are better in quality,” Agricultural and Processed Food Products Export Development Authority (APEDA) director S Dave said.
Meanwhile talks are on for a possible free trade pact between India and the five member Southern African Customs Union (SACU). See report.
Should India walk down the multilateral road or the bilaterals road?
There haven’t been many detailed studies on comparative gains to India in adopting a multilateral versus a bilaterals focussed trade policy. With the Doha round still stuck, India has been aggressively open to offers for bilateral trade pacts. The Carnegie Endowment for International Peace has published a report (January 2008) titled “India’s Trade Policy Choices: Managing Diverse Challenges” which suggests that the multilateral route would be preferable for India. The key conclusions of the report available here are:
• India’s economy would grow most under a Doha agreement, although the gains would add a very modest 0.25 percent to the economy. Free trade pacts with China or the United States would produce even smaller gains. An agreement with the EU, India’s largest trading partner, would have a slightly negative overall impact on India’s economy.
• Dramatic swings in world agricultural prices—a common occurrence—could have much larger impacts on India if the country lowers its agricultural tariffs. A decrease of even 25 percent in the world price of rice, which has happened repeatedly, would negatively impact all but the top 10 percent of Indian households, with the poorest households losing the most.
• The EU, the United States, and China would each gain more from free trade agreements with India than would India itself, but in all cases, gains would be a modest and would represent a very small percentage of the affected economies. While China would gain more overall than India from a bilateral agreement, India would see a greater increase in exports than China.
• All of the proposed trade agreements would reduce India’s tariff revenue, which accounts for about 11 percent of the government’s total revenue. This would force the Indian government to either reduce spending or increase taxes at the expense of Indian households. An EU-India trade agreement would reduce revenue the most.
• The trade agreements would have a positive but very modest impact for India’s unemployed, currently estimated at 40.4 million. A Doha agreement, which has the most sizeable impact of the simulated agreements, would increase the demand for unskilled labor by 0.9 percent, about 4 million jobs. Job gains would be spread across a number of sectors, including transport, construction, apparel, textiles and a few agricultural commodities. Under free trade agreements with the EU and the United States, job creation would be concentrated in the apparel and textile sectors, with other manufacturing sectors actually shedding some workers.
While this report seems well-timed to “help” the Doha round on its way, an assessment of its findings would be a worthwhile exercise. It would be interesting to read other studies on the same issue.
India China joint task force to discuss FTA in April
The Business Standard reports:
A joint economic group comprising commerce ministers of India and China will meet on April 1 and 2 to discuss the India-China free trade agreement (FTA), Dinesh Sharma, joint secretary, ministry of commerce and industry, said today.
“There are certain outstanding issues that may be resolved across the table in April when the joint economic group meets,” Sharma added.
The two countries had set up a joint task force (JTF) to look into the possibility of enhancing trade ties. The JTF had recommended FTA as a mechanism to boost trade dynamics between the countries.
“The recommendations of the JTF will be considered, and some decision can be expected in early April,” Sharma added.
The Indian industry has been opposing an FTA with China until it gets the status of market economy. “The pricing mechanism in China is not very transparent, and we do not understand it. Until then, the market economy status should not be granted to China. CII is working with our Chinese counterparts in this regard,” said T S Vishwanath, head, CII international trade policy division.
Legislation to be introduced in US Congress to push for India-US FTA
US Republican Congressman, David Dreier plans to introduce legislation in the US congress calling for FTA talks with India. Reuters reports on the comments which were made at the World Economic Forum India summit in New Delhi.
Rep. David Dreier, a California Republican, said at the World Economic Forum India summit such a move would be a building block towards the success of the Doha Round of global trade talks or the next World Trade Organisation (WTO) round.
He added:
“It will in large part be a discussion piece for us to just begin talking about this,” he told Reuters after making the announcement to hundreds of delegates at a dinnertime question and answer session with Indian Trade Minister Kamal Nath.
“I don’t want to lead anyone to believe this is going to happen overnight or happen quickly. But the notion of discussing the idea of a U.S.-India FTA I think is important,” Dreier said.
India’s response:
Nath told Reuters afterwards the idea had come up before and it should be examined.
Dreier’s comment that discussions on an India-US FTA could help progress in the Doha round is interesting. It suggests that at least some in US policy circles think that talks on aligning Indian and US trade interests long-term, would prevent clashes in WTO rounds. A US-India FTA would seemingly resolve trade contradictions between the two countries, making it possible for them to adopt joint positions in multilateral fora like the world trade organization. However, as many international trade experts have noted, regulation of agricultural trade is difficult in a bilateral setting and needs multilateral engagement.
Mandelson pushes for an EU-India FTA in leading Indian business daily
Peter Mandelson, the trade commissioner for Europe has published an article in The Economic Times, making the case for an India-EU free trade agreement. He writes:
… Europe is India’s biggest trading partner. India will improve its access to a market of 450 million prosperous Europeans. … Both sides get new markets for their goods and a bigger engine for growth and poverty reduction.
…But there is also a global rationale for an ambitious FTA and it reflects the dramatic way in which India has moved to the centre of the global economy in the last decade. Indian economic growth and poverty reduction is, of course, good for India but it will also be necessary to take up the slack if other parts of the global economy begin to slow.
… When we negotiate together in the WTO Doha trade talks or when we negotiate the trade between us, Europe is well aware of the growing weight on the other side of the table.
…Manufacturing has to be at the centre of an agreement.
… EU exports can also be an important stimulus to the Indian economy. Three quarters of India’s industrial imports are parts or components for the manufacturing or services sectors. India’s average industrial tariff is just above 9% and it acts like a tax on those growing sectors. If we can bring those tariffs down as part of a bilateral FTA we will give India a competitive advantage vis-à-vis some of its biggest competitors. …
…We should also be pushing for an agreement that brings real benefits in services trade and investment. The Indian IT boom and its incredible success in business process outsourcing is built on open markets for these things in Europe, which is the world’s biggest buyer of computer services. We can improve conditions for this trade even further — but we need to see real improvements on the ground for EU companies as well.
…A more open market for services and investment in India can also be a stimulus to growth in India. European services companies bring with them capital, skills and experience that India wants. India gets a tenth of the FDI that flows to China. Further improving the investment climate can only open that tap wider. The Indian government has itself said that it wants to draw heavily on foreign capital in meeting its targets for massive investment in Indian infrastructure and utilities over the next decade. …
Kamal Nath on the FTA in a Hindu report :
India is ready to open 90 per cent of its fast growing market for EU companies, while it would expect its partner to reciprocate with 95 per cent of their market. Agriculture is not an issue with the EU for concluding an FTA which encompasses trade, services and investment, he said.
The Hindustan Times adds
India has stated that it does not want non-trade issues such as animal welfare and labour to be factored into the negotiations. EU, on the other hand, wants more transparency in public procurement and trade facilitation. “We would like to see openness in services and investment trade extended into government procurement in India,” Mandelson said.
As expected, it seems that agriculture is not on the agenda.
Federal clash of interests over India-ASEAN FTA
The Business Standard reports that the Kerala state government has expressed its displeasure at India’s offer to reduce tariffs on crude and refined palm oil, tea, coffee and pepper in FTA negotiations with ASEAN. The political economy of trade policy in India is increasingly seeing contests between divergent federal interests. Note however, that the Kerala response indicates a wllingness to adjust to increased competition and the intention of the state to seek Central assistance in efforts to ward off any negative impact.
Kerala’s Finance Minister TM Thomas Isaac said the move might benefit the country as a whole but one should not lose sight of the regional perspective. “The body blow would be huge. The farm sector is likely to be hit hard,” he said.
“Such a situation calls for a mechanism on the part of the Centre to ensure that farmers in different regions, including Kerala, are not made to suffer,” Isaac said, adding the state would oppose any proposal that puts pressure on the farmers.
He said Kerala’s plantations were seeing low output and diminishing stocks. “The Centre should see to it that the replantation of these crops is prioritised. Unless the produce from our farm sector is made competitive, things are not expected to change,” he added.
Meanwhile, CP John, former Planning Board member and senior leader of the Communist Marxist Party (CMP), which is a United Democratic Front (UDF) ally, reacted strongly. “This is going to be worse than the WTO agreement,” he said.
“What would be good for the North-Eastern states or Maharasthra would be bad for Kerala. Such agreements will bring in more regional imbalances,” he said.
He suggested massive replantation till 2018, the year the duty cuts could come into force. “We could also try switching over to organic farming in case of tea, coffee and pepper,” he added.
Meanwhile, Jojan of the Spices Exporters Association ruled out any impact of any reduction in tariffs. “The deadline is far off and we do not need to be wary of things that will happen after that,” he said.
See http://www.business-standard.com/economy/storypage.php?leftnm=lmnu2&subLeft=1&autono=305209&tab=r
EU India FTA
Prospects look good for an EU India FTA by next year. Kamal Nath recently commented that an FTA with the EU was “not difficult” as there is “no divergence in agriculture and no offensive interest in industrial goods.” He suggested that bilateral engagement would do more for EU-India trade, than the Doha round.
See this report in the Economic Times:
India doesn’t see problems in FTA with EU
22 Oct, 2007, 1701 hrs IST, PTI
“NEW DELHI: India is giving priority to boost trade with European Union and foresees no difficulty in signing a free trade and investment agreement with EU, notwithstanding wide differences between the two sides in the WTO over the Doha Round of trade talks.
India and EU are negotiating a free trade and investment agreement aimed at phasing out and eliminating import duties on a large number of trade items.
Commerce and Industry Minister Kamal Nath, who has been engaged in tough bargains at the multilateral platform with EU and US, said on Monday, “I do not think it (FTA with EU) is a difficult agreement…”
“We have no divergence on agriculture and no offensive interest in industrial goods,” Nath said at a CII meeting with Finnish Minister for Foreign Trade and Development Paavo Vayrynen here.
Nath said India and EU, with a trade of $50 billion, “can do much more through a bilateral agreement than multi-laterally.”
While India valued a rule-based trading system, bilateral agreements only complemented the multilateral arrangement, he added.
“Economic engagement is increasing with the world. Rule-based multilateral agreement is complemented by bilateral trading agreements,” Nath said.
He said India’s external engagement, which is pegged at $450 billion, will double in the next six years. FDI inflows are expected to be $30 billion this year against $20 billion last year.
“Our foreign trade constitutes 33 per cent of our GDP, which is a testimony to India’s growing integration in the global economy,” he said.”
http://economictimes.indiatimes.com/India_doesnt_see_problems_in_FTA_with_EU/articleshow/2481267.cms
India – ASEAN FTA
The Economic Times reports today that an India – ASEAN free trade agreement could be acheived by the middle of next year.
“SINGAPORE: Prime Minister Manmohan Singh has pushed hard for an early resolution of some of the key problems which are holding up the India-ASEAN free trade agreement. Commerce minister Kamal Nath met the ASEAN trade ministers and, after prolonged negotiations, it was decided that the FTA could be finalised by May 2008. The original deadline for finalising the agreement was July 2007.
The tricky issues relating to India offering lower tariffs to ASEAN nations on highly-sensitive agriculture products, like Palm oil, tea, pepper and coffee, will be resolved by the end of this year, commerce secretary GK Pillai has said. He said there was a significant movement forward in negotiating tariffs for these sensitive items.
When India began the tariff negotiations with ASEAN two years ago, tariffs on sensitive products like Palm oil, tea, coffee and pepper ranged between 80% and 100%. India is now trying to persuade ASEAN nations, especially Malaysia, Indonesia and Vietnam, that it could cut tariffs on these items to 45% by 2018. Officials said Malaysia and Indonesia are showing signs of coming around to appreciate India’s sensitivity on these agri items, especially from the standpoint of millions of subsistence farmers.
It is also possible that by 2018 India could autonomously reduce the tariffs on these agriculture items even more if rapid industrialisation leads to shift of labour from agriculture to industry. For instance, India began its negotiation when tariffs of palm oil was over 90%, but has autonomously brought down the tariffs to keep inflation under control.
So, in future, it is quite possible that to feed the growing requirements of its population, India may resort to lower tariffs on its own. This logic may make the ASEAN nations come around to accepting 45% import duty on these critical agriculture items for now.
Otherwise, India has made a generous offer of bringing down import tariff to zero on 80% of the tariff lines by 2018. On this, there is no dispute and this part of the agreement stands sealed.
Meanwhile, the Prime Minister in his address at the India-ASEAN summit today emphasised that exports of ASEAN countries to India has grown at a phenomenal rate of 65% last year, and this shows India is a willing partner in the Asian integration process. The Prime Minister also told the ASEAN leaders that India was determined to conclude the agreement and will show necessary flexibility on that count. ”
Three days ago, the Times of India had filed this report:
http://timesofindia.indiatimes.com/Asean_FTA_may_get_stuck/articleshow/2550990.cms
“NEW DELHI: Malaysia continues to be a spoiler for India’s economic impetus in the south-east Asian region. A dispute between Malaysia and India on tariffs on palm oil imports is one of the few things that is holding up the conclusion of a free-trade agreement between India and the Asean countries.
The two sides remain far apart on key issues of tariff cuts and it’s unlikely India and the 10-nation grouping will be able to stitch up things before PM Manmohan Singh travels to Singapore later this week for the East Asia summit.
Indian officials admit that a free-trade agreement with Asean would be a big step forward in the country’s engagement with the region, which has been the focus of the Look East policy. Any failure in talks will be a disappointment for the PM who is keen on the agreement, seeing it as a driver for Indian exports and Indian presence in the region.
The lack of an FTA will see China get a headway in the region, and successfully cut India out. Not only has China concluded an FTA with Asean, it is now in the process of working out a services agreement.
By 2010, China and Asean hope to work out an investment and two services pacts. Asean secretary-general Ong Keng Yong was quoted in the ‘RChina Daily’ as saying that while Asean was involved in FTA pacts with Japan and India, the China-Asean FTA was “easier, more positive and healthier because we started from the big picture and then proceeded to address the smaller details”.
A last minute effort is on to salvage the treaty before the summit. Commerce minister Kamal Nath is expected to be in Singapore to negotiate the treaty with Asean counterparts early next week. India wants to put services in the agreement but Asean is apparently not yet ready.
India has offered to lower customs duty to 50% on crude palm oil and 60% on refined palm oil by 2018. Additionally, it has offered to cut duties on pepper and black tea by 50% by 2018. India has also agreed to put in lax rules of origin criteria to make it easier for Asean exports.
Malaysia and Indonesia want India to bring them down to 30% and 40%. Vietnam wants cuts on pepper and tea, which is being opposed by the domestic industry. On palm oil, India said since it is an assured market, Malaysia should have no worries (India is the world’s second largest importer of palm oil and Malaysia the largest exporter).”
Dreaming of an India-China FTA
The Business Standard reports http://www.business-standard.com/economy/storypage.php?leftnm=lmnu2&subLeft=1&autono=302676&tab=r
India-China FTA talks soon
Rituparna Bhuyan / New Delhi October 30, 2007
Announcement likely during the visit of prime minister in January.
India is likely to soon initiate formal negotiations for a free trade agreement (FTA) with China, the third largest destination for Indian goods and the biggest source of imports. A task force comprising officials from both countries recently submitted its report saying the FTA was feasible.
Sources said an announcement could be made during the visit of Prime Minister Manmohan Singh to China in January next year. However, due to the ongoing political uncertainty in India, the negotiations could start much later.
China has been India’s third largest export destination and the biggest source of imports since 2004-05.
India has a fully operational FTA with Sri Lanka and a partially operational agreement, covering 82 goods, with Thailand. It is also negotiating FTAs with the 10-member Asean bloc, South Korea, Japan and the European Union (EU).
According to analysts, the grant of market economy status to China could become a significant issue during the negotiations. In bilateral negotiations, there are lot of trade-offs.
“India may try to negotiate the border issue in lieu of giving China a market economy status,” said a source in the know of the development.
As many as 76 countries have recognised China as a market economy, but its top trade partners, like the USA, the EU and Japan, which together account for 48 per cent of its exports, are yet to take such a step.
According to its commitments to the World Trade Organisation (WTO), China has to initiate reforms to become a market economy by 2015, giving its companies a level-playing field with industries in other countries.
Currently, due to a slew of subsidies, tax benefits and artificially undervalued Yuan, Chinese products enjoy cost advantage in the international market. Analysts said after 2015, India would lose some negotiating powers as China might get a market economy status in the WTO by then.
“If trade negotiations are launched in 2008, it will take 2-3 years for conclusion. Even after this, there will be a time period for operationalising the various tariff cuts. These things should be kept in mind while negotiating the FTA,” said the source.
However, the Indian industry is not in favour of the FTA under the current circumstances.
IBSA summit declaration on trade
The relevant part of the trilateral declaration by the leaders of India, Brazil and South Africa issued on 17 October 2007:
“… 23. The leaders noted that WTO Doha Round of trade negotiations is entering a critical stage. These negotiations are now in a genuine multilateral process, with draft modalities texts for agriculture and industrial goods that provide a good basis for negotiations. They reaffirmed their commitment to carry out negotiations towards an outcome that is fair and acceptable to all.
24. The leaders reiterated the importance of the development dimension of the Round and welcomed the strengthened engagement, solidarity, and cooperation among developing countries in that process.
25. The leaders underlined that agriculture remains the key to the conclusion of the Round. To truly deliver on the development benefits of the Round, they called for the removal of long-standing distortions and restrictions in international agricultural trade, such as subsidies and trade barriers that affect the agricultural exports of and domestic production in developing countries. They also asserted that developed countries must agree to substantial and effective cuts in the latter’s trade distorting support, with new disciplines that prevent box shifting and commit to real and new trade flows in agriculture. They underscored that meaningful and operable special and differential treatment, which includes development instruments of Special Products and the Special Safeguard Mechanism are vital to address the concerns of developing countries with subsistence and low-income farmers.
26. The leaders emphasized that any progress towards achieving the above goals is a development imperative and should not be linked with meeting the disproportionate demands by developed countries in the NAMA and services negotiations.
27. The leaders asserted that developing countries have been constructive and willing to negotiate in all areas. They urged others to act with the same disposition.
28. The leaders recalled their commitment to making a contribution to market opening in the Doha Round in agriculture, NAMA, and services that will create new trade flows. They also committed to ensure that the process of the negotiations is not held hostage to “who goes first”. They reaffirmed their conviction that all members must “move together” to arrive at a balanced and fair outcome of the negotiations.
29. The leaders stated that through constant dialogue, reciprocal flexibility, non-dogmatic approach and good faith efforts, full modalities in the agriculture and industrial goods negotiations could be achieved before the year-end, together with equivalent results in other areas. They reaffirmed their commitment to achieving such a positive outcome within this framework.
30. The leaders underscored the importance of incorporating the development dimension in international discussions concerning intellectual property. They reaffirmed that intellectual property is not an end in itself, but one of the instruments to encourage innovation for technological, industrial and economic and social development. They also recalled that it is fundamental to preserve policy spaces necessary for ensuring access to knowledge, promoting public goals in the fields of health and culture, and a sustainable environment. In this context, they welcomed the adoption of 45 recommendations of concrete actions regarding the “Development Agenda” by this year’s WIPO General Assembly, as well as the establishment of the WIPO Permanent Committee on Development and Intellectual Property.
31. The leaders reaffirmed the need to reach a solution for the problem raised by the granting of intellectual property rights on biological resources and/or associated traditional knowledge, without due compliance with relevant provisions of the Convention on Biological Diversity, such as the granting of erroneous patents or the registration of undue trademarks. In this regard, they recalled the presentation in the WTO of the proposal co-sponsored, among others, by the three IBSA countries to amend the TRIPS Agreement by introducing a mandatory requirement for the disclosure of origin, prior informed consent, and also fair and equitable benefit sharing of biological resources and/or associated traditional knowledge used in inventions for which applications for intellectual property rights are filed.
32. The leaders welcomed the ongoing discussion in the Inter-Governmental Working Group (IGWG) on Intellectual Property and Public Health of the World Health Organization. They stated the important role of WHO in the discussion of the impacts of intellectual property protection on public health and on the access to medicines. …”
FTAs and India
Watch out for IBSA. This is a trilateral grouping between India, Brazil and South Africa to promote South-South cooperation. This group has the fastest growing trade links between any developing countries. The second trilateral summit commences on 17 October in Pretoria. While prospects of an FTA will only be considered, there are many other items of cooperation on the agenda. For updates check their website at http://www.ibsa-trilateral.org/index.html
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