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Info Service on WTO and Trade Issues (Jan26/14) Geneva, 28 Jan (D. Ravi Kanth) — Amid a cacophony of exclamation marks, India and the European Union on 27 January selectively announced the details of their Free Trade Agreement (FTA). “Trade agreements reinforce a rules-based economic order and promote shared prosperity,” said Indian Prime Minister Narendra Modi. “That’s why today’s free trade agreement is of historic importance” and “one of the most ambitious agreements ever concluded.” “We delivered the mother of all deals,” said Ursula von der Leyen, President of the European Commission, also referencing “Makara Sankranti”, an Indian harvest festival. The details of the India-EU FTA seemingly remain sketchy, as the two sides offered only broad PowerPoint-style summaries of the tariff cuts to be implemented. According to an EU factsheet on the EU-India FTA, the agreement “removes often prohibitive Indian tariffs.” The EU’s agri-food exports to India – which will witness “unmatched agricultural market access” compared to India’s other free trade agreements with the United Kingdom and Australia – will face tariffs ranging from zero to 50%. The products on which India will drastically reduce tariffs on EU agri-food exports include wine, for which the tariff will be brought down to 20% on the premium range and 30% on the medium range from a high of 150%; spirits (whisky, rum, gin, and several others) will be subjected to a 40% tariff, down from the current rate of 150%; beer will face a 50% tariff, down from 110%; and zero tariffs will apply to fruit juices and non-alcoholic beer, bread, pastries, biscuits, pasta, vegetable oils, pet food and sheep meat. The giveaways on industrial products appear to be much larger in scale. For example, the EU’s exports of a range of industrial products to India will face zero tariffs. These include machinery and electrical equipment; aircraft and spacecraft; optical, medical, and surgical equipment; plastics; pearls, precious stones and metals; chemicals; iron and steel; and pharmaceuticals (for almost all products). Even on EU motor vehicles, tariffs have been drastically reduced to a new low of 10%, subject to a quota of 250,000 vehicles. On the services front, the EU claims that India agreed to “ambitious services commitments,” such as “binding of current levels of liberalization for services sectors exceeding India’s commitments with any other trading partner, including the UK and Australia.” New Delhi has agreed to binding commitments for dredging and maritime cable-laying services for the first time, and enhanced transparency through obligations on senior management and boards of directors. At a time when Prime Minister Modi reportedly claimed that India is the “pharmacy of the world,” New Delhi seems to have opened the proverbial floodgates for several pharmaceutical products. The EU appears to have secured an immeasurable commitment, with New Delhi agreeing to “a high level of protection and enforcement of IP rights, including with respect to copyright, trademarks, designs, protection of trade secrets and undisclosed information, [and] plant varieties.” The EU’s factsheet, however, appears to remain silent on the level of market access it will provide to Indian products. Surprisingly, India has so far not released any factsheet stating the gains from this “historic” trade agreement. Even as some media reports suggested that textile and leather items from India will face zero-percent tariffs in the EU market, the gains appear to be only incremental within the dense web of varying levels of FTAs that the EU has already signed. Beyond this, it is a “one way street,” opening all the floodgates to the EU in one go. This has been the case with all the recent FTAs signed by India – such as India-Australia, India-New Zealand, and now India-EU – said a former Indian trade negotiator speaking on a background basis. The facts on the ground from the limited factsheets suggest that India appears to be entering a new phase of “colonization” – much more menacing than Macaulay’s East India Company nearly two hundred years ago, the negotiator said. NTBs RULE In a world where non-tariff barriers (NTBs) rule the roost in global trade – with the EU being a champion of blatantly unilateral protectionist measures such as the Carbon Border Adjustment Mechanism (CBAM) and the Regulation on Deforestation-Free Products, primarily targeted against developing countries – it is moot whether India secured any measurable relief. Several Indian farm products face a range of EU barriers due to stringent sanitary and phytosanitary (SPS) provisions. Regarding Indian exports of iron and steel and cement to the EU, the Indian commerce secretary reportedly suggested that the CBAM will remain in place. The EU apparently agreed to provide some technical assistance amounting to over 100 million euros, but that will not bring any real comfort. While India appears to have allowed free access for European financial and other services in the Indian market, it is unclear whether India secured adequate access for its short-term service providers under Mode 4 of the General Agreement on Trade in Services (GATS). For example, it is unclear whether India secured any relief from the variety of economic needs tests that the EU has long imposed on developing countries. The EU has committed to removing economic needs tests, which are a major barrier to market access under the GATS, but it has not done so until now. India has also conceded a slice of its huge government procurement market to the EU, while the EU has shown no reciprocal response. Given the huge tariff concessions that India has provided to the EU, it remains to be seen how this could affect India-China economic and trade relations. Clearly, when China can supply several advanced industrial products, including eco-friendly cars and other renewables, it makes India’s decision to give a free hand to EU vehicle exports seem somewhat inappropriate. On the one hand, the Indian commerce minister last year proclaimed that it was “silly” of India (under a previous government) to sign a free trade agreement with ASEAN (Association of Southeast Asian Nations) in 2010, as “many of whom have now become the B-team of China,” while on the other hand, India appears to be granting unprecedented market access to the EU. Last year, the EU signed a framework agreement with the United States, conceding to zero-percent tariffs for a variety of American exports to the EU, while agreeing to a 15% tariff on its own products entering the American market. The deal is yet to be implemented. But the EU appears to have foisted a “reverse” US-EU trade deal on India – wherein India has agreed to zero- percent tariffs on several EU products, while Indian items will be subjected to a range of tariffs. In a submission to the WTO General Council last week, the EU called for sweeping changes in multilateral trade rules – including instituting “responsible consensus” decision-making, eroding special and differential treatment, and promoting plurilateral trade agreements in place of multilateral ones. India has been fiercely opposing these changes. But with the signing of the new FTA with the EU, India faces a litmus test: will it continue with the same level of opposition, or will it give in to EU pressure at the upcoming WTO’s 14th Ministerial Conference (MC14), which is likely to “bury the rules-based international trade order,” said a trade envoy, who asked not to be quoted. +
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