Introduction

South East Asia has been a hub of mishaps from the beginning.

Floods, Tsunamis, Draughts, Conflicts and other social issue were the

common barricades before the traders to sell their produce. Farmers

and natural product retails were the most affected community

amongst.

India, Nepal and China triangle mainly constitutes of farmers carrying

out mainly unorganized farming. Several technical and non-technical

factors have been resisting the local farmers to hang their product in

organized markets. Technical factors are machinery, facility, hygiene,

protocols, etc while non technical factors compromise of awareness,

encouragement, guidance, economics, etc.

Many models were proposed to eliminate these factors, but each one

was marked unsuccessful. There is a strong need of a model that can

encourage cross boundary trade between these countries and help

farmers to increase their living standard. The reason why cross border

trade is encouraged because the food production is mainly

decentralized, the product that may be grown in certain region may be

unavailable in other regions.

I would like to propose a NAFTA identical model to eliminate these

trade barriers.

NAFTA (North American Free Trade

Agreement)

The North American Free Trade Agreement or NAFTA is an

agreement signed by the governments of:

1. Canada,

2. Mexico, and

3. United States

Creating a trilateral trade bloc in the North America. The agreement

came into force on January 1, 1994. It superseded the Canada –

United States Free Trade Agreement between the U.S. and Canada. In

terms of combined GDP of its members, as of 2010 the trade bloc is

the largest in the world.

The North American Free Trade Agreement (NAFTA) has two

supplements,

1. North American Agreement on Environmental Cooperation

(NAAEC), and

2. North American Agreement on Labour Cooperation

(NAALC)

NAAEC looks after the environmental issues and checks the

sustainability of the development. While NAALC looks after the

labour issues; checks for the child, forced and underpowered labour.

These two bodies run as a collateral part of NAFTA.

Provisions in NAFTA

There were three main functions of NAFTA:-

1. Eliminating or reducing barriers to trade- The barriers to

trade are mostly classified as tariff and non-tariff. Tariff

barriers consist of taxes on exports and imports of commodities.

These are imposed to protect the local producer from

international competition. Some of the bodies that impose such

tariffs are GATT (General Agreement on Tariffs and Trade),

TRQ (Tariff Rate Quota), etc. The non-tariff barriers consist of

licenses and quotas that resist the food product trade

internationally.

2. Encouraging Foreign Investment and Trade- NAFTA

encouraged FDI between the member countries. Another think

that NAFTA encourages is the cross boundaries trade between

Canada, Mexico and USA.

3. Checks the sustainability and enforcements- The

supplementary bodies of the NAFTA check the ethical and

sustainable aspects of trade. While some provisions are there in

NAFTA for proper enforcement of apparels.

NAFTA Effect on Food Supply Chains

From the earliest negotiation, agriculture was (and still remains) a

controversial topic within NAFTA, as it has been with almost all free

trade agreements that have been signed within the WTO framework.

Agriculture is the only section that was not negotiated trilaterally;

instead, three separate agreements were signed between each pair of

parties. The Canada–U.S. agreement contains significant restrictions

and tariff quotas on agricultural products (mainly sugar, dairy, and

poultry products), whereas the Mexico–U.S. pact allows for a wider

liberalization within a framework of phase-out periods (it was the first

North–South FTA on agriculture to be signed).

The overall effect of the Mexico–U.S. agricultural agreement is a

matter of dispute. Mexico did not invest in the infrastructure

necessary for competition, such as efficient railroads and highways,

creating more difficult living conditions for the country's poor. Still,

the causes of rural poverty cannot be directly attributed to NAFTA; in

fact, Mexico's agricultural exports increased 9.4 percent annually

between 1994 and 2001, while imports increased by only 6.9 percent

a year during the same period.

One of the most affected agricultural sectors is the meat industry.

Mexico has gone from a small-key player in the pre-1994 U.S. export

market to the 2nd largest importer of U.S. agricultural products in

2004, and NAFTA may be credited as a major catalyst for this

change. The allowance of free trade removed the hurdles that impeded

business between the two countries. As a result, Mexico has provided

a growing meat market for the U.S., leading to an increase in sales

and profits for the U.S. meat industry. This coincides with a

noticeable increase in Mexican per capita GDP that has created large

changes in meat consumption patterns, implying that Mexicans can

now afford to buy more meat and thus per capita meat consumption

has grown.

Production of corn in Mexico has increased since NAFTA's

implementation. However, internal corn demand has increased

beyond Mexico's sufficiency, and imports have become necessary, far

beyond the quotas Mexico had originally negotiated.

Zahniser & Coyle have also pointed out that corn prices in Mexico,

adjusted for international prices, have drastically decreased, yet

through a program of subsidies expanded by former president Vicente

Fox, production has remained stable since 2000.

The logical result of a lower commodity price is that more use of it is

made downstream. Unfortunately, many of the same rural people who

would have been likely to produce higher-margin value-added

products in Mexico have instead emigrated. The rise in corn prices

due to increased ethanol demand may improve the situation of corn

farmers in Mexico.

In a study published in the August 2008 issue of the American Journal

of Agricultural Economics, NAFTA has increased U.S. agricultural

exports to Mexico and Canada even though most of this increase

occurred a decade after its ratification. The study focused on the

effects that gradual "phase-in" periods in regional trade agreements,

including NAFTA, have on trade flows. Most of the increase in

members’ agricultural trade, which was only recently brought under

the purview of the World Trade Organization, was due to very high

trade barriers before NAFTA or other regional trade agreements.

Proposed Model

The proposed model consists of a trilateral trade agreement between

the three South Asian countries:

Trilateral Agreement

China

Nepal India

Nepal

China

India

Background of proposal:

Many questions can be raised while putting China in the trilateral

loop. But the reality is this despite of being our enemy we share a

major share of our food exports with China. A list of few important

exports is given below:

• Tobacco

• Guar Gum

• Oil seeds

• Marine Products

• Fresh fruits and vegetables

• Dairy Products

• Coffee

And we even earn a handsome return from the enemy neighbor.

Talking about Nepal, it is much dependent on us for food. Some of

the major food commodities imported by Nepal from India are:

• Cereals and Pulses

• Spices

• Tea

• Coffee

• Marine Products

• Oil Cakes

• Cashew

The Indian trade system with international interface is struggling due

to many loop holes. Many farmers and small scale food processors are

not able to sell their produce in international markets, some of the

common problems are marked in the loop below:-

So, there is a strong need of a rigid model to enhance trade between

the three countries.

Need of a free trade system

Missing modes of Communication and

Transportation

Corruption

Food safety and security issues

Decentralization of Industry

Lack of awareness

Technical Barriers to Trade

Proposal:

These are some provisions that can be included into the proposal:-

1. The tariff and non-tariff hurdles should be removed or

reduced in the food trade between India, China and Nepal. The

tariff and non-tariff hurdles are already described above.

2. Foreign direct investment (FDI) between the member

countries.

3. Investment and encouragement schemes for produce specific

groups. These schemes can serve as the backbone of this trade

model. The schemes can be either eliminating/reducing tariffs or

bringing in quota system.

4. Cultural exchange to encourage regional products. This is

very important of a trade system. The cultural exchange gives an

idea of one region to another region, about the functional food,

there medicinal effect. So that they can be used in other country

and functional benefits can be mutated.

5. Inter-country consumer forums and redressal system are

necessary so that consumers are not cheated and any issue can

be solved immediately.

6. Introducing quota system to protect the interest of local

consumers. In this fashion there will be no adverse effect on the

local trade and international trade will be encouraged.

How can this help?

This proposal can change the life of struggling many. It can:

The introduction of such a system will definitely affect the food trade

in our country and neighbours. And life of struggling millions will

transform, and the India food processing industry will attain new

heights.

Eradicate poverty

Ensure food security

Strengthen the diplomatic relations

Prevent uncertain trade shocks

Development of food processing (increase in GDP)

New opportunities identification

Conclusion

• A NAFTA identical trade system can transform the life of India,

China and Nepal.

• This system can bring boom in food processing and retails.

• The subsequent risks of demand and supply can be mitigated.

• More profit to producers and lesser taxes.

• We can develop better diplomatic relations with China.

References

1. www.en.wikipedia.org/wiki/North_American_Free_Trade_Agre

ement

2. www.nafta-sec-alena.org/

3. www.naftanow.org/

4. www.infodriveindia.com/

5. business.mapsofindia.com/trade-relations/india-china

6. www.ibef.org/india/indiachina.aspx

7. commerce.nic.in/nepal.doc

8. www.eximguru.com/exim/.../part-ii-export-to-nepal-or-

bhutan.aspx

9. www.assocham.org/events/recent/event_338/Ramesh_Srinivas.p

pt

10. ideas.repec.org/a/bla/worlde/v28y2005i3p329-348.html

11. www.isb.edu/india/Can_India_be_the_Food_Basket_for_the_

World.pdf