Project on Free Trade Agreement

8/9/2019 Project on Free Trade Agreement

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INTRODUCTION

An increase in trade liberalisation coupled with the introduction of new competition can set

new demands for certain domestic industries.In instances where domestic industries are

struggling to survive, various trade remedies are available to protect them from foreign

competitors. The retention of trade remedies in trade agreements serves the purpose of

obtaining political support needed for the successful implementation of the agreement and

assures import-competing sectors in member states that protection against unanticipated

consequences of liberalisation is available.

When there is a sudden surge in imports, countries can temporarily safeguard themselves in

an effort to protect the affected domestic industry. Traditionally, these safeguard measures

were only available for application under World Trade Organisation (WTO) rules; but withthe proliferation of trade agreements in recent years, such measures have also been included

on a regional and bilateral level. While global safeguards concern the application of

safeguard measures on a multilateral level, regional or bilateral safeguards refer to measures

addressing distortions which come about as a result of implementing regional of bilateral

trade agreements.The rules of the WTO provide that safeguard measures must be applied

without discrimination. Regional or bilateral safeguards, however, address only the adverse

effect of the regional or bilateral liberalisation and are therefore only applicable between

contracting parties. For this reason these measures are also known as transitional measures,

as they may not be invoked after the termination of the transition period. Global and regional

safeguards are different institutions dealing with problems arising from different free trade

initiatives. The General Agreement on Tariffs and Trade (GATT) Article XIX, together with

the WTO Agreement on Safeguards, remains the generally applicable safeguard regime at a

multilateral level. Safeguards in regional and bilateral agreements vary greatly: from

agreements containing no general safeguard measure to agreements with detailed and rigid

provisions and conditions for implementation.All of the regional and bilateral agreements

which contain safeguards do nevertheless share similar characteristics and are comparable to

some extent with the WTO Agreement on Safeguards. For this reason the multilateral rules

on safeguards were analysed to provide a basis on which the regional and bilateral

agreements can be compared. The examination of the regional and bilateral safeguards is

therefore patterned on the design of the WTO Agreements on Safeguards and provides for

several topics which include conditions for invocation, investigation procedures, applying


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the safeguard measure, duration of safeguard measures, provisional application,

compensation for loss of trade, special treatment for developing countries and dispute

settlement.Even though the rules and procedures for transitional safeguard measures are built

into the agreements, they still need to be applied within the framework of GATT Article

XXIV. The argument has been made that intra-regional safeguards are in conflict with this

provision.This is due to the requirement that restrictions have to be eliminated on

substantially all trade. The flexibility of the article does, however, allow for intra-regional

safeguard application. Only if the measure is invoked on a significant percentage of the

regional trade, will the question arise whether the remaining trade qualifies as substantially

all trade. In addition to regional and bilateral safeguard,special safeguard mechanisms are

applicable in certain situations where protection could usually not be obtained otherwise.

These measures provide additional protection to traditionally sensitive sectors like agriculture

and textiles and clothing. The provisions have different requirements and conditions for the

invocation regarding notification, strength and length of implementation, compensation,

option of retaliation and the determination of serious injury.These special measures were also

examined to determine the difference between them and the normal safeguard measures.

FREE TRADE

Free trade is a type oftrade policy that allows traders to act and transact without interference

from government. Thus, the policy permits trading partners mutual gains from trade, with

goods and services produced according to the theory ofcomparative advantage.

Under a free trade policy, prices are a reflection of true supply and demand, and are the sole

determinant ofresource allocation. Free trade differs from other forms of trade policy where

the allocation of goods and services amongst trading countries are determined by artificial

prices that do not reflect the true nature of supply and demand. These artificial prices are the

result ofprotectionist trade policies, whereby governments intervene in the market through

price adjustments and supply restrictions[citation needed]. Such government interventions generally

increase the cost of goods and services to both consumers and producers.
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Interventions include subsidies, taxes and tariffs, non-tariffbarriers, such as regulatory

legislation and quotas, and even inter-government managed trade agreements such as the

North American Free Trade Agreement (NAFTA) and Central America Free Trade

Agreement (CAFTA) (contrary to their formal titles.)--any governmental market intervention

resulting in artificial prices that do not reflect the principles of supply and demand.

Most states conduct trade polices that are to a lesser or greater degree protectionist. [1] One

ubiquitous protectionist policy employed by states comes in the form agricultural subsidies

whereby countries attempt to protect their agricultural industries from outside competition by

creating artificial low prices for their agricultural goods.

FEATURES OF FREE TRADE

Free trade implies the following features

trade ofgoods without taxes (including tariffs) or othertrade barriers (e.g., quotas on

imports or subsidies for producers)

trade in services without taxes or other trade barriers

The absence of "trade-distorting" policies (such as taxes, subsidies, regulations or

laws) that give some firms, households orfactors of production an advantage over

others

Free access to markets

Free access to market information

Inability of firms to distort markets through government-imposed monopoly or

oligopoly power

The free movement oflaborbetween and within countries

The free movement ofcapital between and within countries

FREE TRADE AGREEMENT (FTA)

Free trade agreements (FTAs) are generally made between two countries. Many

governments, throughout the world have either signed FTA, or are negotiating, or
http://en.wikipedia.org/wiki/Subsidieshttp://en.wikipedia.org/wiki/Taxeshttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Non-tariff_barrierhttp://en.wikipedia.org/wiki/Legislationhttp://en.wikipedia.org/wiki/Import_quotahttp://en.wikipedia.org/wiki/North_American_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/Central_America_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/Central_America_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/Free_trade#cite_note-0http://en.wikipedia.org/wiki/Agricultural_subsidieshttp://en.wikipedia.org/wiki/Good_(accounting)http://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Trade_barrierhttp://en.wikipedia.org/wiki/Trade_barrierhttp://en.wikipedia.org/wiki/Factors_of_productionhttp://en.wikipedia.org/wiki/Factors_of_productionhttp://en.wikipedia.org/wiki/Labor_(economics)http://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Subsidieshttp://en.wikipedia.org/wiki/Taxeshttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Non-tariff_barrierhttp://en.wikipedia.org/wiki/Legislationhttp://en.wikipedia.org/wiki/Import_quotahttp://en.wikipedia.org/wiki/North_American_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/Central_America_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/Central_America_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/Free_trade#cite_note-0http://en.wikipedia.org/wiki/Agricultural_subsidieshttp://en.wikipedia.org/wiki/Good_(accounting)http://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Trade_barrierhttp://en.wikipedia.org/wiki/Factors_of_productionhttp://en.wikipedia.org/wiki/Labor_(economics)http://en.wikipedia.org/wiki/Capital_(economics)


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contemplating new bilateral free trade and investment agreements.

The agreements are like stepping stones towards international integration into a global free

market economy. There are another way to ensure that governments implement the

liberalisation, privatization and deregulation measures of the corporate globalisation agenda.

It is assumed that free trade and the removal of regulations on investment will head to

economic growth reducing poverty and increasing standards of living and generating

employment opportunity.

Past evidences show that these kinds of agreements allow transnational corporations (TNCs)

more freedom to exploit workers shaping the national and global economy to suit their

interests. In simple terms it removes all restrictions on businesses.

FTAs severely constrain future governments in their policy options and help to lock in

existing economic reforms which may have been imposed by the IMF, World Bankor Asean

Development Bank, or pursued by national governments of their own volition. It work

towards removing all restrictions on businesses as other free trade and investment agreements

perform.

FTAs are sometimes of narrow range in their dealing of traded goods. You can note the US-

Cambodia bilateral textile trade agreement which was extended in January 2002 for a further

3years.

India and Sri Lanka signed a free trade agreement in December 1998 with India agreeing to a

phase out of tariffs on a wide range of Sri Lankan goods within 3 years, while Sri Lanka

agreed to remove tariffs on Indian goods over eight years. One of its objectives which was

stated was to contribute, by the removal of barriers to bilateral trade "to the harmonious

development and expansion of world trade".

Other FTAs are much more comprehensive and cover other issues including services and

investment. These agreements generally take existing WTO agreements as their benchmark.

They often strive to even go further than what is set out in the WTO rules.
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FREE TRADE AGREEMENT: IMPORTANCE

There are a number of things that make free trade agreements important.

Obstacles such as taxes, quotas and tariffs are removed.

The inability to distort trade policies gives every player an equal opportunity in

the global market. The absence of government interference prevents the formation

of monopolies and oligopolies.

Capital can move freely across territorial borders.

Free access to markets and market information.

Greater opportunities of employment, with the free movement of labor between

countries.

HISTORY OF FREE TRADE AGREEMENTS

The theoretical questioning of protectionism began in England and other parts of Europe

during the sixteenth century. Rationalizations were made to advocate the policy of free trade.

Adam Smith, in the mid-eighteenth century, proposed the thought that free trade was the

reason for the prosperity of most of the civilizations.

The emergence of the Dutch as an economic power, after the dominance of Spain declined,

brought the free trade versus mercantilism dispute into the limelight. Classical liberals

promoted the concept of free trade on the basis of its favorable position in terms of world

security.

FTA: LIST OF AGREEMENTS

Some of the important free trade agreements operating among the various nations of the

world are listed below:

North American Free Trade Agreement (NAFTA): Mexico, Canada and the US.

European Economic Area (EEA): EU and non-EU members of Europe


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ASEAN Free Trade Area (AFTA): Southeast Asian nations

Latin American Integration Association (ALADI): South American countries

Commonwealth of Independent States Free Trade Agreement (CISFTA): CIS

Free trade agreements also strengthen the political relations between countries apart from

benefiting them commercially.

TRADE AGREEMENTS AND TRADING BLOCS

These two concepts are close related. A trade agreement general leads to a trading bloc being

formed. A trading bloc is generally defined as two or more countries bound by a specific

agreement which determines some or all of their international trade practices and which

usually provides for common import tariffs on certain, if not all, imported products. Some

economists argue that although trading blocs are see as a means of reducing trade restrictions

(between the countries involved), they themselves represent a form of trade barrier as they

exclude non-members.

Different types of trade agreements/trading blocs

Trade agreements/trading blocs also come in different forms, involving increasing levels of

co-operation. Examples include:

Free Trade Areas (FTA) This is the simplest kind of trading bloc and incorporates

a two or more countries that have agreed to eliminate tariffs and other barriers to tradeamongst members, but individually each country retains its own tariffs on imports

from other non-member countries. Perhaps the best example of a FTA is the North

American Free trade Area (NAFTA).

Common Monetary Area (CMA)A Common Monetary Area is when countries

usually geographically closely located to each other agree to accept one dominant

currency as legal tender. South Africa has had such an agreement in place with

Swaziland and Lesotho. We discuss the SA Common Monetary Area in more detail

below.
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Customs Union A Customs Union goes one step further than an FTA in that it

abolishes all tariffs amongst member countries, while members agree to a single,

external tariff on goods imported from outside the Customs Union. Revenue

generated by the Customs Union is shared amongst members based on a specific

formula. The South African Customs Union (SACU) is one of the oldest Customs

Unions still in place. We discuss the SACU in more detail below.

Common Market In a Common Market, like with a Customs Union, a common

tariff is placed on imports from other non-member countries, while no tariffs are exist

on goods produced by one member country and sold in the other member countrys.

The main additional difference between a Customs Union and a Common Market is

that with the latter, the free movement of labour and is capital is also permitted. In

other words, any restrictions on immigration, emigration and cross-border investment

(amongst member countries) are abolished. The current European Union developed

from the European Economic Community, a form of Common Market. TheCommon

Market for Eastern and Southern Africa (COMESA) and the Caribbean Community

formerly the Caribbean Community and Common Market (CARICOM) are perhaps

the two best examples of Common Markets.

Monetary Union In the case of a Monetary Union, member countries agree to use a

single currency or to fix their rates of exchange for the respective currencies.

Essentially, a Monetary Union includes a Common Market Area (discussed above),

the difference being, that a Monetary Union involves far greater integration and co-

operation amongst member countries. The best example of a monetary union is

European Union in which member countries have agreed to use a new, single

currency the euro! There are many other Monetary Unions in place .

Economic Union Beyond the free movement of labour and capital, an economic

union incorporates the harmonization of economic policies amongst member states,

including the integration of monetary policies, economic policies, taxation and other

regulatory requirements. European Union is perhaps the only true Economic Union in

place today

AGREEMENT

This is list of free trade areas between three or more countries, mainly notified to the

General Agreement on Tariffs and Trade/World Trade Organization and in Force.
http://www.comesa.int/http://www.comesa.int/http://www.comesa.int/http://en.wikipedia.org/wiki/Caribbean_Communityhttp://en.wikipedia.org/wiki/Caribbean_Communityhttp://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Tradehttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://www.wto.org/english/tratop_e/region_e/eif_e.xlshttp://www.comesa.int/http://www.comesa.int/http://en.wikipedia.org/wiki/Caribbean_Communityhttp://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Tradehttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://www.wto.org/english/tratop_e/region_e/eif_e.xls


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Every customs union, trade common market and economic and monetary union has

also a free trade area. Smaller agreements, that are part of larger one are not listed.

AANZFTA ASEAN+3

African Free Trade Zone (AFTZ)

Asia-Pacific Trade Agreement (APTA)

Central European Free Trade Agreement

(CEFTA)

Commonwealth of Independent States Free Trade

Agreement (CISFTA)

Dominican Republic Central America Free

Trade Agreement (DR-CAFTA)

Economic and Monetary Community of Central

Africa (CEMAC)European Economic Area (EEA)

-EC Andorra

-EC CARICOM

-EC OCTs

-EC Switzerland and Liechtenstein

-EC Turkey

Economic Community of West African States(ECOWAS)

EFTA SACU

Greater Arab Free Trade Area (GAFTA)

Latin American Integration Association (ALADI)

North American Free Trade Agreement (NAFTA)

South Asia Free Trade Agreement (SAFTA)

South Pacific Regional Trade and EconomicCooperation Agreement (SPARTECA)

Trans-Pacific Strategic Economic Partnership

.

INDIA AND WORLD TRADE ORGANISATION

The setting up of World Trade Organisation (WTO), as legacy of Bretton Wood institutions

and as successor of GATT wef January 1, 1995 ushered in a new regime of international
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trade a regime which viewed the world as a global economy and where all the constituent

countries irrespective of the status of development were to call the shots on an equal footing.

Expanded scope of jurisdiction of this multi-lateral trading body with inclusion of agriculture,

services, investment measures and patent issues gave rise to expectations of a new

international economic order (NIEO) which was just and fair. In this respect it is important

to note two basic principles of WTO: MFN treatment and national treatment.

The WTO agreements cover goods (GATT), services (GATS) and intellectual

property (TRIPS). They spell out the principles of liberalization and the exceptions

permitted. They include commitments of individual countries to lower customs tariffs and

other trade barriers, and to open services markets and keep them open. They set procedures

for settling disputes. They prescribe special treatment for developing countries. They require

governments to make their trade policies transparent by notifying the WTO about laws in

force and measures adopted, and through regular reports by the WTO secretariat on their

trade policies. These agreements are often called the trade rules of the WTO, and the WTO is

often described as rule-based. But it is important to remember that the rules are actually

agreements that governments have negotiated.

This world trading body with assigned tasks of administering WTO trade agreements,

to act as a forum for trade negotiations, handling trade disputes, monitoring technical

assistance & training for developing countries and cooperating with other international

organisation moved ahead through its six ministerial conferences so far. Ministerial

Conference is the highest decision making authority of WTO on all matters under multilateral

trade agreements. Since its inception in 1995, the WTO has held six Ministerial Conferences

in 1996 in Singapore, in 1998 at Geneva, in 1999 at Seattle, in 2001 at Doha, in 2003 at

Cancun and in 2005 in Hong Kong.

Today, the WTO has 149 members, together accounting for 90% of world trade.

These members are mostly country governments, but can also be customs territories. There

are nearly 30 applicants negotiating to become members including Russia. The main benefit

of membership in the WTO is the right not to be discriminated against, in its trade with other

members of the WTO. This principle of non-discrimination in trade is fundamental to the

WTO and set down in the MFN and national treatment clauses.


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In case a country is not a member of the WTO, it has to conduct international trade

with other countries under bilateral agreements which may need to be renewed periodically

and whose terms and conditions may also change. Membership of the WTO ensures that the

country concerned undertakes international trade transactions with other WTO member-

countries under a predictable and stable trade regime. Another important benefit of

membership is that it gives a country the right to take part in WTO meetings and trade

negotiations, and therefore the opportunity to shape future international trade to its advantage.

When the Uruguay Round of GATT talks was in progress during early 1990s, Indian

economy was ailing and was totally on out of track. Under this compelling situation, India

adopted new economic reforms (NERs) in 1991 based on Rao-Manmohan Model as a crisis-

driven strategy. Macro Economic Stabilization (MES) which covered reforms in monetary

policy, fiscal policy and external sector was brought to provide immediate relief to ailing

economy. But, structural reforms, also called SAP (Structural Adjustment Programmes), was

meant for long term reform process which covered components of industrial policy reform,

PSU reform, financial sector reform and trade & capital flow reforms. Then crisis-driven

reforms has now reached to consensus driven under second generation of our reform policies.

These changes in Indian economy based on LPG (liberalization, privatization andglobalisation) gave rise to a new market economy that brought growth and development in

India. In this context, the emergence of WTO as multilateral world trade body to make trade-

friendly environment at the global level and Indian attachment to this body could be

understood.

India, one of the founder member of WTO, had its own expectations as well as

reservations about the new economic order. While it unleashed great opportunities for

agriculture and textiles sectors by improving their access to developed countries (as provided

in AOA Agreement on Agriculture and phasing out of MFA Multi Fibre Agreement), it

has some grey areas in the form of provisions for patent regime and services sector. As the

events gradually unfolded, India, like other developing countries recognized that the rules of

the game were not favourable to them and they must play an active role within the

permissible limits to minimise the damage. In the last decade, our economic agenda and the

policies to be pursued have been largely shaped by the WTO commitments.


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India adopted the process of globalisation and WTO rulings as a facet of

structural reforms. It brought devaluation in currency in 1991 and also adopted convertibility

system in Indian Rupees in different stages. Trade and current account have been made fully

convertible and we are moving towards capital account convertibility regime, though cautious

and as a long term objective. Various steps have been taken towards import liberlisation in

India, for example, de-licensing, de-canalisation & expansion of OGL (open general license),

removing quantitative restriction, lowering peak custom rate, etc. India has also adopted a

very liberal policy towards foreign capital to attract direct foreign investment and portfolio

investment. Insurance and print media have been opened for private competition. India has

made following changes in the economy as mandated by WTO.

Quantitative Restrictions (QRs) have been completely phased out in 2000-01 and only

the tariff structure remains which itself has been lowered considerably, with 67% of

the tariff lines being bound.

Patent law has been reformed with amendment of Patent Act (2005). It provides for

product patent in pharmaceutical and farm products.

Under the TRIMs (Trade Related Investment Measures) agreement, restrictions on

entry of foreign investment and conditions upon various aspects have been removed

and relaxed. Except a few sectors, FDI is being allowed upto 100% through

automatic route and Indian companies are also free to invest abroad.

Under the GATS (General Agreement on Trade in Services), India has made

commitment in 33 activities where foreign service providers are allowed to enter

keeping in view national interests.


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Indias legislation on Custom Valuation rules, 1998 has been amended to bring it in

conformity with the provisions of WTO agreements on implementation of article VII

of GATT 1994 and the Customs Valuation Agreement.

A survey of last 15 years since adoption of new economic reforms and specially after

joining WTO, it is now clear that we have done well and still lot of scope remained for

further development. The process of globalisation and the provision of WTO have had, no

doubt, some important positive implications. Under this process, a platform has been created

for different types of multilateral agreements. Multilateral regulation and discipline have

been established & imposed and upto certain extent, trade-friendly environment has been

created. Disputes are being solved & managed and trading activities are getting protection.

India is also getting the benefits of this emerging trade-friendly environment.

Indian exports, specially exports of agricultural good, have been increased. The Doha

Development Agenda, though passing through hard times, is built on the long term objective

of the AOA to establish a fair and a market-oriented trading system. India could be highly

advantaged with DDA. During the ongoing negotiations, India and other developingcountries have sought a special safeguard mechanism (SSM) for addressing situations of

import surges or swings in international prices of agricultural products.

The market access under Doha Work Programme has enormous potential for

increased growth in agricultural exports. Also, the cost of imported goods has been reduced,

in turn promoting the production of exported goods. The opening of economy has also

brought increased competitiveness and prosperity in India. This has made possible for

greater reach of foreign capital, foreign technology, foreign services and managerial skills in

India and thus, promoting overall economic growth and development.

NAMA negotiations provide an opportunity for India to have an improved access to

developed countries, especially in sectors that are employment-intensive. India welcomes

negotiations over NAMA (Non-Agriculture Market Access) mandated by the Doha


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Ministerial declaration (2001) aims to liberalise trade in industrial and consumer products, in

particular in products of export interest to developing countries. The negotiations cover all

products not covered under the AOA.

But, we have to be very careful because this process of globalization and WTO

system has some drawbacks which could hamper Indian interest. First, under GATS, which

provides a framework to regulate trade in services, seeks to commit member countries to

provide improved market access and national treatment obligations in different modes of

supply. In India, services accounted for 51 % of GDP in 2000-01. Still, India lacks a

developed service sector and also latter has a social role to play. In this respect, opening

service sector could invite negative implications.

TRIPS agreement sets the minimum level of protection to various forms of

intellectual property. It also specifies enforcement procedures, remedies and dispute

resolution procedures. Under the TRIPS agreement, India has brought product patent wef 01

January 2005 to replace process patent. One general concern is price hike. Under the new

patent regime, drug multinationals could be indulged in monopoly practices. TRIPS

provisions if related with agriculture could have adverse implications. In India, the

responsibility of plant and seeds development has been mainly with PSUs that have

considered the broader interest of farmers. Now, opening this sector linked with patent rights

could hamper farmers interest and self-reliance. Similar repercussions could be there if

TRIPS provisions are linked with biotechnology.

The Agreement on trade-related Investment Measures (TRIMs) covers conditions on

investment related to trade in goods. The agreements under TRIMS cover: all restriction on

foreign capital, company and investment to go; all measures in the form of various conditions

to be dismantled; no bar on extent of foreign investment; restrictions on repatriation of

dividends and royalty to be eliminated, and national treatment with foreign investors. Under

the agreements, there is no provision regarding banning of restrictive type of economic

activities. Choice of selection in investment would be eroded and basic infrastructure may be


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neglected. One argument is that it could have detrimental effects on indigenous development

and MNCs/TNCs could eclipse Indian markets and the decision-making.

However, somewhat painful, but these measures were implemented more or less by

consensus but the agreements which were expected to favour developing countries to a

greater extent have not received an enthusiastic support from the developed countries as

reflected in the failure to implement DDA (Doha Development Agenda) reached in 2001.

The negotiation round undertaken at the Ministerial Round at Doha ended by taking

effect as the DDA. It was a landmark achievement and built on the long-term objective of the

AOA (Agreement on Agriculture, comprises domestic support, market Access and Export

Competition) to establish a fair and a market-oriented trading system through a programme of

fundamental reforms, keeping in view the provisions for special and differential treatment for

developing-country members to pursue agricultural policies that are supportive of

development goals, poverty reduction strategies and food security and likelihood concerns.

Since its launch in 2001, the Doha round has had a chequered record. Trade negotiations

have tended to flounder and all deadlines have been missed because of the uncompromising

positions adopted by some member countries. DDA also deals with liberalization of trade in

industrial and consumer products which are of great export interest to developing countries

under NAMA (non-agriculture market access).

Developed countrys effort to include labour and environmental issues as a

precondition to have better market access were partially thwarted by India and other

developing countries who argued that labour issues were to be dealt with ILO (International

Labour Organisation). Also, India succeeded in underlining the importance of non-trade

concerns like food security, rural development, PDS for the developing countries.

In 2005, WTO Conference in Hong Kong resolved to complete Doha Work

Programme and conclude negotiations in 2006. It also called for elimination of all export

subsidies by 2013 and also adopted Swiss formula to lower tariffs proposed under NAMA.


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But in the case of services, India has been unable to get any binding commitments from

developed countries.

This trend of crisis of indecisiveness reached its climax in June 2006 WTO mini-

ministerial meet (participation by six important trading blocs India, the United States, the

European Union, Brazil, Japan, and Australia) in Geneva with no agreement reached on cuts

in subsidies and tariffs in agriculture, NAMA issue and flexibilities to be provided to

developing countries. The immediate cause of the meeting collapse was US intransigence.

The developing countries refused to give up in to the unreasonable demands of the US (and

EU) in what was supposed to be a development round of trade negotiations. However,

World Trade Organization chief Pascal Lamy has endorsed Indias stand in global trade talks

but asked New Delhi to look at the bigger picture and help break the impasse in the

negotiations. He said even if India pursued bilateral trading pacts with the US and EU, it

would still have to open up its markets for their products and services.

This increased inability of this international organization to deliver effectively and the

rising frustration from belied expectations that developing countries like India have been

nurturing since long has led to some rethinking. Moreover, India, along with Brazil, as

representative of developing countries has to consider various policy options about the

agenda and the strategy to be followed in the future. One body of opinion holds that India

should join the FTA bandwagon, give the importance of US market in the economy. But

experience of other countries who have joined such agreements with US vis--vis experience

of India (and China) shows that we have been doing well without such FTA.

Another choice to be made is with respect to the strategy of negotiating whether

bloc style negotiations where all the developing countries act as a block or issue-based

coalitions of a mix of developed and developing countries. As the recent outcome of Geneva

talks prove the fact that India, along with Brazil can not influence the major powers and are

intended to be merely used as instruments to win over developing countries for an unequal

deal. It would be in its best interest that it shifts focus from serving as facilitator or catalyst


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for an agreement to asserting its solidarity with the developing countries as this is the only

hope for garnering a positive outcome from the Doha round.

A setback to multilateral trade as visualized in the Doha round means that the disputes

settlement mechanism of the WTO may be overburdened as individual countries engage in

tit for tat policies rather than abide by the rules of fair trade that should have been in place.

India always stands for rule-based multi-lateral trading system to ensure that structural flaws

in trading are effectively eliminated.

INDIA FREE TRADE AGREEMENT

EUINDIA FREE TRADE AGREEMENT

In June 2007, the European Union (EU)s European Commission and the Government of

India started negotiating a Free Trade Agreement (FTA). This new generation FTA covers

many areas other than trade in goods viz. trade in services, investment, intellectual

property rights, competition policy, government procurement etc. Hence, these

negotiations are going to have far reaching consequences both for the policy space of the

Indian state and on the lives and livelihoods of Indian citizens. So far, five rounds of the

negotiations have been completed and a proposed sixth round which was meant to take

place in New Delhi in the last week of November has just been postponed. In addition to

the EU, India is currently negotiating with 20 other countries and regions including Japan

and the European Free Trade Association (EFTA). FTAs negotiations with more developedeconomies are likely to have similar agenda with minor variations in the design and

architecture of the agreement.

Studies1, including those based on rigorous computable general equilibrium reveal that

FTAs between developing and developed economies do not extend much advantage to

developing countries such as India. The reasons behind poor gains to developing

countries from FTAs are many. Firstly, they undermine the right of special and

differential treatment specifically recognized under the World Trade Organisation (WTO)framework. Under this right, developing countries are not required to equally reciprocate.

In contravention to this special treatment, the above FTAs demand full reciprocity.

Secondly, many FTAs with developed countries contain provisions related to investment,

intellectual property, competition policy, government procurement, services etc. and

require crucial changes in national law and policy in developing countries. Such changes

reduce the policy space available for developing countries especially in these critical

areas. Thirdly, preferences obtained through FTAs with developed countries do not last

long as these countries are also negotiating with a range of other developing countries

including competitors in the same product range. Lastly, developed countries are using

FTAs to bring into place an international trade regime on terms not conducive to1


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developing or least developed countries. FTAs are a preferred route for this as multilateral

negotiations afford developing countries collective bargaining space while FTAs do not.

Once sufficient FTAs are in place, the new regime can then be pushed more easily

through multilateral forums like the WTO at a convenient time.

Context of EU-India FTA negotiations

The EUs interest in pushing these expanded FTAs is part of a broader agenda to

maintain Europes competitive edge in the world economy. This has been clearly spelt out

in 2006 document released by the European Commission entitled Global Europe:

Competing in a Globalized World. This document outlines EUs new international trade

policy stressing an aggressive push for market expansion for European goods in, and

imports of raw materials from, the Global South through a series of FTAs. It notes,

Measures taken by some of our biggest trading partners to restrict access to their

supplies of these inputs are causing some EU industries major problems. Unless

justified for security or environmental reasons, restrictions on access to resources

should be removed.

More specifically, on FTAs, the document states,

"In terms of content new competitiveness-driven FTAs would need to be

comprehensive and ambitious in coverage, aiming at the highest possible degreeof trade liberalization including far-reaching liberalization of services and

investment.

According to the Global Europe document, the criteria for the selection of

partners for FTA negotiations are market potential (indicated by size and

growth of the economy) and the level of protection against EU export

interests. Based on the above criteria, the Commission prioritized India as a

key strategic

target because of its large market, the numerous trade and non-trade barriers against EU

interests and in order to beat its main competitors by completing a far-reaching trade and

investment treaty. Currently, the EU is Indias biggest trading partner while India ranks

ninth in terms of size in the list of trading partners for the EU.

The roadmap for the EU-India FTA is also revealed in the Report of the EU-India High

Level Trade Group (HTLG) to the EU-India Summit dated 13th October 2006. This Report

makes detailed observations and recommendations on the issues to be negotiated

between India and the EU including massive reductions in tariff.


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EU-India FTA: Issues of Concern

The FTA proposed by the EU raises a series of concerns with regard to peoples

livelihoods and policy space for developing an inclusive development strategy. The text ofprevious FTAs concluded by the EU shows that these agreements undermine

development and pursue a corporate agenda that favors multinational corporations based

in the EU.

In the present backdrop of a global financial, food and fuel crisis, future policy space for

governments becomes an essential lens with which to assess the merits of negotiating an

FTA with the EU. Based on news reports, the current proposals on trade in goods would

significantly increase food insecurity and livelihood risks for both the agriculture and

manufacturing sectors.

Some of the major issues of concern for India in an FTA with the EU include:

1. Massive reductions in tariff

2. Import surge.

3. Impact on livelihoods.

4. Unequal impact of tariff reductions

5.Automatic extension of MFN clause to EU.

6. Imposition of full reciprocity; undermining Indias special and differential

treatment

7. Inclusion of Singapore Issues

8. Expansive liberalization in services and investment

9. TRIPS-plus intellectual property protection


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10. Creating advantages for MNCs through effective competition

11. Liberalising government procurement

12. Extreme and unwarranted secrecy in negotiations

Food security, livelihoods and access to healthcare threatened by EU-India FTA

In conclusion, in addition to creating serious short and long-term economic vulnerability,

the EU-India FTA could have major food security, healthcare and livelihood implications

that must be assessed in detail. The current global crisis signals a critical need to

democratize trade policy processes so that elected bodies and civil society can have a

voice in the choices governments make. This democratic process is a central pillar to

ensure that governments are accountable to their citizens. Current free trade and

investment policies are proving to be highly costly to citizens even as their governmentsnegotiate away their right to regulate. These policies also severely constrain policy space

for domestic policies that favour just, equitable and environmentally sustainable

development. It is of grave concern that the EU-India FTA negotiations till date have been

marked by a gross absence of transparency and public debate. The Indian Governments

consultations have been limited to large corporate and commercial interests and have

completely by-passed those most likely to be adversely affected by the FTA. There is an

urgent need for an informed public debate on the feasibility and efficacy of the FTA with

the EU.

Documents

Project on Free Trade Agreement