Saturday, 11 February 2012

EU India - Free Trade Agreement

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The Indian government has seemingly invested a lot of effort into this Free Trade Agreement (FTA) from July 2007.

We will be ill advised to pursue this in the present time in its present form.

Status Quo
India imported goods worth €34.7 billion from the European union, and exports  goods worth €33.2 billion to the EU.

FDI from the EU to India is about 3 billion and from India to the EU is about 0.8 billion.

Sentiments of people are strongly against it. Here is a comparison of pros and cons (written in converse) to show what the FTA holds against the people of India and for the people of India.

"A civilization is built on what is required of men, not on that which is provided for them." (Antoine de Saint-Exupéry)

Disadvantages from the Indian standpoint
  1. India would have to reduce the 150% duty on Foreign Liquor to a significantly lower figure, possibly less than 50% (which is still under speculation.)
  2. Airline operators from India would have to pay additional 'green' taxes for emission of greenhouse gases whilst using any airport in the European Union.
  3. Twenty-seven (27) countries of the EU, account for 14% of our foreign trade.
  4. The EU has imposed an embargo on obtaining commodities from Iran, which presently supplies fuel hungry India with petroleum products and has long-lived bilateral relationships with India. We have already "defied" the USA embargo while continuing our bilateral relationships with the USA.
  5. India's $26bn strong Pharmaceutical segment stands heavily threatened by the obligation to adhere to EU patent norms which will increase costs of drug production (for adhering to patent subscription, royalties and several intellectual property measures.) Life-saving drugs available to patients suffering from AIDS, Hepatitis will become unaffordable. Drugs combating Malaria, Asthma and Cancer will also become less affordable or in dire straits, unaffordable - if Court injunctions to suspend manufacture drugs are issued to a company while addressing intellectual property. India manufactures 80% of the world's medicine, thanks to a more realistic approach to intellectual property.
  6. India will also need to adopt "ACTA" (Anti-Counterfeiting Trade Agreement) eventually which has been accepted by 22 nations who are part of the EU. This indirectly threatens freedom of expression on the Internet as much as SOPA and PIPA (whose jurisdiction is in the United States.) There is immense resistance to ACTA at the moment, with several people voicing their opinion against ACTA all through Europe - (ref:
  7. India will be forced to lower Automobile import duties, slashing them. This is a matter of grave concern to indigenous Automotive manufacturers who will be suddenly swept by more affordable European Automakers entering our market. This does not necessary bode well for consumers, to whom this is just a reduction of automobile acquisition cost - but will eventually increase fuel costs as pressure will mount on the trade sanctions against Iran.
  8. If India signs the agreement several nations of the ASEAN may end up adopting the FTA as there will be an overwhelming case built in favor of it. Hence we will open the gate for the FTA to reach several "developing" regional economies.
Advantages from the Indian standpoint
  1. They would also slash their duties allowing us better entry into the European market.
  2. It would be easier to obtain a Visa to visit the Member states/countries of the EU (although it is unclear on how easy this would be.)
  3. A promise of honoring Indian Patents pertaining to several industries based on Country of First origin where the debate can be settled through Article 28 of the FTA may provide Intellectual Property Revenue to India through patents already filed.

What other Asian countries have signed this agreement?
  • The Republic of Korea (This is actually "South Korea" in common parlance.)
  • Indonesia 
    Russia ( 14.2 bn imports to EU, imports to Russia - Russia benefits a whole lot here and accepted the deal in 2008 )
More comprehensive Reference is available here: and the EU labels India already as a major strategic partner. Our cooperation and trade without the FTA has already been most productive and has not been under the promise of our acceptance of the FTA.

Data Availability and Bias
Recent press reports have been extremely against the FTA, and I have not been able to find significant resources for comparing the pros and cons with better clarity. Hence my comparison appears biased against the FTA.

I would be happy if someone can shed more light on the pros, and see what advantages are truly gained in signing the FTA with the EU.

Summarizing my Views
Pharmaceutical Segment
Automotive segment restrictions (India/EU) c. 2008
The EU has offered to amend Article 28 (resolution of disputes) with respect to the manufacture of "generic" drugs. However, Indian pharmaceutical companies do not merely benefit from providing generic drugs, they also make a healthy revenue on a host of other products - which would include other life-saving drugs that have not been taken into consideration right now.

Automotive Segment
The same would have to be amended to avoid the Indian automotive segment which has been hit 2010-11 due to 'unanticipated' increases in fuel and maintenance costs. There is also a significant risk to the average household in obtaining LPG or any other cooking fuel that presently benefit civilians, but is already at risk due to limited availability of LPG on account of rising prices among other factors.

Medical Healthcare Segment
I would consider medication taken by people suffering from Cardiac problems, Psychiatric drugs and a host of others that are necessary for day-to-day healthcare. If these are not affordable, we risk major national healthcare problems with an increase in healthcare costs making it impossible for the common man to afford it inside India.

Medical Tourism Segment

India has so far functioned as a Medical Tourism spot, and there are facilities that are growing here, precisely due to the affordability of healthcare (not cheap healthcare), which has been benefiting not just Indians and developing Nations, but people from several other developed countries who visit us for undergoing medical treatment and procedures. The volume of this "Service" industry is not accurately published, but is significant nevertheless.

Financial Stability of Indian Markets
In 2011, when our Stock exchanges became highly volatile, it has been Pharmaceutical stocks that aided significantly in stabilizing our market. We must understand that EU FDI in India is over 3bn , however less significant in comparison to Revenues and profits that are more regular and are higher in volume.

The text of the FTA seems to have strong cases against economic growth in India at the outset. The draft, as it stands will need a lot of revisions for India to benefit, and therefore a host of other nations dependent on Indian economy to equally benefit from such an agreement. In its present form, India will lose a lot if the FTA is adopted at all irrespective of any amendments proposed to this agreement. It is therefore advisable to take this up at a more opportune time when the benefits are equally spread or an alternate is proposed.