Indian agriculture faces extremely difficult times if the government signs the Free Trade Agreement (FTA) with the European Union, which seems extremely likely. The smoke signals have already started blowing from Brussels. The 27-nation block of the EU, which is notorious for its extravagant subsidies dished out to the Union’s farmers, has set aside a big chunk of its new seven-year budget to subsidise its agriculture, more precisely, €363 billion. That works out to approximately to Rs.26 lakh crores or 38 per cent of the total €900 billion (approximately Rs.69 lakh crores) 2014-2020 budget, a whopping sum, for the Union’s farmers. This is the result of strong political pressure from France, which is the Union’s major agricultural partner.

The decision was not in consonance with the views of other EU nations, many of which wanted more money to be diverted to spur the growth of the EU and create new jobs.

What does this mean to Indian farmers? Simply put, they will face new threats to their livelihood once the government signs the FTA in the coming weeks. Ironically, even while Brussels in Belgium (the capital of the European Union) was finalising its contentious budget, in India, commerce and industry minister Anand Sharma went on record as saying that the free trade agreement with the EU was India’s “most ambitious trade and investment agreement”. 

This article examines the implications of this far reaching assessment.

The first point to note is that the EU FTA, known officially as the “Bilateral Trade and Investment Agreement”, is shrouded in secrecy. This is despite the fact that the Free Trade Agreement has been in the works since 2007. Hardly any consultations have been held with the major interest groups that would be most likely to be impacted by the deal. The major exception is industry.

But periodic leaks of the texts being negotiated by commerce ministry officials and the European Union have heightened alarm over the implications. The most sustained campaigns against the trade pact have come from public health activists, both in India and overseas, against certain provisions of the chapter on intellectual property.

Global protests have been sparked by concerns that the higher levels of IPR protection sought by the EU, which is more stringent than those mandated by the World Trade Organisation (WTO)’s Agreement on IPR known as Trade Related Intellectual Property Rights (TRIPS), would lead to a clampdown on the production of generic medicines by India. The formulations, primarily anti-retroviral drugs to treat AIDS patients, are used worldwide by developing countries and humanitarian organisations, such as Medecins Sans Frontieres, as cheaper alternatives to innovator drugs. India would be very hard hit in this process. 

The FTA provision for bringing down India’s import tariff levels to zero or near-zero will dramatically increase the country’s agricultural trade deficit. Are farmers being unnecessarily alarmist about this scenario? An analysis by Misereor and Heinrich Böll Stiftung of Germany and four other international institutions confirms that Indian farmers are bound to heavily lose once the agreement comes into force. Signing on obliges India to eliminate more than 90 per cent of all (agricultural and non-agricultural) applied tariffs towards the EU within seven years. Moreover, a “standstill clause” might cap the tariffs even for the remaining sensitive products at the levels currently applied, and, more worryingly, the goods chapter could impose a discipline on export tariffs that are currently used by India to contain price volatility.

Analysts point out that the primary problem with including agriculture in developed country FTAs is subsidies. A UNDP 2005 report warns that the main issue affecting agricultural trade is the massive subsidies provided by developed countries to the production and export of agricultural products.

Trade asymmetries show that India has little to gain in agricultural traide in absolute terms. While the EU will gain US $321 million in ago-food products, India will get US $83 million.

India will have no other option but to drastically slash duties on more than 92 per cent of its agricultural goods export. It is important here to note that EU tariffs are already much lower and cannot offer India additional market access. Export of products like the famous Malabar pepper, basmati rice, Darjeeling tea, and Banares silk, whose production and export are not subsidised, will be most severely affected.

Most worryingly, the EU FTA trade pact is likely to lead to a conflict of interest with present policy. Under the agreement the EU wants India to do away with its export controls, which would imply that New Delhi has to give up export bans on food (wheat and rice), which the country uses strategically to ensure its food security.
Ironically, at the WTO level meetings, India fought hard to safeguard its right to use export measures and tariffs on agricultural products!

Of all the agricultural sub-sectors, dairy will be most adversely affected. Cooperatives like the giant Gujarat Cooperative Milk Marketing Federation, the producer of the famous Amul brand dairy goods, generate employment for about 15 million dairy farmers in rural India, spread across 1,40,000 villages. Amul, studiously built up by the late Verghese Kurien, India’s “milkman”, is possibly the most valuable brand in the dairy sector, and expects a turnover of more than Rs.14,500 crores this financial year, a huge jump from the Rs.11,668 crores recorded last year.

The protective cover given to EU products under the Geographical Indication (GI) tag, with over 3,000 registered GIs, of which 130 are for dairy products, will make things worse for Indian dairy products.

A 2010 a study conducted by the European Commission revealed that 2,768 GIs had yielded revenue amounting to more than €20 billion, a colossal sum of money and a great advantage which it is pursuing to preserve in its trade agreements. EU is also seeking “extra-extensive protection” of its GIs.

There are 3.2 million dairy farmers in Gujarat whose livelihood would be directly impacted. India’s dairy sector is not subsidised the way its European counterpart enjoys. There is the issue of non-tariff barriers like the stringent sanitary and phyto-sanitary standards (SPS), which will make things worse for Indian dairy exports. Opening up the sector to corporate Europe will make Indian dairy farmers extremely vulnerable to the dumping of dairy products.

Under WTO rules, India can impose high bound duties (the maximum tariff) of 113 per cent on a number of food items, although its applied duties or actual tariffs stand at an average of 31.4 per cent. Bound rates give India the flexibility to increase duties if a spike in imports is found to be damaging its domestic sector through the special safeguard mechanism. The free trade agreement will erode these protective measures.

The case with imported cheese is a classic example on this count. Duties on the import of cheese, for instance, range from 30 per cent to 36 per cent and the argument of the Indian dairy industry is that no further concession should be made on this item, because cheese is consumed mainly by the affluent segment of the society, and it would ruin the domestic sector.

Additionally, Amul’s two manufacturing units in Europe, which sell its cheese using the European tag (Gouda and Emmental), will be obliged to cease production and marketing under these brand names.

It is surprising that agriculture minister Sharad Pawar has not voiced any concern over the EU-India FTA, despite repeated representations from civil society groups, farmers’ associations, and trade unions. Several farmers’ organisations have been extremely vocal on the subject. The most severe criticism has come from the Bharatiya Kisan Union (BKU), the largest farmers’ body in northern India, which categorically warns that this pact spells the gravest danger to Indian agriculture.

The Misereror-Heinrich Böll report, which also examined the EU-India FTA from the food security angle, found that risks would increase significantly, by the government’s own estimates, to 61 million tonnes of food grain.

“Depending on imports for this will be foolhardy,” says the report. Besides, opening up the country to global agricultural trade will seriously affect the government’s capacity to procure at will. This, in effect, will have a severe impact on food security.

According to a study by the Centre d’Etudes Prospectives et d’Informations Internationales (CEPII), an independent French research centre in the field of international economics, and CIREM, a non-profit organisation which counts companies, trade associations, trade unions and public administrations among its 23 members, the EU-India FTA is a “no-win” proposition for India.

The CEPII-CIREM analysis shows India’s share in EU markets in primary products, cereals, other crops, and products of animal origin remaining constant, but concludes that the EU will increase its presence dramatically.

Trade asymmetries show that India has little to gain in agricultural trade in absolute terms. While the EU will gain US $321 million in agro-food products, India will get US $83 million. Similarly, India’s cereals market will earn the EU US$ 133 million, while India gains only US $7 million. The disparity is most marked in primary products in which the union gains US $5,128 million, while India can hope to get a business of just about US $39 million. In short, as the French analysis shows, the agreement will be a “no-win” pact for India.

Ironically, while learned foreign research bodies have eloquently pointed out the dire consequences for Indian farmers, the agriculture minister, trade and commerce minister, and Prime Minister Manmohan Singh, whose first priority should be the national interest, have opted for silence.