For over four years now, India has been negotiating a Free Trade Agreement (FTA) with the European Union (EU) – the largest trade and investment deal the country has ever embarked on. As much as New Delhi expects to lure the European market and investments closer to India, the actual consequences for the country’s economy could be dire: the open up of public procurement, the deregulation of the banking, automobile, retail and mining industries plus the adverse impact the deal will have in small-scale farmers make of this FTA a counter-productive undertaking.
Europe is India’s major trading partner and biggest –real- source of foreign direct investment (FDI), what gives a flavour of the weight that Brussels carries in the Indian economy. In addition, the EU’s gross domestic product is about ten times larger than India’s. In paper, this asymmetry should present equal opportunities as challenges: a remarkable increase in Indian exports to the enormous European market combined with bigger FDI inflows from the continent, whereas European corporations step up or expand their businesses in India. However, a closer look at the course of the India-EU FTA negotiations reveals a different picture.
Recognizing the significance of exports to keep up with the country’s economic growth, the EU grants India with a preferential import rate, bringing down average EU tariffs on Indian imports to a mere two per cent. With India’s average duties on European products at a much higher 17 per cent, the FTA large removal of trade tariffs will have a greater negative impact on the Indian side. “Preference erosion is a key factor in determining the real economic value -and cost- of a deal with the EU,” points out Shefali Sharma, from the American Institute for Agriculture and Trade Policy.
The upcoming India-EU FTA will also deal with non-tariff barriers (NTB) to trade – a complex set of regulations on imports and investments that in the case of India, protects the country’s market from the might of global corporations. For instance, this FTA is expected to remove a number of limitations on European investments and liberalise the room for manoeuvre of EU firms if national rules are regarded as unfair or discriminatory. An illustrative case is the capacity that European tobacco companies may acquire to sue Indian states if measures to protect public health, such as overbearing tobacco warnings, are perceived as interfering with the multinationals’ investment.
Another long-held fear is the effect that opening up India’s public procurement to European firms may have. Given the size, bargaining power and expertise of EU business when it comes to working in emerging markets, it is plausible that several national players lose their bids in favour of newly-arrived European contesters. As a result, policies initially designed to boost domestic production and consumption as well as to foster Indian small and medium enterprises may well end up weakened. In developing countries, FTAs are infamous for the repercussions they frequently have in public services. Hence, the access of EU firms into the Indian health sector, energy and water supply industries should be carefully monitored.
Nevertheless, Indian officials should be applauded for having negotiated their way to limit the liberalisation of the country’s public procurement to a state level, leaving federal-planned development and infrastructure schemes out of the scope of European firms.
This FTA is likely to bring out a banking deregulation bound to strike large numbers of Indians that, in the last years, have become increasingly dependent on cheap loans to find their way out of poverty. If the Indian financial system is liberalised so that European financial institutions are removed from current restrictions to operate in the country, they will take a greater portion of the Indian banking pie. This will not make good news for poor Indians, given that “unlike their domestic counterparts, foreign banks are not required to open offices in rural areas, provide agricultural loans or to lend to people below the poverty line.” Certainly, it would add up to the pressures faced by domestic banks in more profitable urban operations, displacing resources to better compete in those threatened areas.
If New Delhi proves unable to keep the automobile sector away from the FTA, it may easily turn out to be the worse damaged industry of the whole agreement. Because of the high duties that fully-assembled cars have to pay if directly imported into the Indian market, today most EU carmakers partially manufacture their cars in India. If this trade deal removes those levies altogether along with other existing NTBs, EU automakers will have no incentive to put together their vehicles in India, and would rather ship them in from somewhere else. The price of these automobiles will then go down, undermining the competitiveness of local carmakers. Most European cars sold in India are luxury vehicles, so in order to prevent a major blow to the Indian automobile industry, it is hoped that “the abolition of tariffs [will presumably only apply] on high-end, luxury cars, while small and medium car makers retain a degree of protection,” said Pallavi Aiyar, Brussels correspondent for the Business Standard.
Along with the car industry, duties for European alcoholic beverages are proving to be one of the FTA’s trickiest items to work out. India’s flourishing, vast middle class makes a very attractive market for European spirits and wine multinationals. With a current tariff of more than 70 per cent, lowering duties for EU alcoholic beverages will considerably toughen competition on the business. In fact, neither the automobile industry nor the spirits and wine markets form part of any of India’s FTAs.
Distressing the Indian countryside
The possible FTA-triggered influx of cheap, heavily subsidised European agricultural products right into the Indian market should worry Indian farmers. Brussels allocates near 40 per cent of its entire budget to endow EU farmers, creating a large surplus of low-priced fruits and vegetables ready to export. It seems inevitable that, if tariffs are reduced or completely lifted, dumping will displace large chunks of Indian agricultural products from the country’s markets, hardening the lives of many small scale and subsistence farmers.
On the top of this, if the India-EU FTA ends up fully protecting the intellectual property rights of European agribusiness, these very farmers may see the price of seeds, the bloodstream of their livelihood, substantially going up. As Shefali Sharm says, “the EU advocates for a system of plant variety protection that favours plant breeder’s over farmers rights to seeds.”
Indian negotiators should prevent this trade pact from distressing the living conditions of millions of rural dwellers in India- just like members of the European Parliament (EP) have been doing to protect EU farmers. In a resolution issued in May, the EP called to shield European farming businesses by taking into account “any negative impact on European agriculture, particularly in opening up of markets, GMOs, milk, beef, intellectual property protection and origin labelling.”
Moreover, the powerful European agricultural lobby is pressing EU negotiators to not include certain products in the liberalisation bill, fearing that Indian exports will distort the EU market of certain commodities. A good example is the claim made by Cope-Cogeca – the main farmer lobby in Europe- that the EU should not incorporate rice in the FTA “due to the extreme market volatility for this product and erratic behaviour of India in imposing export bans.”
The mining industry is another sector prompting European investors to rub their hands. As the FTA liberalises the investment regime, European multinationals will be allowed to ship larger quantities of minerals out of India. A profitable business that will multiply mining concessions and therefore, revenue collecting in mineral-rich but poverty-stricken Indian states. That will augment these Indian states’ coffers, though adivasis and other marginalised communities may not welcome with such enthusiasm those European companies. “Deregulating investments in natural resources could displace people from their habitat and sources of livelihood. Furthermore, the misuse of raw materials would exacerbate ongoing struggles against land grabbing,” told Dharmendra Kumar, director of India FDI Watch, to this author.
Grey clouds over the retail sector
In order to contain foreign corporations from dominating large sections of India’s retail, investments of global multinationals in the country’s multi-brand retail are today partially restrained. If, as it has been discussed, the prospective India-EU FTA eliminates such constraints, European giant retailers such a Carrefour, Tesco or Metro Group will size a rather larger part of the Indian retail market, severely hurting the massive, unorganized sector of the Indian economy.
The unattainable standards -not necessarily in quality, but in appearance- of products sold in those supermarket chains may impede local suppliers to work with European outlets. Even if farmers are able to meet the newly-introduced requirements, it is not unusual that, once small-scale producers rely on big buyers to sell their products, wholesale retailers cut down prices, engulfing farmers in a trap that leads to “massive job and livelihood losses,” as a letter of leftist members of the EP put it recently.
In the cases where large outlets do not engage in such practice, farmers, small shop owners and street vendors are anyways likely to get hit by the increase of more competitive products on offer at the supermarkets’ shelves.
The exposure that this FTA will cause to India’s informal sector and small farmers is even recognised in a study carried out by the European Economic and Social Committee, an EU’s advisory body. The report claims that the current course of negotiations fails to “assess the likely economic and social risks of the FTA on Indian society.” In a country where, according to the United Nations Development Programme, “more than 90 per cent of the working population is in the informal sector,” such type of findings should be taken seriously.
Not all about bad news
One of the main bones of contention to conclude this FTA is the negative of Brussels to relax working and residence permits for skilled Indians. If New Delhi’s negotiators are eventually capable to persuade their European counterparts, the agreement will not only loosen up existing requirements for Indians professionals to work in the EU, but could also ease the EU criteria to recognise qualifications. Coupled with the liberalisation of legal services that this pact will bring about, banking, accounting and IT experts may want to keep an eye on the opportunities that this FTA might deliver.
Even if the EU is under fire for its unrestrained defence of corporative interests, Brussels should be credited for trying to safeguard Indians from the worse effects of the European multinationals expansion in the country. The India-EU FTA should “ensure that investors respect core International Labour Organization standards [with an emphasis on child labour], social and environmental governance, and international agreements so as to ensure a balance between economic growth and higher social and environmental standards,” stated the EP in a resolution in 2009.
A tough one to swallow
It is far from certain that the great lost of tariff revenues that this FTA will cause to the Government of India –being the EU India’s larger trade partner- will be compensated by a theoretical surge of FDI from and exports to the European market. “Undoubtedly, this [trade agreement] will have serious implications for government spending in social sectors,” asserted to this author Dharmendra Kumar.
Even though the India-EU FTA is expected to more than double the bilateral trade to EUR 160 bn by 2015, two leading European think tanks estimate that EU exports to India will increase by 56.8 per cent, while India’s to the EU will do a mere 18.7 per cent.
Since the outset of these FTA talks, business interests have been driving the negotiations, while areas like sustainable development and poverty reduction have been neglected. It does not imply though that New Delhi cannot strike vital conquests in some of these social areas, as the data exclusivity exclusion in medicines research proves – allowing generics to be produced when it is in the benefit of the public health.
This FTA runs the risk of hurting millions of Indian families who rely on vulnerable jobs to barely make ends meet. The agreement is widely assumed to be concluded at the end of the year, so there is still some room to better protect these livelihoods. Time is running out to make of the India-EU FTA signing something to celebrate instead of something to bemoan.
Javier Delgado Rivera is a Brussels-based freelance research-journalist with a focus on the European Union (EU) ties with Asia. You can check out his stories at www.euasiaintelligence.com & follow him on twitter at @EUAsiaIntel
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Ridiculous Tariffs on Wines – China Australia Trade War Explicated
Earlier in November 2020, Communist China slapped Ridiculously high tariffs up to 212.1% on Australian wines. These tariffs were in the response of ongoing trade war between Communist Party of China and Australia. China is the biggest importer of Australian wines making up a whopping 39% of Australia’s total wine export. Australia has already raised concerns at a WTO meeting about China taking measures against its barley, wine, meat, dairy, live seafood, logs, timber, coal and cotton, according to a reuters report.
How did China – Australia trade war begin?
China and Australia shared one of the best times in their relationship after Kevin Rudd from the centre-left Labour party came to the power in Dec 2007. During his leadership Australia decided to pursue appease China policy which included steps such as:
- Chastising Taiwan for its renewed push for independence and reiterating support for a one-China policy in favor of People’s Republic of China. (Source: The Age)
- Signing a A$50 billion deal with PetroChina in 2009 (largest contract ever signed between the two countries) that ensures China a steady supply of LPG fuel until 2029.
- Unilaterally announcing departure from Quadrilateral Security Dialogue to appease China.
Nosediving of China – Australia Relationship
The course of this partnership changed when Julia Gillard from the centre-left Labour Party took over the leadership and initiated closer partnership with United States. This included revival of interest in Joining Quadrilateral Security Dialogue and stationing of US troops near Darwin, Australia.
In 2013, Tony Abbott from centre-right Liberal Party took over the leadership. During his term Australia saw some confusion in its China Policy. His Defence Minister Senator David Johnston told in a statement that Australia is seeking to balance their relationship between China and the United States. It was during his term when Australia and China established a Free Trade Agreement.
However, the relationship between Australia and China took a downturn in 2015 when Malcolm Bligh Turnbull from the centre-right Liberal Party came into power. This is the point in history which has led to current trade war situation between Australia and China.
- Australia became the strongest opponent of China’s territorial claim in South China Sea.
- Banned foreign donations to Australian political parties and activist groups in a move to target Chinese interference in Australian democracy.
- Revived Quadrilateral Security Dialogue with United States (Donald Trump), India (Narendra Modi) and Japan (Shinzo Abe). This was the time when Quadrilateral Security Dialogue saw hope of becoming something bigger as all four countries had centre-right governments who had a clear China Policy.
2019 Onwards: China – Australia Trade War
In 2019, relationship between the two countries further took a dip with Scott Morison from centre-right Liberal party becoming the Prime Minister. During his leadership:
- Australia signed a letter condemning China’s mistreatment of Uyghurs and other minorities.
- Suggested investigating the cause of Covid 19 in April 2020, which resulted into an angry response from China threatening to reduce Tourism and Trade.
- Opposed the Hong Kong National Security Law in June 2020.
- Reiterated its support for ethnic minorities in China and freedom in Hong Kong in October 2020
- Demanded a formal apology from China for posting a fake image of an Australian soldier holding a bloodied knife against the throat of an Afghan child
In conclusion, these continuous attack on China made China so angry that they deliberately leaked a list of 14 points suggesting why China is angry at Australia
China’s attempt at “buying” left wing politicians around the world
Recent trend is suggesting China’s attempt at “buying” influential left-wing politician around the world. In November, 2017 Australia’s Labour Party’s MP Sam Dastyari went against his own party on South China Sea. He later quit his party after he was found of taking financial favours from China.
In 2008, India’s Centre-left party – Indian National Congress signed a Memorandum of Understanding with Communist Party of China. Its contents are still hidden from the Government of India and the people of India.
Recent US Report has shown concern on President Elect Joe Biden not clearing doubts on his China policy.
How Can we Help Australia Post Ridiculous Tariffs on Australian Wines?
In 2020 China has directly or indirectly impacted many of our lives. Some of us have lost our jobs, some of us are taking a reduced salary. In fact, some of us are sitting at home instead of travelling; while some of us have lost our loved ones only because of communist party was incapable of controlling a virus outbreak.
As the entire world is struggling with this virus, Chinese economy continues to be on path of surpassing the US. Therefore, we should pledge to minimize buying Chinese products. It might be impossible to completely boycott Chinese products, but we can at least minimize it.
Install Cultivate Chrome Extension (non sponsored/affiliate link – We are not getting paid to post this). This plugin works on both Google Chrome and the new Microsoft Edge. It helps you understand the origin and seller location of a product on Amazon. It is a great tool to minimize your dependence on Chinese products. If you are lucky, this extension will also suggest some Made in USA alternatives
Buy Australian Wines – Australia desperately needs a new market for its wine and other products. This New Year and Christmas season, we should pledge to celebrate with at least one Australian wine!
Seasif’s Franco Favilla discusses the post-Covid economy and the price of gold
Although the Covid-19 pandemic isn’t over yet, there has been much discussion on the idea of a “post-Covid” economy, especially with the beginning of vaccination efforts in some countries. With markets throughout the world suffering the economic effects of the virus, experts have been looking towards the future –– and one of the topics that often comes up is the price of gold.
In August, the price of gold exceeded US$ 2,000 an ounce for the first time, driven by multiple factors. However, in November, advancements in Covid-19 vaccines led to a decrease in this trend, a result of the turbulent period we are going through.
“Regardless of the market volatility and the price changes that could occur over a given period of time, the fundamental fact is that the price of gold over the course of 2020 has reached an all-time high, and this, in my opinion, is very good news for the world economy,” explains Franco Favilla, founder and CEO of Seasif, a multinational company active in the extraction and trading of gold and oil.
According to Mr. Favilla, the main problem of the pre-Covid economy was the completely arbitrary nature of international finance. At one time, a ton of gold corresponded to a ton of currency, but since the 1980s, and at an impressive rate since 2000, the gap has widened enormously, so much so that today the relationship between the world’s currencies and gold is enormously unbalanced.
Total gold reserves around the world cover only 30% of currencies. This means there is nothing to cover and guarantee the value of money. In short, money has turned into a pure convention, a pure agreement between parties acting outside the market. Gold, on the contrary, guarantees democracy, because it protects savers and the market, offering an objective value for parameterizing every transaction.
“My hope, therefore, is that the crisis caused by Covid-19 will help to change finance, making it less ‘phantom’ and more linked to an objective dimension, based on gold, with obvious advantages for the real economy. Gold protects consumers, the most important component in any economic system: if you don’t have a market made up of consumers with a certain level of wealth, how can you sell? To whom? Consumer protection must come first, and gold is one of the main ways of protecting them,” states the CEO of Seasif.
Sustainability has also been at the forefront in discussions about the post-Covid world, as countries look towards establishing a more resilient global economy, one able to better withstand such events in the future –– and “green gold” may well be a part of that future. Green gold, in a sense, can be considered the “gold of the future” due to its ethical and sustainable extraction process. Seasif produces green gold, with a department entirely dedicated to green, and has allocated economic incentives to its continued production.
Even as 2020 draws to a close, the future may still look uncertain. But for those searching for greater security, gold may be one of the few certainties left.
How to Trade Shares for Beginners
Although expectations had been modest for 2019, the stock markets around the world had been active in 2019 and the positive returns seen so far have exceeded even the most optimistic expectations. Supported by easy monetary policies around the world, as well as by positive economic expectations for 2020, stocks continue to move, which makes a significant number of people deciding to start investing. Since stock trading is much harder than most of them think, let’s see some of the most important things beginners must consider in order to accelerate their learning curve.
Stick with the most liquid shares
Finding “the next big thing” is one of the illusions that seduces most of the beginners. They spend a significant amount of time looking for those companies that will have huge returns over the next months of years. Not even the most-skilled stock traders are able to do that, so why do you think you will?
Instead of looking for those shares, stick with the companies that already have a leading position in the industry. Google, Facebook, Microsoft, Apple, and Boeing are just some of the names that are popular at the time of writing, and looking at their performance in the long run, so far, they’ve managed to impress.
Study educational materials
Beginners fail to understand that share trading is a skill-based endeavor and study is one of the most important parts of the process. Study as many educational materials as you can and gain as much knowledge as possible because you’ll definitely need it. This guide and other similar ones will introduce you to share trading and help you understand the basic concepts. Remember this axiom: “Around 90% of the traders lose 90% of their capital in their first 90 days of trading”. Education is one of the main factors why beginners stumble into the same mistakes over and over again. You don’t want to be in the same position as most of the people who don’t learn and spend time to sharpen their skills.
Build a portfolio
Closely linked to our first tip, building a portfolio of uncorrelated assets is one of the most important things to consider, if you want to limit the damages of your mistakes. No matter how good you are, in trading, you won’t make money all the time. Diversification will help you minimize the effects of some losing trades. Don’t concentrate all the risk in a single stock and instead pick at least three or four names that might perform positively in the near-term.
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