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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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.
Saudi Arabia halves oil production: How long will it last, and will it affect oil prices?
Saudi Arabia announces it will halt 50% of its oil production. This Vestle news article will explore the possible financial impact.
Since recent drone airstrikes crippled Saudi Arabia’s Aramco oil processing facility in mid-September, the country – the world’s No. 1 exporter of oil* – has been forced to close half the plant while reconstruction takes place. While no casualties resulted from the attack, the real harm is finally coming to light, as the impact on Saudi Arabia’s oil industry is becoming clearer. This Vestle news article explores this important topic.
Aramco estimates that the closure will affect almost 5.7 million barrels of crude oil per day, which amounts to roughly 5% of the world’s daily oil production. To help you put that into perspective, consider that Saudi Arabia produced 9.85 million barrels a day in August 2019. And it’s not just oil production that will suffer. Saudi Energy Minister Abdulaziz bin Salman also indicated that the closure has forced a temporary halt in gas production, limiting the supply of ethane and natural gas by 50% as well.
One particular detail that those with an eye on the financial markets might find interesting is that the attacks took place at a time when Saudi Arabia continues to progress toward taking Saudi Aramco public – a first for the kingdom’s global-reach energy sector. How much money are we talking? As the world’s most profitable oil company, it’s estimated to be valued at around $1.5 trillion.**
Will this affect oil prices?
The short answer, according to some people, is probably yes. With Saudi oil output expected to dip below 50%, the outages present “an extreme risk situation for oil,” according to Paul Sankey, managing director for Mizuho Securities. However, measures have already been put into place. Depending on how long it takes for Saudi Arabia to recover the damaged facility, OPEC (the Organization of Petroleum Exporting Countries) is aiming to suspend production cuts to help temper the impact of the ongoing crisis. On the trading side, the International Energy Agency is expected to release strategic oil stocks, and US President Donald Trump has already authorized the release of oil from the US petroleum reserve.***
In the weeks just after the drone strikes, the price of WTI Oil on the Vestle platform showed a 13% increase, followed by a 12% decrease over the following two weeks. Also during that time, Bloomberg reported that the spread between WTI and Brent widened to 37%, which could be an indication that the oil spike might affect global prices more than other oil giants, such as the United States. Furthermore, a representative from Goldman Sachs estimates that the global benchmark for Brent Oil could rise above $75 a barrel if the plant shutdown lasts for more than six weeks.****
Will it get any worse?
Some people fear the Aramco incident represents the potential for a broader regional conflict that could escalate to the point that it affects Gulf oil production as a whole. CFRA Research oil analyst Steward Glickman said, “Oil prices are now likely to bake in a much higher geopolitical risk premium than had been absent in much of 2019.” With the recent bombing in June of oil tankers in the Gulf of Hormuz not so distant, it’s no wonder some analysts like Glickman like are raising their eyebrows. ***
Considering all the different factors that play into this situation—the global, financial and geopolitical—there’s no telling what kind of turns it will take. The only thing to do is keep an eye on the news for the political side of it, and financial sites like Vestle to see what kind of ripples such an event is making in the financial markets.
Oil prices and the financial markets
Volatility such as that recently experienced by both WTI Oil and Brent Oil can present both opportunities and risks for informed traders, such as those who invest in Contracts for Difference or CFDs, which essentially means trading on the price movement of a particular instrument without owning the underlying asset. At Vestle, you’ll find hundreds of tradable CFD instruments, from commodities like oil and natural gas to popular stocks, indices, ETFs and crypto. And thanks to a selection of trading signals, market indicators and our economic calendar, access to important financial info for global situations like this is right at your fingertips.
Vestle (formerly known as ‘iFOREX’) is the trading name of iCFD Limited, licensed and regulated by the Cyprus Securities and Exchange Commission (CySEC) under license # 143/11. The materials contained on this document have been created in cooperation with Vestle and should not in any way be construed, either explicitly or implicitly, directly or indirectly, as investment advice, recommendation or suggestion of an investment strategy with respect to a financial instrument, in any manner whatsoever. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83.7% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Any indication of past performance or simulated past performance included in this document is not a reliable indicator of future results. Full disclaimer: https://www.vestle.com/legal/analysis-disclaimer.html
Fears of a 2019 European Economic Slowdown Loom
Although the spotlight is on the trade war between the United States and China, one aspect that is currently ignored by the media is represented by signs of weakness in the European continent.
Germany slows down
After posting a -0.3% GDP contraction in the third quarter of 2018, the economic indicators released from Germany in 2019 cannot support a positive economic picture. The manufacturing sectors continue to show signs of weakening, with the Markit PMI Composite now at 51.6, down from 52.3.
Industrial Production had been contraction by 1.9% in November, and both imports and exports had been down by 1.6% and 0.4%, respectively. DAX trading had also suggested there is growing concerns among investors and the main German stock index peaked out in July 2018, being now down by 15%.
Germany relies mostly on exports, being the third exporter in the world, only surpassed by the United States and China. That is why the weakness we see in Germany is actually a symptom of what’s happening in other European countries as well.
Italy and France not too encouraging
The new populist government in Italy, formed by La Lega and The Five Star Movement faced a serious challenge to get the EU’s approval for the 2019 budget, as the already high debt-to-GDP ratio (currently at 131.8%) raises concerns on whether the country will be able to meet its debt obligations in the future.
There are also serious concerns about the banking sector, which despite mergers and acquisitions, and huge capital available from the ECB, were unable to solve their problems which emerged after the 2008 financial crisis. The future of Italy is very uncertain, and analysts predict that the new government will not be able to meet their economic promises, given that we are at the end of a business cycle.
Speaking of France, the problems are social at the present time. President Macron was unable to stop the “Yellow Vests” protests, despite promises to increase the minimum wage and the overall standard of living for the very poor. France’s debt-to-GDP ratio currently stands at 97%, but given the latest promises, there are concerns whether the country will manage to keep the budget deficit below 3% in 2019, as the European treaties demand.
Although there’s a single currency in Europe, in terms of fiscal policy things were very fragmented, which is why the economic recovery had been very slow and the reason why investors predict Europe will face the greatest challenges to solve its economic, political, and social problems.
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