As the issue of allowing Foreign Direct Investment (FDI) in retail trade is being widely debated for its pros and cons, here's a look at the Indo-ASEAN free trade agreement signed in 2009 and how it adversely affect Indian farmers(especially those in Kerala). Though the technicalities of FDI in retail are entirely different, some after effects are similar.
Trade barriers are a thing of the past in a post liberalised world. As more and more trade treaties are signed, limitations which used to exist in trade between two countries have reduced to a large extent. The advocates of free trade project this as a win-win situation in which both the countries involved will benefit. But at the other side, the reduction in tariffs of agricultural and marine goods is bound to hit farmers and small and medium enterprises (SME) hard.
The Association of South East Asian Nations (ASEAN) and India signed the ASEAN-India Trade in Goods (TIG) Agreement in Bangkok on 13 August 2009. It paved the way for the creation of one of the world’s largest free trade areas consisting of 1.8 billion people and a combined GDP of US$ 2.8 trillion.
One of the main features of the ASEAN-India Free Trade Agreement (AIFTA) is the tariff reduction commitments which provides for a phased reduction of import duties on Indian and ASEAN member countries’ agricultural and non-agricultural goods between January 2010 and January 2016. The products are classified under 4 broad headings-Normal track, sensitive track, special products and exclusion list. For the products in the exclusion list, there is no tariff reduction. Excluding the products in this list, India has made commitments to reduce or eliminate tariffs for over 89% of all of its agriculture, marine and manufactured goods by 2016.
India’s exclusion list contains some of its major agricultural products like coconut, cotton, dairy products, wheat, paddy/rice, sugarcane, apples, etc. But the presence of a product on the exclusion list does not guarantee protection from all competition. Local producers of the agricultural and other products listed in the list could face increased competition from imports of cheaper substitutes whose tariffs are being reduced under different tracks in the FTA.
Tariffs for many agricultural products which are included in the other lists will drop to zero by 2016. This will result in a drastic reduction in demand for local agricultural products. Under the safeguard provisions of the FTA, countries are allowed to raise tariffs in case of emergencies. But it cannot be above the levels stipulated in the Agreement. With tariffs dropping to zero for most products by 2016, this becomes meaningless. Therefore India’s commitments under AIFTA are likely to cause significant negative impact on livelihoods and food security across several segments of the rural population in the country.
South India, especially Kerala will be the most affected by this scenario because it shares a similar tropical agro climatic condition as South East Asia. Both regions cultivate the same kinds of crops. The marine fisheries resources are similar too. Natural rubber, coconut, tea, coffee, spices, cashew, and tropical fish varieties etc are common to both regions.
The CPIM politburo in a statement released on the day that the FTA was signed said, “Eliminating the tariff in 80 percent goods traded between India and the ASEAN countries would be harmful for domestic industries, agriculture and fisheries, which have already been adversely affected by the economic slowdown. This would have an adverse impact on the economies of the states, particularly Kerala. The claim made by the government that excluding some items from the list of tariff concessions would address the sensitivities in agriculture and other sectors did not hold much water. The sharp cuts in import duties in the future would affect the livelihood of a very large number of people in the country”
But Union minister Vayalar Ravi disagreed with this view saying that, “This is far from the truth, because in today’s world none lives in isolation and the farmers can look forward to a positive future because of the agreement. This pact would enable our farmers to compete with the rest of the world and the central government would help them through proper policies and support”
Added to this scenario, some key products like black tea, coffee, pepper, crude palm oil and refined palm oil are kept in a separate category called special products. The products in this list are subject to tariff reduction commitments unlike those in the exclusion list. No other country has kept any products under this category. It is still unclear why India opted for such an arrangement which directly affects the business of small enterprises.
On the brighter side, import liberalisation in intermediate goods like electrical machinery, optical, photo, medical apparatus, chemical products, plastics, copper etc will benefit the Indian MNCs that are active in the region, in the chemicals and iron & steel sectors. It will also be advantageous to some extent to the services sector.
So, the Indian establishment has to grapple with the dilemma of being an active partner in ASEAN to counter the primacy of China in the region and at the same time isg faced the problems of livelihood of farmers and small enterprises in a world of unfettered trade.
1. Financial liberalization and agriculture: An overview of the challenges before developing countries by Smitha Francis and Murali Kallummal.
2. ASEAN-India FTA- Noises of dissent from deep south by K.N.Harilal [Kerala State Planning board Occasional Paper]
3. ASEAN investment report 2011