Free trade frenzy: the hidden costs of South Asia's economic gamble

by GRAIN | 5 Jun 2024

As debt pressures rise, South Asia's economic strategies are increasingly revolving around FTAs. The frenzy, however, is not only reshaping the region's trade dynamics, but also a wide array of national legal frameworks, from labour rights to agriculture policies.

Over the past two years, Sri Lanka and Bangladesh have sought International Monetary Fund (IMF) bailout packages due to their precarious economic situations. In the case of Sri Lanka, the government is expected to roll out a series of economic reforms, including trade liberalisation, labour market flexibility and land market liberalisation, in order to secure debt relief. Similarly, in Pakistan, the IMF, has asked the country to engage in FTA negotiations with major trading partners to secure market access. As part of a condition for a long-term bailout loan worth US$ 3 billion, Pakistan is further urged to relax import tariffs. Other countries in the region, such as Afghanistan and Maldives might follow suit, since they are either grappling with debt or are at a high risk of falling into it.

For many activists resisting free trade, this phenomenon brings to mind the struggle against NAFTA and its impact. Signed in 1994 between Canada, Mexico and the US, the North America Free Trade Agreement was devastating for the people of Mexico, deepening the loss of food sovereignty to cheap imports, exacerbating the privatisation of seeds, land dispossession and the loss of livelihoods. It also led to increased crime, migration and pollution, while undermining labour rights. NAFTA should serve as a stark reminder to those in South Asia, that FTAs are much more than the decrease of tariffs. They reshape laws and regulations to favour corporate interests.

The redundancy of imports

For South Asia, two decades have been enough to take stock of FTA impact in the region. Major losses and devastation have been reported across various sectors. To the point that, in India and Pakistan, industry federations have demanded a moratorium on new trade deals.

What FTAs have done to India’s food sector is particularly daunting, compromising the nation’s food production capacity. In the early 1990 India was self-sufficient in edible oil production. But since the signing of FTAs with Malaysia and ASEAN, India has become the world’s largest importer of edible oil.

Since the onset of negotiations between India and ASEAN, southern Indian states, particularly Kerala, raised concerns. The FTA was expected to increase India’s import of agricultural products, notably tea, coffee, coconut oil, palm, rubber, spices and other plantation crops from ASEAN countries, the very same goods produced by Kerala farmers.

Despite the fact that it was officially excluded from the Indian ASEAN FTA, India’s coconut oil suffered the most from this trade deal. According to the Coconut Board of India, India imported over 3014.21 tons of coconut oil in 2011-12, which increased to 12811.92 tons in 2014-15, more than four times in just a few years. The open market price of Coconut oil also dropped from US$ 2.01 per kg in August 2014 to US$1.2 in July 2015. The situation was so bad that Kerala’s agriculture minister at that time, K P Mohanan, wrote to the Prime Minister asking a halt to the import of coconut oil lest it would destroy Kerala’s coconut sector, the backbone of its economy. Measures were taken and the import dropped to 5416.30 tons in 2015-16. But, the sector was then sideswiped by the excessive import of palm oil. This provoked a significant fall in copra prices (dried coconut used to extract coconut oil): from US$216.5 per quintal to a mere US$84.22 per quintal over the last five to six years, forcing coconut farmers to demand a support price of US$300.7 per quintal. The same happened in the rubber sector. Between 2013 to 2015, rubber imports almost doubled, whereas exports of Indian rubber were at a record low. In Kerala, rubber production slipped from an annual 1 million tonnes to between 600000 and 700000 tonnes. Rubber farmers who were getting around US$3 per kg of rubber before the FTA, ended up with US$1.30 per kg after the FTA with ASEAN.

Yet, the problems for farmers didn’t stop with the India-ASEAN FTA. The India-Sri Lanka Free Trade Agreement (ISFTA) ravaged Indian farmers as well, particularly black pepper producers. The farmgate price for black pepper dropped from US$9.14 per kg in 2017 to US$3.61 per kg in July 2018 due to an influx of imported pepper from Vietnam via Sri Lanka. Under the India-Sri Lanka FTA, India could import 2500 tonnes of pepper a year from Sri Lanka without duty; above the quota, a tax of 8% would be imposed. Whereas under the India-ASEAN deal direct pepper imports from Vietnam attract a duty of 52%. It was only in February 2024, that an Indian parliamentary committee suggested taking corrective measures to curb the dumping of pepper from ASEAN countries through Sri Lanka.

Even though the India-Sri Lanka FTA was a south-south trade deal, it may not have had a significant positive influence on the agricultural production of Sri Lanka. As a powerful partner in this FTA, India significantly increased its exports to Sri Lanka, leading to a more than sixfold increase in the trade deficit by 2014 compared to the inception of the ISFTA in 2000. Meanwhile, Sri Lankan exports to India grew at a much slower pace. This was to a large extent due to the prevalence of non-tariff measures (NTMs) faced by Sri Lankan exporters trying to enter the Indian market, such as state taxes, standards, and administrative procedures and quotas which fell outside the scope of the Agreement.

What else is on the table?

As hazardous as they are, the reduction of tariffs and loss of revenue are just the tip of the iceberg in this era of new FTAs. Today, trade agreements transcend the mere regulation of export and import; they are about designing legal frameworks that primarily benefit major investors and corporations.

Subsidies may not get negotiated: In the ongoing FTA negotiations with the EU, the Indian tariff for agriculture which is currently at 39.2% (the EU’s is at 11.2%), would be lowered to zero or near zero levels for 90% of the agricultural products at stake, since the EU wants deep market access to India’s agriculture and dairy sector. But the EU won’t have to cut its massive agriculture subsidies which amounted to almost US$ 78,454 million in 2020-21. This gives the EU a tremendous price advantage in Indian markets and a licence to dump its subsidised products, thus making it impossible for Indian farmers to compete with EU farmers. Unlike the WTO, in FTA negotiations, agriculture subsidies given by developed countries are never questioned and remain unaltered.

Non-tariff barriers (NTBs): Developed countries like the EU, maintain hard to reach non-tariff barriers (NTBs) dictated by the food industry, such as sanitary and phytosanitary standards, food producer traceability and market surveillance systems which makes it difficult for South Asian countries to increase their market access in the EU. The heavy farm subsidies of developed countries mentioned above also act as non-tariff barriers for agricultural goods from developing countries.

No export restrictions: From time to time, countries in South Asia – India, Bangladesh, Afghanistan and Pakistan imposes bans on the export of food products such as rice, wheat, sugar to control the domes­tic supply of food grain and maintain domestic food security. In 2019, Pakistan banned the export of wheat and wheat flour due to the persistent increase in prices. In early 2024, Pakistan put a ban on the export of bananas and onions to control their prices during the month of Ramadan. In 2022, Afghanistan banned wheat export to meet local needs. To ensure better food security, in October 2023, Bangladesh imposed an indefinite ban on all kinds of rice exports, including aromatic varieties. Developed countries, especially the EU and Japan demand the removal of these export measures (taxes, restrictions and bans) in their FTAs with developing countries.

Market access in the dairy sector: Dairy is a highly sensitive issue in South Asia, particularly in countries such as India, Pakistan and Bangladesh, where there is significant dairy production by small-scale dairy farmers. The looming threat of displacement by dairy industries from developed nations is considerable. Countries like the EU, UK, Australia and New Zealand are aggressively pushing for the liberalisation of South Asia’s dairy sector. European dairy companies already have their foothold in India and Pakistan and they want deeper market access to have tariff-free import of their dairy products in these countries. This will be disastrous for not only the several dairy cooperatives but for millions of small dairy farmers, mainly women, who supply fresh milk to these cooperatives. The “National Treatment” provision in the FTAs would also ensure that foreign dairy companies investing in South Asian countries get the same rights and privileges as domestic dairy companies. This would mean that South Asian governments wouldn’t be able to legislate in favour of their dairy cooperatives or small dairy farmers. On the other hand, the industry-mandated sanitary regulations of developed countries would prevent dairy products from South Asian dairy cooperatives from entering their market due to sup­posedly insufficient traceability and market surveil­lance systems.

TRIPS plus provision: On intellectual property rights, the EU, Japan, and Korea demand TRIPS-Plus provisions for plant variety protection and accession to the International Convention for the Protection of New Varieties of Plants (UPOV) 1991. UPOV does not recognise farmers' rights to seeds and protects the interests of seed corporations engaged in crop research and development. UPOV91 severely limits the customary rights of farmers to save, exchange and reuse farm-saved seeds and propagating material and recognises only ‘breeder’s rights’ instead of ‘farmer’s rights. UPOV91 would be a disaster for farmers of South Asia who are dependent on their farm-saved seeds as well as thousands of seed savers who are conserving agricultural diversity for future generations. The ongoing FTA negotiations which demands South Asian countries to comply with the UPOV 1991 include the India-EU FTA and the Bangladesh-Japan FTA. Article X.38 of the India-EU FTA, for example, asks “each party to protect plant varieties rights in accordance with the International Convention for the Protection of New Varieties of Plants (UPOV) as lastly revised in Geneva on 19 March 1991”.

Liberalization of government procurement: In FTAs, South Asian countries would also face a big push by developed countries to open up all government procurement for FTA partners. India already accepted government procurement under the India-UAE FTAs. Developed countries like the EU, UK, and Australia also demand access to the public procurement market in FTA partner countries. In the India-EFTA, government procurement is included but there is no commitment on market access until it is re-negotiated later. In the ongoing negotiations with Bangladesh, Japan has emphasised that the government procurement provision is necessary in the Economic Partnership Agreements (EPAs) since it is an important element of economic activities. The opening up of government procurement under FTAs would jeopardise the development of micro, small and medium enterprises (MSMEs), village enterprises, and women entrepreneurs and their interests would be compromised because, in South Asia, these small businesses get preference when government tenders are offered. In the FTA with the UAE, India has excluded government procurement related to the health care sector and agricultural products.[1]

Fortunately, as of today, there is no food related government procurement provision so far in any FTAs signed in this region. The food security of countries is at stake with the liberalisation of this sector, as witnessed by India in 2006-07 when it liberalised the procurement of wheat and rice, resulting in the massive import of wheat despite a bumper harvest that same year.

Proliferation of GMO seeds and foods: When it comes to imposing major changes in partner countries’ regulations if these are seen to restrict trade, these new FTAs have been particularly keen on letting genetically engineered organisms (GMOs) through. Under an FTA, it would be difficult for South Asian countries to refuse to accept provisions on the import of GMOs. These FTAs have provisions for harmonization of regulatory measures, which means health, food and biosafety restrictions should be minimalised so that trade can grow; the process for GM approval to be hastened, as it is provided under the USMCA or in the US-China FTAs. The goal is to ensure that if one country says a product is safe under its regulations, the other two will accept the product as safe under theirs. Under the India-Canada FTA, Canada insisted on a clear and predictable approval process for transgenic canola in India. This would include the joint development of regulatory frameworks permitting the low-level presence of GMOs that have already been approved by the competent regulatory authority of another country.

Investor-State Dispute Settlement (ISDS) to challenge tax justice, health, environment and safety standards: In this new era of FTAs, South Asia countries would be forced to accept the ISDS mechanism, which protects the rights of investors from any change in the investment regulations. Under ISDS, an investor can sue the government if the laws and regulations prevent the investor from maximising profits. This provision becomes quite problematic in South Asian countries that allow foreign direct investment in land ownership by removing restrictions for companies with foreign ownership, as in the case of Sri Lanka. Given the fact that Sri Lanka is negotiating an FTA with China, it would be a disaster if Sri Lanka accepts ISDS and allows investments in farmland.

Most South Asian countries have signed the Bilateral Investment Treaty (BIT) and have also faced ISDS cases against them. There are multiple cases where corporations used the ‘investor protection’ provisions in BITs and different trade deals to sue South Asian countries.

Free trade and farmers protests

Over the past few months, widespread farmer protests have erupted worldwide, including in South Asia, with a common outcry against free trade agreements that have wreaked havoc on the agriculture sector in many regions. European farmers, for instance, complained that despite their efforts in food production, they struggle to make ends meet due to FTAs, deregulation, and the selling price of their goods consistently falling below production costs. The European Union’s zeal for FTAs has pitted farmers globally against one another, compelling them to compete at rock-bottom prices, compromising their income security.

In recent years, South Asia has been a hotspot for farmers uprisings, witnessed in countries like India, Pakistan, Nepal and Sri Lanka. Early in 2024, Indian farmers resumed protests, marching again toward Delhi, fueled by the government’s failure to fulfil its promise of implementing a legally guaranteed price support system. Additionally, they demand the Indian government’s withdrawal from the WTO and the annulment of all free trade agreements. Indian farmers also insist that an FTA should thoroughly be discussed, debated, and agreed upon by both houses of Parliament before ratification. A legal provision for a price support system would ensure farmers get a fair price for their agricultural produce, shielding them from the adverse effects of cheap imports flooding the market due to tariff reductions or elimination under FTAs.

The momentum is high for a united fight against FTAs among South Asian countries, as seen in India against the Regional Comprehensive Economic Partnership (RCEP) in 2018-2019. India witnessed widespread people's resistance against RCEP, prompting the government to retract. This victory for the people stemmed from each affected constituency’s understanding of the potential impact of the trade agreement. They refused the surge of imports resulting from the elimination of duties on goods coming from other RCEP member countries. This collective realisation brought together almost every sector: farmers, industry workers, social movements and trade unions, all demonstrating that resistance to trade regulations is possible. A similar initiative emerged recently in Nepal, where civil society groups and farmers’ unions collaborated to stop the proliferation of FTAs in South Asia.

For farmers across South Asia any further push to open up the agriculture sector to the current free trade agenda would exacerbate their plight, deepen the economic crisis in the region and put their very survival at risk. It is crucial to ensure that farming remains a viable livelihood option for millions of farmers and sustains food production in the region.

[1] However, the UAE now wants to renegotiate the FTA with the apparent intention of including agricultural commodities.

Photo: Farmers Rally in Delhi, India, 18 March 2013. By: Joe Athialy/Rewa Images

Author: GRAIN
Links in this article:
  • [1]
  • [2]
  • [3]
  • [4]
  • [5]
  • [6]
  • [7]
  • [8]
  • [9]
  • [10]
  • [11]
  • [12]
  • [13]
  • [14]
  • [15]
  • [16]
  • [17]
  • [18],export%20of%20bananas%20and%20onions.
  • [19],the%20government%20confirmed%20on%20Friday.
  • [20]
  • [21]
  • [22]
  • [23]
  • [24]
  • [25]
  • [26]
  • [27]
  • [28]
  • [29]
  • [30]
  • [31]
  • [32]
  • [33]
  • [34]
  • [35]
  • [36],(Amendment)%20Act%2C%202020.
  • [37]
  • [38]
  • [39]
  • [40]
  • [41]