G20 should halt free trade agreements

In its position as G20 chair, the UK government is fanning fears of protectionism to push through free trade agreements that will make developing countries, like India, more vulnerable to the economic crisis.

This warning comes from trade development charity Traidcraft which says that instead of advocating more of the same trade liberalisation, Gordon Brown must champion a fresh approach towards the global trading system, based upon equity and sustainable development objectives.

In a report released today, Traidcraft shows that the EU-India free trade agreement (FTA) under negotiation, would strip away essential policy tools that India needs to support its economy and safeguard jobs – when European governments are doing all they can to rescue their own economies during these exceptional times.

This comes at a time when India – like many developing countries – is bearing the brunt of the economic crisis, faced with double-digit falls in exports and an estimated 1.5 million export jobs lost in the last six months.

Report author, Sophie Powell said: “When rich European countries are using all means at their disposal to bolster their own economies it is hypocritical to be pushing ahead with trade deals that would prevent developing countries from doing the same.”

In addition to restricting essential measures to support domestic industries, an FTA would also deepen India’s trade deficit, leaving it more dependent upon foreign capital, at a time when foreign investors are turning tail. India is experiencing significant falling investment as quarterly inward flow of FDI in 2008 more than halved to $3.94 billion from $10.07 billion in the third quarter

The FTA would also lead to a drop in government revenue of at least 6 billion dollars, through lost trade taxes – further undermining the Indian government’s scope for stimulus measures and cutting its budget for social protection programmes.

Further, just as Western governments are tightening their financial regulation, the proposed trade deal would expose India’s banking sector to greater risk by paving the way for more speculative financial products, like derivatives, and by removing its right to limit the free movement of capital.

The EU-India FTA proposes reciprocal liberalization of trade between the two partners – as well as far-reaching commitments on investment, services, intellectual property and government procurement. Earlier studies have shown that such an agreement between highly unequal economies would result for India in a loss of jobs and livelihoods and reduced scope for the Indian government to address poverty and inequality. The Indian economy is about 6% of the size of Europe’s. An estimated 73% of India’s population lives in extreme poverty on less than $1 per day.

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