FTA India: industrial tariffs – the stumbling block
The negotiations between Switzerland and India on a free trade agreement are marking time. The reason for this is Switzerland's demand for the full liberalization of the trade in industrial goods. The Indian government and the Confederation of Indian Industry reject this because it jeopardizes many small industrial enterprises.
«Some sectors of the Indian economy are only just beginning to develop. They need time to be able to stand up to foreign competition. If we deregulate the markets now, they will not be competitive,» said Pritam Banerjee, Head of Trade and International Policy at the Confederation of Indian Industry (CII), in an interview with Alliance Sud. «The companies chiefly concerned are those in the chemical, machine building, food industries as well as subcontracting firms such as auto parts manufacturers. In India there are numerous highly labour-intensive small and medium-size enterprises active in those industries, and they would be hit very hard by joblessness.»
The Confederation of Indian Industry is the foremost umbrella organization of Indian industry. It was founded in 1895 and today has a membership of 8100 organizations, which in turn represent 90,000 companies, including many small and medium-size enterprises as well as all the major groups and multinational industrial concerns in the country.
Controversial product schedule
Since 2008 Switzerland has been negotiating a free trade agreement with India in the framework of the European Free Trade Association (EFTA). The EU also launched negotiations shortly thereafter. If EFTA had been the priority in the beginning, today the agreement with the EU seems to take precedence, the large EU market being much more attractive to the Indian economy.
One snag in both negotiations is the deregulation of the markets for industrial goods. In September 2009 India presented Switzerland with a list of products for exemption from customs tariff reductions. They make up some 30 per cent of the trade in industrial goods between both countries and include chemicals, machinery and watches.
Since then the talks have been at a standstill. Pritam Banjeree is formal: «In principle we are in favour of free trade agreements. They afford us greater access to the markets of industrialized countries. Our uppermost interest is to export services (IT, skilled human resources, accounting and law) as well as textiles and manufactures. We are nonetheless keen to protect our agriculture and industry.»
Industrial tariffs the joker?
India's tough stance on industrial goods is surely born of its concern for its still infant industries. Nevertheless, it may yet serve as a joker to extract concessions in another dossier that is also very near and dear to it and in which Switzerland is giving absolutely no ground: the free movement of people.
Will the Indian government maintain its ground? «That is hard to predict», Pritam Banerjee admits. «But neither can they simply disregard the demands of powerful interest groups such as farmers and industrialists. The list of exceptions presented by the Indian Government is the outcome of several meetings with business people, farmers, trade unionists and non-governmental organizations», the representative of Indian industry explains.
Isolda Agazzi, Alliance Sud
Article Published in: Alliance Sud News No. 64, Summer 2010
Box:
Customs duties mean revenue
In 2009 Switzerland imported industrial goods from India to the tune of 728 million francs. In turn it exported over 2 billion francs worth of products to the Indian subcontinent. It levied an average 2 per cent duty on those imports, which amounted to 8.2 million francs in revenue. However, Switzerland collects duties ranging from 9 to13 per cent on textiles and clothing, which are very important products for India. India imposes on average 10 per cent import duty on industrial goods, which means that its imports from Switzerland brought in roughly 200 million francs.
The free trade agreement is intended to dismantle tariffs altogether, though India would be accorded a longer transition period. Eliminating tariffs is a threat not only to still fledgling and largely uncompetitive industries, but it also causes substantial revenue losses. Since the introduction of the new liberal economic policy in 1991, customs revenues have declined by 20 per cent in comparison to other charges. Despite this, they still accounted for 11.4 per cent of government revenues in 2008/09.
Carolina Bocanegra and Isolda Agazzi, Alliance Sud
Box published in: Alliance Sud News No. 64, Summer 2010
