Anti -FTACommittee 535, Double Story Area , New Rajendra Nagar, New Delhi. Mobile:09447194119 To 25th November 2014 Srim. Nirmala Sitharaman Minister of commerce. Government of India New Delhi Sub: Stop RCEP FTA negotiation Sir, Madam We are writing this letter to express our deep concern about RCEP Free Trade Agreement negotiation. In the time of UPA government we represented the parliamentary standing committee on commerce on FTAs, as per our request Chairman of the Standing committee Sri Shantakumar wrote a letter to Prime Minister to stop FTA negotiation until the Parliamentary standing committee report table in the Lokh Sabha. After receiving this letter Prime Minister stopped the negotiation for a while. But the new Government in power started all the FTA negotiations that were stalled. Our main concern is that without publishing impact studies and proper preparations Government is negotiating these FTAs. Our main concern about the RCEP FTA at present Government of India negotiating. We feel that this FTA is very dangerous for our country. Similar to other comprehensive FTAs apart from trade in goods it would cover intellectual property rights, investments, services, competition etc. Its Impact on every sector is high. Ballooning deficits. Three percent CAD in 1990-91 was the main reason told by the globalisation team to start reforms; in 2012-13 CAD reached 4.8 % of GDP. Trade deficit of 2012 -13 year was $191 billion. In 2013-14 it was $160 billion. In our all budget forgone revenue head is increasing. In foregone revenue head exemption given to the customs duty is increasing year by year. Total forgone revenue in the 2010-11 budget was Rs 5,11,630 crores. Under this, exemption on customs duty was Rs 17,4418 crores. Revenue forgone in the 2011- 2012 financial year is 5,33,582.7 crores, customs duty exemption is 236852 crores. Revenue foregone in the financial year 2012-13 is Rs 5,73,626.7 crores. In this Customs duty reduction is 253967 crores. Under foregone revenue, customs duty exemption is the biggest head. Every year we are reducing the customs duty according to the agreements we signed. This is creating big revenue deficit. This is one of the reasons for inflation. In the recent past, India followed an aggressive FTA strategy and signed many FTAs, that were not based on empirical cost and benefit analysis. This has led to increasing Indias imports from ASEAN countries and other member countries engaged in RCEP negotiation. Impact of these FTAs with reduced policy space and increasing current account deficit has the potential to cause a major crisis in Indian economy. Indias trade balance with RCEP partners (Values in US $ Millions) S.No. Indias RCEP Partners 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 1 Malaysia -2341.37 -2652.41 -5493.28 -5506.99 -5015.49 2 Indonesia -5593.3 -4217.85 -8087.94 -9548.19 -10117.69 3 Philippines 435.7 451.71 551.53 683.19 1,026.23 4 Singapore 1,137.60 2,686.13 8,469.22 6,132.86 5,826.77 5 Thailand -1191.36 -1997.88 -2322.83 -1619.44 -1652.5 6 Brunei -404.21 -211.1 290.47 -774.78 -730.65 7 Cambodia 40.49 58.93 92.18 100.38 128.53 8 Lao PD RP -3.12 12.89 -74.29 -109.73 -41.31 9 Myanmar -1081.83 -697.05 -835.77 -868.03 -609.36 10 Vietnam 1,317.14 1,586.54 1,996.22 1,652.60 2,845.92 ASEAN -7,684.26 -4,980.09 -5,414.49 -9,858.13 -8,339.55 11 Australia -11022.41 -9075.98 -13101.68 -10737.05 -7862.4 12 China -19206.14 -27997.06 -37237.03 -38713.45 -36219.7 13 Japan -3104.64 -3540.79 -5670.89 -6312.23 -2679.36 14 Korea Rp -5155.02 -6748 -8459.64 -8902.87 -8267.18 15 New Zealand -244.04 -434.62 -571.08 -394.56 -337.53 Total -46,416.51 -52,776.54 -70,454.81 -74,918.29 -63,705.72 Source: Export Import Data Bank, Department of Commerce, Ministry of Commerce and Industry, Government of India, commerce.nic.in/eidb/iecntq.asp As provided in the table above India has substantial negative trade balance with its FTA partners including ASEAN bloc and countries such as Republic of Korea and Japan. In addition the mammoth trade balance with current RCEP partners million US$ -74,918.29 in 2012-2013 and million US$ -63,705.72 in 2013-14 raise significant alarm over rationale of RCEPs benefit to India and its people. Impact on Agriculture Globalization, market driven economic policies, withdrawal of state support and especially removal of quantitative restrictions, which in turn have unleashed massive agrarian distress resulted in a crisis for the Indian Agriculture. Already signed SAFTA and ASEAN agreement effect is very high on agriculture. More opening only to damage the agriculture sector more. Indian products face high non-tariff barriers (NTBs) like food and other standards, as well as technical barriers in the Japan, Australia and New Zealand, making exports difficult, at the same time NTBs are lower in India. When tariffs are reduced the Australia, New Zealand, and ASEAN countries will be the beneficiaries. Australia and New Zealand are the lowest subsidy giving countries in OECD but still Australia gives 3% direct subsidies. Our past experience is that when we reduced duty on agriculture product then market is flooded with that product. That is the case of edible oil, milk, natural rubber and many other product. Unlike WTO FTAs discussions are working on reciprocity. Our experience says that in FTA discussions subsidies not coming in the discussions. Up to the last round Government of India is silent over the subsidies of Japan Australia and China. In case of CEPA agreement with Japan, they successfully protected their agriculture, whereas India would have gained if Japan reduced agriculture subsidies. During negotiations Indian delegation failed to raise the issue of Japans agricultural subsidies. What they want they got from CEPA. We failed to push our interests. RCEP will create an impact on diary sector. Any impact on dairy is devastating, because those who engaged in this sector are the poorest among the population. After India acceded to the WTO and had to convert all quantitative restrictions on trade into tariff equivalents, the Indian negotiators initially left the bound tariffs for milk powder (SMP) imports at a zero level. This fact did lead to an increase in the imports of skimmed milk powder (SMP) and butter oil, when quantitative restrictions were lifted. According to the import/export database of the Indian Ministry of Commerce and Industry, the quantity of skimmed milk powder imported was nearly 20,000 tonnes and butter oil nearly 15,000 tonnes in 2008. Multiplied by a factor of five, these imports are equivalent to liquid milk imports of about 75,000 tonnes. Today there seems to be a trend towards substituting national production with cheap milk powder imports. As a result of import policy, imports of dairy produce have increased by more than 300% in the last few years. Furthermore, imports of butter oil, which is needed for mixing with SMP and water in order to finally obtain liquid milk, peaked at a level of more than 21,000 tonnes in 2009. The share of New Zealand dairy exports (% of total agricultural exports) to India increased from 57% from 2000 to 2009. In case of Australia it is 25%. New Zealand has dumped a large quantity of butter oil into India. Even after paying an import duty of 35.2 percent, the butter oil imports have been at less than US$1,000 per tonne against the prevailing global price of US$1,300 per tonne. Domestic prices crashed, coming down by 10-15 %. The logic behind allowing MNCs to import milk powder without countervailing duties is difficult to fathom, when their own governments are giving them massive subsidies. The producer subsidies equivalent (subsidy as a percentage of value of milk produced) in Australia is 23 %. Highly subsidised imports of milk flowing into India will only further marginalise millions of milk producers. Thousands of diary co-operatives which pulled the poverty-stricken masses into a path of economic emancipation will collapse faced with cheap and highly subsidised imports. If RCEP FTA materialises then imports will increase to a large extent. Corporate companies cheap milk will replace the co-operative milk of our farmers Australia is the sixteenth largest exporter of agricultural products. Australia is the powerful exporter of wheat, soya bean oil and fish products. In 2005 we exported small quantity of wheat - its impact was high - prices started spiralling. During 2006/7, the Indian Government imported a total quantity of 5.5 million tonnes of wheat worth US$1.13 billion at an average landed cost of US $ 205.5 per metric ton. Private sector wheat imports totalled 0.7 million tonnes during 2006 and 1 million tonnes during 2007. We mainly imported this from Australia. The general preference amongst private sector importers such as wheat flour millers is for Australian wheat which is considered the most suitable replacement for Indian wheat. If India agrees to reduce import duty on wheat in RCEP negotiation, It will affect our farmers seriously. Any international interference leads to a high price volatility, if a small quantity of imported wheat can impact a lot in our farmers’ gate price. Thailand is one of the biggest exporters of rice. At present Thailand rice is costlier than Indian rice. But the dangerous thing is that price gap is coming down fast in last four years. What happened after small quantities of import of wheat that the same thing happens in case of rice, it will be devastating for Indian farmers. After the ASEAN FTA it affected the agricultural sector at large especially South Indian agriculture. A further reduction of import duty in the RCEP negotiation will completely eliminate the large scale workers employed plantation crops. Most of the ASEAN countries are specialized in some or other particular products and they are powerful exporters of these products. India has got no such advantage. Best example is pepper production. Malaysias per hector production of pepper is 2500 kgs, Vietnam per hector production of pepper is 1500 kgs. Kerala is the largest quantity pepper producing state in India. Keralas pepper production per hector is 365 kgs. If we reduce tariff our pepper price will come down to half. At present exporters are imports pepper and mixing with Kerala pepper and re-exporting it. (Kerala pepper is the costlier pepper in international market; its prices are always higher by around 25 %). Not only has that, processing industry in Kerala imported large quantity of pepper. If RCEP agreement materialises that will be the end of pepper cultivation in South India. After the SAFTA agreement quantity of imported tea from Sri Lanka is too small. But the psychological impact of import on the prices of Indian tea is high. Not only import but an import threat also reduces the internal price. After SAFTA tea prices plummeted. Plantation industries whole South India, North East and West Bengal suffered a lot. In case of natural rubber, we can not compete with Malaysia. Their per hector production almost double than India. Naturally they are selling rubber in international market less than 40% of India, same as in the case of edible oil. Before India starting import of palm oil, we were exporters of edible oil. We reduced our duty due to the agreements we signed; now we are importing almost 55% of our edible oil. How globalisation affects our agriculture and agriculture employment; the best example is edible oil industry. If we reduce the tariffs again it will completely finish our edible oil Industry. Each Indian village had an edible oil extracting unit. All these units closed down due to import of edible oil. Due to this almost 15 lakhs of our population lost employment. ASEAN agreement contains an exclusive list of products which are not coming within agreement. In a highly sensitive list products where reduction of duty is brought about, the duty could be higher. When we went through the agreements with Thailand, Malaysia and Indonesia, our government miserably failed to protect Indian interests. But, Vietnam included tea and pepper in exclusion list, but India included many products in the exclusion list, later reduced import duty. So there is no effective exclusion list for India. Thailand included tea, coffee and pepper in exclusion list. Indonesia included most of the fish varieties in highly sensitive list. During the time of ASEAN FTA negotiations Government of India miserably failed to protect Indian interests. Now ASEAN countries are demanding more reduction of Indian tariffs in RCEP negotiations. Japan put many non tariff barriers for Indian agricultural products; not only that, they have high standards which Indian producers cannot meet. Japan, China and Australia give agricultural subsidies that cannot be negotiated under the FTA. China is the sixth largest exporter of Agricultural products. Now Indian processing industry is importing apple juice and tomato pulp import from China. In fact, most of the big brands of tomato ketchup and tomato puree are using imported paste and pulp from China. This is happening at a time when farmers are repeatedly being forced to throw tomatoes onto the streets for want of buyers. This year too, when food inflation was at its peak, reports of dumping of tomatoes by farmers had poured in from several parts of the country, including Himachal Pradesh, Punjab, Haryana, Uttar Pradesh, Karnataka and Andhra Pradesh. China at present is a successful exporter of garlic, pulses, apple and apple juice, tomato pulp, plywood and wood article, preserved chicken meat, frozen fish especially eels. If we reduce import duty all this products will come from China - Wheat from Australia, milk from New Zealand and Australia, palm oil, rice, rubber, tea, coffee pepper and fish from ASEAN countries ! This will be the net result of RCEP FTA. Finally this will be the death bell for most of our agriculture products where large number of farmers are engaged. Impact on Industry Among the RCEP countries Indias manufacturing sector is most affected due to import duty reduction under different agreements including WTO. Unlike India, China’s position is far better. Even during recession, Chinese economy was able to maintain relatively high growth levels. As per the UNIDO report Chinas manufacturing growth in the first quarter of 2014 is 13.1 % where as the manufacturing output of average ASEAN countries is 1.4 %. Among ASEAN countries, Indonesia’s manufacturing growth is 3.8 %. In fact, among the RCEP partners, Indias manufacturing output fell by 1.6 % during the first quarter of 2014. The Index of Industrial Production (IIP) for the 2013-14 contracted by 0.1 % compared to previous year. The actual reason for the low industrial production is not the low consumer demand but the cheep import from many parts of the world especially from China. Whole Manufacturing sector is sailing now in troubled waters. Export is not increasing according to the fall of the rupee. But import is ballooning, and trade deficit is bleeding Indian economy. One of the important concerns with regard to RCEP is that it has the potential to permanently damage the Indian manufacturing sector due to high degree asymmetry in manufacturing capabilities of China, Japan, South Korea and some of the ASEAN Member Countries compared to India. Currently, the fastest growing sectors in the global manufacturing industry are communication equipment, medical and optical instruments, office, accounting and computing machinery, furniture, and fabricated metal products, all of which find highly favorable manufacturing conditions in China. As highlighted by the World Economic Forum’s Global Competitiveness Report, China’s continued competitiveness is guaranteed not only by industry-friendly stimulus packages, but by the nation’s macroeconomic environment in general—with its public debt-to-GDP ratio among the lowest in the world and inflation levels is one fourth of that of India. Further reduction in the import duty will decimate Indian industry, without competition of Chinese products. In the name of security, China banned Indian made software, films and pharmaceutical products where we have a competitive edge. But India is not ready to ban the ICT products creating security threats. China has more than $4 trillion currency reserves; this is more than double the Indian GDP (Indian GDP is $1876.8 billion in 2013). This head is increasing due to the high trade surplus. Chinas trade surplus is $257 billion in 2013. That is 12.7% higher than the previous year. They are funding those who are manufacturing in China; and, they are giving loan to their vendors, that is, Indian telecom companies importing Chinese telecom gears with Chinese fund. Indian mobile companies are receiving fund from China and manufacturing in China. China is using their huge trade surplus to increase their trade. No country in the world including India has the capacity to compete with China. China is giving big subsidies to industrial products. Town and Village Industries (Chinas small scale sector) are the most subsidised industries in the world. China never allows any auditing in their TVI like labour standards, subsidies and environment standards hence no country can prove anything against their industry in any dispute settlement mechanism. Many Indian industries started production in China and they are importing products to India. Otherwise they will import peripherals and assemble here. To capture the market and keep the production line alive making the cheapest, easy perishable and low cost product is the capitalist strategy; now China uses this strategy than any other country. MSMEs may not be able to compete with Chinese products. There are no labour standards and limitation of working hours. Average working hour in China is 11 hours. Naturally Chinese products are the cheapest in the world. At present condition we cannot compete with China. As MSMEs have lower resources, they may not be able to either generate technology, products or market these at par with Japanese, Korean and Chinese companies, especially multinationals. They will therefore not be able to compete with Intellectual Property Rights like patents and marketing rights (in medicines and agro chemicals), design protection (in cars, apparels, etc); geographical Indications as per our IP rights system is much weaker. Also, just registering IP is not enough and MSMEs do not have the resources to market their brands properly. Credit access, infrastructure (e.g. in marketing, storage, transport and shipment) for MSMEs is still very low but Japanese, Korean and Chinese multinationals have huge resources at their disposal. Certain preferential treatment given to MSMEs may have to be withdrawn, for example in public procurement or competition policy. Japan, China, South Korea and Singapore want access to India’s government procurement market under this FTA. A relatively large number of women are also engaged in MSMEs as entrepreneurs who may be weaker in terms of financial resources, time and technical knowledge. Workers in higher value industries may be threatened as import duties are reduced (e.g. in automobile industry) and also because of other measures. For example the Japan, China and South Korea want export taxes removed on raw material such as minerals, raw leather, cotton, etc. Export taxes are used by the government to keep raw material cost low and ensure that industries can process and move up the value chain to high value products. If raw material is allowed to flow out freely this may limit Indian industries’ capability to move up the value chain thus threatening current and potential jobs of higher wages for workers in these industries. Most of the signed FTAs are harmful to Indian industries. The duties Indian companies pay for raw material imports render their products costlier than the finished products imported from FTA partner countries. These products attract zero or minimal duties. According to estimates of the All India Rubber Industries Association, 40 per cent of its member companies in states such as Punjab, Maharashtra, Tamil Nadu and Kerala have been adversely affected by the FTA regime. Duties are the main target of this FTA. Indian import duties are much higher than RCEP partners so India will lower its duties (protection) much more than RCEP partners (which already have low duties). Currently India allows only 2.4% of industrial products to enter duty free. So India will actually open more under the FTA if duties come down. But Indian products face many barriers in Japan, China, Australia, New Zealand and South Korea which are not addressed so much under the FTA. Even in segments like automobiles where the industry is growing well but is still infant, Japan and South Korea are asking for significant duty reduction which will threaten the domestic industry and investments made in our industry. After signing CEPA, Japan made spares are increasing in Japanese companies’ vehicles. Suzuki, Honda and Toyota are now using imported spare parts from Japan at around 60% of the total value of the vehicles. Therefore, India may not only fail to gain market access from RCEP but also bears the risk of acceleration of deindustrialization. Thus the RCEP goes against government’s efforts to revive the Indian manufacturing sector. Further, many RCEP participating countries, viz., Australia, Brunei, New Zealand Japan, Malaysia, Singapore and Vietnam are participating in another ambitious FTA known as Trans Pacific Partnership (TPP) and push for harmonization of RCEP with TPP. There are wide spread concerns about the implications of TPP on the future policy space for industrialization, regulation of foreign investment, etc. Impact on Service Sector Retail Indian service sector is the second largest contributor of employment and largest contributors to the GDP. Due to this reason we must be very conscious about any opening in this sector. In this sector retail is the biggest sector. Japan keeps on asking India to open retail sector during the time of CEPA discussions. They want to gain in RCEP what they lost in CEPA. In all spheres of economic activities, unorganized non-corporate sectors with self employed entrepreneurs play an important role. This is exactly the case of Indian retail sector. In India retail trade is not just a business entity but a community undertaking. It is unorganized, traditional, community centric, low cost and employment intensive.. Retail trade provides employment to vast number of people after agriculture. Out of our total 4.5 crores people engaged in the retail sector of our country and on an average 18 crores people depend on retail for their existence, 80 percent are self employed and size of an average retail shop generally varies between 50 square feet to 120 square feet. In India we have 1.2 crores retail out lets and 95 per cent of the retail out lets is less than 300 square feet. The Indian retail sector is the world’s largest in terms of employment and retail out lets, and the organized retail in India account for only 5.5 percent. As per the volume of trade, Reliance Fresh with 550 store is the biggest retailer in India, but they are not coming in the Deloittes top 250 global retail list, whether we take the top 100 retail list we can see many big retail companies from RCEP countries like Japan, Australia, China and South Korea. In the top 100 list, 16th biggest retail company is Japans Seven & i Holding Co LTD, 18nth largest retailer is Aeon Co LTD. Twentieth largest company is Australias Wool Worth Limited. List of retailers from RCEP countries in the TOP 100 Deloitte Retailers List and their position (In bracket) Japanese companies 1. Seven & i Holding Co LTD (16) 2. Aeon Co LTD ( 18 ) 3. Isetan Mitsukoshi Holdings LTD(62) 4. UNY Co LTD (77) 5. The Daiei Inc ( 83) 6. J Front Retailing Co (89 ) 7. Takashimaya Company LTD (98) 8. Todo Bashi Camera Co LTD (100) Australian Companies 1. Wool Worth Limited (20) 2. Wesfarmers Limited (23) 3. Spar Osterrek Histe Warren Handels AG (72) Chinese Companies 1. Brilliance Group (70) 2. Gome Home Apliences (72) 3. Suning Appliences Co LTD (76) 4. Dalian Dashing Group ( 81) 5. Nanggong Shang Super market group LTD (99) South Korean Companies 1. Shinegoe Co LTD (91) 2. Lotte Shopping Co ( 96) If India sign RCEP agreement all these big retailers will enter in our market. How can our paltry shops compete with the retail giants is the question. World wide experience tells that big retailers decimated the small ones. After wiping out the competition from local retailers, they would be in a monopolistic position and would be able to dictate the retail prices. Local manufactures, in particular the small scale industrial sector, would be gradually wiped out. After finishing off the small retailers, squeezing the farmers and wiping out small scale industries the next target obviously would be the consumers. Fortune magazines study reveals that big retailers after finishing the small ones charge more than 60% of the normal price in Europe. In Britain big retailers charge 200 % from the consumers. There must be vigilant watching on RCEP negotiation regarding retail trade Impact on Financial Service Sector Indian banking sector is one of the most regulated banking sector in the world. These regulations saved Indian economy from the last financial melt-down of 2008-2009. Least regulated economies suffered a lot in the sub-prime crisis started in the US. Not only India but Chinese banking system also is one of the well regulated one. In the last five years more than thousand banks collapsed in US. Five years before less regulated economies banks were the biggest banks as per market value. But now the situation changed, well regulated Chinas four banks are in the list of world’s top ten lists. Benefits economy accrued from the nationalization of banks slowly started eroding with the liberalisation process. Liberalisation policies increased the presence of foreign banks in India. One of the negative consequences of banking sector reforms is the decline in bank branches in rural areas even though the total number of bank branches in India has increased. The total number of bank branches of all scheduled commercial banks (including RRBs and LABs) increased from 72,752 at end-June 2007 to 76,518 at end-June 2008 but the share of rural branches declined to 40.7 per cent at end-June 2008 from 42.1 per cent at end-June 2007. In 1991, the share of rural branches was the highest (58.5 per cent). In other words, the recent spurt in bank branches has worsened the rural-urban ratio. In the era of liberalisation we can see a rise in unbanked and under banked areas. According to the RBI statistics, out of total 1,250 bank branches opened between July 2004 and June 2005, only 15 were located in unbanked areas. The proportion got further worsened next year. Out of 1,331 total branches during July 2005-July 2006, only 2 were opened in the unbanked areas. During 2006-07, only 36 branches opened in the unbanked areas out of a total of 2,366 branches. In total, merely 264 bank branches (1.5 per cent) were opened in unbanked areas out of a total 6804 branches during 2002-07. This development has got serious negative consequences for promoting inclusive development across regions. During the times of liberalization agricultural credit decreased to 9% in 1990-99, in 1970s it was 16 % and 1980s it was 14 % of the total bank lending. The decline in bank lending is more pronounced in the case of small- and medium-sized enterprises (SMEs). As on March 31, 2007, the share of SME credit in the total bank credit was measly 3.9 per cent. Though the decline in bank lending to SMEs have been observed across all bank groups, it is more pronounced in the case of private banks . The share of the SME sector in total credit was the lowest in the case of foreign bank. Within the SME segment, the share of credit to the micro and small enterprises (MSEs) is declining sharply. The number of loan accounts of micro and small- scale units with commercial banks has declined from 5.8 million at end- March 1992 to 1.9 million at end-March 2007. In terms of total credit, the micro and small enterprises in India received Rs.1,486,510 million (96 per cent) from state-owned banks, Rs.460,690 million (2.9 per cent) from private banks and Rs.154,890 million (1 per cent) from foreign banks as on March 2008.57. Some of the strong demands of our FTA partners like Japan and Singapore are complete liberalization of Indian banking services. These demands include: 1. Complete market access (commercial presence, cross-border supply and consumption) 2. National treatment commitments. 3. Removal of regulations pertaining to bank branches, numerical quotas, foreign ownership, equity ceilings, voting rights and investment. 4. Investment protection 5. Capital account liberalisation The trade agreement such as India-Singapore Comprehensive Economic Co- operation Agreement (CECA), which came into effect in 2005, is an example of opening up banking sector on a bilateral basis. Under the CECA, three Singapore banks are allowed to open 15 branches in India and three Indian banks would be given the Qualifying Full Banking (QFB) status in Singapore. The QFB status allows banks to undertake all banking activities, including retail and wholesale banking, in Singapore. Besides, banks with QFB status can also transact business in Singapore dollars. The CECA provides special privileges to three Singapore banks (DBS Bank, United Overseas Bank and Overseas-Chinese Banking Corporation) as they are allowed to set up a wholly-owned subsidiary (WOS) in India to enjoy treatment on a par with domestic banks in terms of branch licenses, places of operations and prudential requirements. In case these three banks choose to set up as branches in India, CECA provides a separate quota of 15 branches (for all three banks) over four years, over and above the quota for all foreign banks. Despite the much-touted roadmap for banking sector liberalization, the Indian authorities are violating it to accommodate commitments made under the CECA. In principle, the commitments made by India under the CECA are in conflict with domestic regulations related to foreign ownership. For instance, two sovereign wealth funds owned by the Government of Singapore (Temasek Holdings and Government of Singapore Investment Corporation) have been allowed to acquire 10 per cent stake each in ICICI Bank. As per existing rules, no single foreign institutional investor can own more than 10 per cent equity in a listed company in India. The different foreign institutional investors owned by a common entity are classified as a group and are subject to the 10 per cent limit. Instead of treating both Singapore funds as a single entity because of their common state ownership, the Indian authorities have allowed them to hold up to 20 per cent of shares in ICICI Bank. As per the new amendment Temasek Holding and Government of Singapore investment Corporation can increase the investment and voting right to 26 percent. In total they get 52 percent voting right, with this these two Singapore government controlled firms can completely control ICICI bank In the case of India-Singapore CECA, the principle of reciprocity has not been followed. Though the RBI has allowed market access to Singapore banks as per the agreement, the Monetary Authority of Singapore (MAS) has failed to fulfil its commitments for providing full bank license (QFB status) to three Indian banks. Currently, the DBS Bank is operating 10 branches in India along with other Singapore banks whereas only State Bank of India has been given QFB status in Singapore. The other Indian banks (such as ICICI Bank and Bank of India) have been denied the QFB status. If we sign RCEP FTA we should open our market for the Japanese, Chinese, Australian and South Korean banks. After the success in manufacturing sector now China is concentrating in service sector. Government of China decided to promote their banks on international level. On top of these they decided to invest their foreign currency reserves in banking sector. With these FTA, Chinese banks can enter the Indian market. Here also we see a big threat. We come across 14 Chinese banks, 10 Japanese banks, 4 Australian banks and 4 South Korean banks in Top 100 Banks List. In this list we see only one Indian bank, that is, State Bank of India. That too in 73rd position ! In the Top 10 List we can see 4 Chinese banks; not only that Industrial & Commercial Bank of China Ltd. is the biggest bank in the world. In the list of top ten profit making companies we can see 4 Chinese banks. If such huge banks enter our market how do Indian banks compete with them ? With the help of FTA with India, Japan and Singapore would like to achieve significant liberalization of India’s banking sector, well beyond what has been achieved under the GATS framework. Many Japanese and Singapore banks have applied for banking licence. Apart from RCEP many other FTAs are under negotiations. If all FTAs are signed what will be its impact ? Let us summarise it in few words: 1. Removal of limits of the foreign ownership or size of a bank could destabilise the Financial system 2. This will reduce access to banking services in rural areas especially the poor 3. Priority sector lending becomes a history and market forces will decide everything. 4. This will affect our planned development and area specific development 5. This will reduce the lending to agricultural sector and small scale Industries. 6. Foreign banks only operate in urban areas and they will not lend to poor or peasants, they only concentrate on class banking this will the end of mass banking 7. This could increase the pressure on domestic banks to also “concentrate more on profitable segment of urban and semi-urban markets. This will lead to a situation that unavailability of banking services to the big masses of India, and financial inclusion will remain as a dream. 8. More profitable areas of businesses will capture by the foreign banks, this will increase the competency of foreign banks. Eg; most of the merger and acquisition deals are still dealing by foreign banks only 9. More deregulation will come and will lead to the unregulated banking system, this will challenge the financial security of the country. 10. Mergers and Acquisition will reduce variety culture prevailing in the banking sector. Focus on specialized sector will go 11. Banking sector also will become a play ground of the multinational corporates Threat to Affordable health care: There is concern regarding Japans attempt to get into stricter patent protection laws at the just-concluded round of negotiation of RECP which includes India. Japans negotiating text on IP is TRIPS Plus and if it is accepted will roll back public health safeguards enshrined in international and Indian patent law. It will put in place far-reaching monopoly protections that restrict generic competition and keep medicine prices unaffordable for Indian patients, other millions in Asia and across the developing world. India, with robust generics pharmaceutical industry, manufactures two-thirds of all generic medicines, including over 80 per cent of all HIV medicines used in developing countries. This has earned India the title of Pharmacy of the developing world. Generic competition has proven to be the most effective way to reduce prices of essential medicines and improve access to treatment. In 2001, the price of HIV medicines came down from $10439 per patient per year to $350 per person per year. Indian companies contributed to the price reduction by manufacturing generic versions of the medicines. This broke the market monopoly of a few multinational pharmaceutical companies. It has also translated into a reduction of the cost of some first-line HIV medicines — by 99% — over the past decade. Already, India joining the World Trade Organisation’s (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement in 2005 has severely curtailed Indian manufacturers’ freedom to produce affordable versions of new essential medicines. However, Indian patent law uses the flexibilities available under TRIPS to prevent misuse of patent monopolies and offers safeguards important for public health. So far, India has been committed to systematically resisting attempts to bring in more stringent patent laws, than what is required under TRIPS, through free trade agreements (FTAs) — First in the Comprehensive Economic Partnership Agreement (CEPA) with Japan and in the EU-India FTA. In both cases Indian negotiators stood firm against some of the most problematic intellectual property provisions, such as data exclusivity and patent term extensions which would have adversely affected generic medicines production. Stringent IP rules introduced under the RCEP would further undermine the ability of Indian generics companies to make, register and supply affordable versions of medicines. Dangerous Investment protection clauses and its impacts Japanese companies vehemently support FTA because they will get all protection in case of any public anger. In the forthcoming FTA such investment protection clauses are being surreptitiously inserted. Now the developed countries are shifting polluting industries to developing countries like India. The best example is Nitta Gelatine issue in Kerala. Japan banned the Gelatine processing in Japan. They started its production in India, Indonesia and some other African countries. Everywhere Japanese companies damaged the environment a lot and pollution problems affected the people at large. Since the last twelve years people in Thrissur district of Kerala have been fighting against Nitta Gelatine Company of Japan. Japanese companies never respected rights of the workers embedded in our labour laws. Still their management is imperialistic and they see workers as slaves. This created many problems in their factories, one of the best example is the riots in Maruti- Suzukis Manezer plant. These Japanese companies need investment protection to avoid the wrath of the people and the workers. Japan wants to include the clauses of ‘National Treatment, market access, and most favoured nation treatment’ in FTA. If market access is included in the investment protection chapter, the provisions on National Treatment (NT) will give foreign investors the right to access to land, minerals, water, and products in the same manner the national investors do have. NT, therefore, is a strong right that threatens the rural poor’s access to natural resources such as land, water and energy sources. Fair and Equitable Treatment (FET) is one of the vaguest investment standards in FTAs. FET includes ‘legitimate expectations,’ to right to maintain the investment projects like drawing water for the project. Protection against expropriation and nationalisation: Expropriation is classified as Direct (Physical taking of property) and Indirect (A regulatory action that interferes with the enjoyment of investment). As foreign investors often get land tenure for several years like up to 99 years, government cannot change the tenure even in case of serious human right violations, because that will see as an expropriation, and the investor can seek heavy compensation from the Government. When a land reform is made the government cannot take over the land of foreign investors and distribute it. Another factor is that a foreign company is protected from any regulatory action affecting its profitability. In such a case the company can claim for compensation. Investment protection clauses included in the FTAs, the law of the land is of no use and can do nothing against these companies. Governments will become toys of multinationals and no government can take any action against them. If the government initiates action against these companies it will lead to large scale losses to the state exchequer. Vodafone issue is an example of the coming threat. These companies are attempting to prevent the Government of India from taking measures for energy security or against tax evasion or corruption. Vodafone’s action of choosing investor-to-state provisions under the BIT instead of judicial review is believed to increase pressure on the Government of India to withdraw its proposed amendments prior to the approval of the parliament. Apart from Vodafone, six other companies initiated for international arbitration. Among these three, the mobile service providers, viz., the Russian conglomerate Sistema JSFC, the Norwegian company Telenor and Khaitan international- investor in the loop telecom - are citing investment protection provisions in BIPAs and seeking compensation for the loss suffered due to the cancelation of their second generation (2G) spectrum licence. Telenor is seeking nearly US$ 14 billion as damages. Telenor is citing the India-Singapore FTA to invoke the international arbitration since the investment is routed through a Telenor unit registered in Singapore. Telenor also invested in India through a joint venture with an Indian investor Unitech. One of the investment protection claims of the telecom companies, that the government has to compensate for the loss suffered due to a judicial decision, raises serious concerns about the implications of BIPAs on judicial independence and good governance. CBI registered a case against Malaysian company Maxis Communication In the Aircel take over issue. Very next day they issued a statement that they decided to opt for the protection in the Investment Protection Agreement (Economic Times, September 3, 2014). All the illicit activities of investors are getting protection through the investment protection agreements. Under the Indian Constitution, the verdict of the Supreme Court is treated as the law of the land and only the parliament has the power to bypass the verdict through legislation, which the parliament exercises only on rare occasions. The international arbitration process now over-rules the law of the land and is also used to legitimize corruption. Another international arbitration case is White Industries against India. In the seven arbitration proceedings against India, two of them are BIPAs of RCEP countries: One on the basis of India-Australia BIPA and the other on the basis of India-Singapore BIPA. Rather than understanding the danger of BIPAs and terminate these agreements, Government of India is going with the dangerous investment protection agreement that is part of RCEP. The existing investment protection agreements have failed to address the balance of rights and responsibilities of foreign investors as it offers numerous legal rights for investors without imposing corresponding responsibilities on them. There are numerous problematic provisions of investment protection contained in existing bilateral and regional investment treaties that need a complete re-examination in the light of recent developments. After the $50 billion arbitration tribunal award against Russia in the Yukos case, many countries are seriously thinking to terminate the BIPAs. Many developing countries (including South Africa, Venezuela and Indonesia) are rethinking about the costs and benefits of BIPAs and are taking various policy measures to protect themselves from costly investor-state arbitration. At the same time Government of India is still promoting FTAs that contain dangerous clauses of investment protection. In these contest 1. We demand an immediate halt of All FTAs negotiations including RCEP 2.All existing negotiating positions, draft proposals and government commissioned studies are made public All current proposals are debated and discussed in parliament and public. 3.The federal process of consultation with the state governments is completed and a consensus is reached 4.Consultations are conducted with key constituents such as trade unions, farmers, and other peoples organizations, small and medium enterprises, cooperatives and hawkers 5.A white paper is released and discussed in parliament on the socio-economic and ecological impacts of all aspects of the RCEP FTA, especially addressing social inequality and discrimination Yours sincerely
Posted on: Fri, 12 Dec 2014 17:14:36 +0000
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