Implications of Free Trade Agreements for Micro, small and medium enterprises

India's policy on Free Trade Agreements (FTAs) is bound to have significant impact on the country's economy in general, and in the manufacturing sector in particular. India is currently engaged in negotiating bilateral trade and investment agreements with several countries, having already signed FTAs with some of them. The latest in line, and also the most hotly debated, is the one it is negotiating with the European Union (EU). These cover not only trade of goods, but also trade in services, investments, intellectual property rights, and other issues like public procurement and competitive policy. It must be remembered that India's goods trade has not been up to the mark overall and with most of its FTA partners, India’s deficit in NAMA products (non agricultural market access) has increased steadily from Rs 414 billion in 2001-2000 to Rs 5420 billion in 2009-2010. With the exception of Singapore, India has a trade deficit (sometimes an increasing one) with most of its major FTA partners.

FTAs are likely to have a significant impact on Indian producers and affect not only the livelihood, but also the lives of the people. Unbridled influx of multinationals, with no government control over them, is likely to cripple local industries. Trade Related Intellectual Property Rights (TRIPS), especially those regarding patents, would be to give considerable control to developed countries over critical resources in developing economies. One scary fall out of this would be on production of generic medicines in countries like India, increasing the prices of medicines globally and making them out of reach of many patients, especially those living with HIV. So, FTAs are a serious human rights issue as well.

Anand Grover, Senior Supreme Court lawyer, heads the HIV/AIDS Unit of Lawyers' Collective, and UN Special Rapporteur on Right to Health, wants international agencies like the Global Fund to fight AIDS, Tuberculosis and Malaria (The Global Fund) to take on issues of FTAs (India-EU FTA, India-US FTA), which are actually impacting human rights and right to health adversely in terms of access, availability and acceptability of medicines.

India’s Micro, Small and Medium Enterprises (MSMEs) contribute significantly in the socio-economic development of the country, providing employment to 60 million people and contributing to 45% of the manufacturing output and 30% to India’s exports. So it is important that any major trade policy of the government does not adversely affect the future growth of MSMEs and adequately safeguards the interests of this sector. This is exactly what the Prime Minister’s Task Force Report 2010 on MSME points out.

Therefore the need to understand the potential impact of the FTAs on this sector cannot be underestimated. For example, in commodity trade actual applied rates of import duties would move to zero, and commodities would lose full protection. This would mean stiffer competition for MSME in home market and small producers must remain competitive. Then again, countries like the European Union want total removal of export taxes. This is bound to impose a threat to raw material supply for industries requiring raw leather and minerals. It may also increase costs of inputs if there are current export taxes on these.

As FTA negotiation processes are shrouded in secrecy with limited stake holders consultations, there is a need to inform, raise awareness and build the knowledge and skills of stakeholders like MSMEs on FTAs. To address this need, a pilot project jointly undertaken by Third World Network (TWN) and Shramik Bharti, and supported by Traidcraft Exchange, has been designed to generate knowledge, disseminate information and build the skills/capacity of MSME stakeholders with a view to demystify FTAs and to equip MSMEs with tools that may help them understand the nuances of FTAs.

As part of this project, four stake holders’ consultations will be organised in different parts of the country, (beginning from Kanpur in Uttar Pradesh) for MSME entrepreneurs, experts and policy makers, in order to share information and seek feedback and comments.

In addition, with cooperation from Indian Industries Association, one toolkit and three case studies explaining these issues and linkages will be prepared and disseminated.

The key objectives of these consultations are:
(i) To enhance awareness on FTAs among MSME entrepreneurs through disseminating information on several FTAs and demystifying trade linkages with various provisional chapters contained in FTAs.
(ii) To invite feedback from MSME entrepreneurs on the Draft Toolkit on FTAs in order to make it more useful.
(iii) To facilitate exchange of information, opinion on MSME-FTA linkages and assess opportunities and challenges for the MSME sector.

This will hopefully result in a better informed MSME sector which will be able to raise its concerns and engage more effectively in the consultation process, and lobby with the government on current FTA negotiations. In fact, all of us need to understand the implications and potential impacts of these free trade agreements, which are bound to impact us by snatching away a lot of freedom from our lives.

Shobha Shukla - CNS
(The author is the Editor of Citizen News Service (CNS). She is a J2J Fellow of National Press Foundation (NPF) USA. She is also the Director of CNS Gender Initiative and CNS Diabetes Media Initiative (CNS-DMI). She has worked earlier with State Planning Institute, UP. Email:, website:

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