Abhijit Bhattacharyya | Ensure India isn't taken for a ride in trade deals

The sixth century BC Chinese philosopher-soldier Sun Tzu had written in his Art of War, arguably the earliest known work on that subject: “Know the enemy and know yourself; in a hundred battles you will never be in peril”. While there is no gun play in trade and commerce, it can and often does lead to a “trade war”, as seen in 21st century sanctions battles, which can instantly turn a “trading partner” into a “trading foe”.

Hence, international trade and commerce potentially could turn as good or as bad as war, where balance sheets matter most. Recurring adverse “balance sheets” can very easily turn toxic, leading to wars of economics, geography and politics. It’s because business is fundamentally about profits and losses. A trader who is a monetary or financial loser is out of business. In international trade, therefore, no major business deal can take place between individual traders or industrialists without policy intervention by nation states, and the endurance of their mutual cordial politico-diplomatic relations.

When India, therefore, signed a $100 billion free trade agreement with four European nations -- Switzerland, Norway, Liechtenstein and Iceland -- on March 10, it was undoubtedly a landmark deal. These nations are members of the European Free Trade Association (EFTA), but not members of the 27-nation European Union (EU). Hence, when such a monumental step is taken to open each other’s doors for trade and commerce, it’s natural for businessmen, and citizens to learn how their lives and livelihoods might be affected, for better or worse, through such an “open door” business policy. Will the FTA between these four nations lead to any benefits for our populace of 1.4 billion?

The officials of the contracting parties must have done detailed studies before any such agreement was signed. Nevertheless, ordinary citizens of India should also know more as not all details of complex multinational pacts are easily comprehensible to people at large. Let us, therefore, examine what open-source materials are available to learn the salient features of India’s four new European partners.

Landlocked Liechtenstein (161 sq km), Switzerland (41,285 sq km), the island nation of Iceland (103,022 sq km) and the Baltic nation of Norway (323,779 sq km) together constitute a 468,247 square km geography, (in contrast with India’s 32.88 lakh sq km). The four-nation demography of 14.078 million can be contrasted with India’s 1.4 billion -- the lowest population being that of Liechtenstein’s 34,000. However, what may be deficient in one sector is more than compensated by the four European nations’ quality of economic prosperity being way ahead of India. India though trumps with the sheer weight of its demography, which makes it a force to reckon with despite the huge internal wealth, income and distribution distortion and disparity.

No doubt India’s GDP of over $3 trillion, compared to the four nations’ combined $2 trillion, is higher and better, but what is important is that both Switzerland and Norway stood eighth and tenth in the list of the top 50 nations with “highest GDP per person”, at $81,994 and $75,420 respectively (2019 figures). In “highest purchasing power per person” as well, while Switzerland and Norway were ranked ninth and 11th, India didn’t even figure in top 70, despite New Delhi being number three (after China and the United States) in the category of “biggest economies by purchasing power”, again owing to sheer size of its 1.4 billion people.

India must also remember that its new EFTA trade partners have a few distinct features. Except Iceland, the other three -- Switzerland, Norway and Liechtenstein -- have traditionally maintained huge trade surpluses, unlike India’s chronic adverse balance of payments figures. It should also be noted that, Switzerland apart, Iceland, Liechtenstein and Norway have been prominent Western consumers of Chinese-made goods for over the past two decades.

All four countries, now India’s trade partners, are deeply intertwined with both Nato and the EU, with close links in economics, commerce, banking, defence and politico-diplomatic relations. If the FTA with India is to succeed in letter and in spirit, care must be taken to ensure that “third country-origin” goods don’t derail the high-end import and export of specific items. It is because there are clear signs of high-pitched trade tensions all around through sanctions and various “dos and don’ts” in place, as the two raging wars in Europe and the Middle East have made things more complex than ever before. New Delhi’s new FTA is thus the result of a divided Europe as several nations on that continent are keen for an FTA with India mainly because of this nation’s huge consumer market.

Understandably, among New Delhi’s EFTA partners, Switzerland stands as the star attraction for reasons known to all. Widely considered as the mecca of niche fast-moving consumer goods (FMCG), the Swiss presence in the India-EFTA agreement is bound to please the Delhi elite. High-end watches, chocolates, biscuits and assorted luxury goods will be able to enter India at low tariffs, which will progressively end with no tariffs. It is learnt that “tariffs on cut and polished diamonds too will be reduced from 5 per cent to 2.5 per cent in five years after the implementation” of the EFTA agreement.

Today, though the four-nation deal is India’s first FTA with Europe, it’s only a part -- a much bigger deal with the 27-nation EU is still awaited. Talks have been going on with Britain for an FTA for several years now, but some issues still need to be sorted out and any agreement is on hold till the Indian general election and perhaps the UK election due by early next year.

One of New Delhi’s conditions for the present FTA has been $100 billion investment in India by the EFTA nations. It will be interesting to see how things work out in future because, so far, the trend is tepid. Except for Switzerland’s $10 billion, the other three have had extremely limited investments in India -- Norway $721.52 million, Liechtenstein $105.22 million and Iceland $29.26 million. It may thus be a real challenge for the four nations to fulfil India’s stipulated primary FTA condition.

On balance, the India-EFTA deal appears interesting, but its course will certainly require deft navigation to avoid any one-way adverse balance sheet for India. As mentioned earlier, both London and Brussels are waiting in the wings for their turn. One, therefore, hopes the recent FTA results in a “win-win” for all and doesn’t end up in an astronomical trade imbalance the way India was taken for a ride in the $100 billion deficit in bilateral commerce with the Chinese dragon.