Written submission from Traidcraft Exchange (TIN0019)

Submission by Traidcraft Exchange

to the Commons International Trade Committee inquiry into

UK-India trade negotiations

13/02/2021

About this submission

1. Traidcraft Exchange is the UK’s only development charity dedicated to making trade work for people living in poverty in the global south. It was established in 1995 as the sister organisation to the social enterprise Traidcraft plc. Traidcraft Exchange runs programmes in South Asia and Africa supporting small businesses, farmers, and workers. In the UK we campaign and advocate for improvements in the practices of the UK Government and UK businesses relating to trade.

2. This part of the submission addresses the questions:

1. How adequately has the Government undertaken public consultation in formulating its strategic approach / negotiating objectives?
2. How should the Government communicate its progress in negotiations; and seek the views of stakeholders during those negotiations?

Consultation, communication and scrutiny

3. It is important for civil society to be involved in all parts of the trade agreement process. We welcome the opportunity provided by the Government for civil society to input into the consultation on an India trade deal, held in 2021. However, we would urge the Government to update its consultations on trade deals to collect a wider range of information, beyond barriers and opportunities for UK businesses, to include areas such as the potential impacts on development, climate and human rights.

4. As the negotiations continue, we call on the Government to improve its efforts to share timely and informative updates on the content of texts and developments with civil society, including through the Thematic Working Groups, which we note has not always reportedly been the case.

5. Proper Parliamentary scrutiny of trade agreements is also essential in holding the Government to account, yet the UK lags behind other jurisdictions in this area, including the EU and US. We call on the Government to provide MPs with a vote on the negotiating objectives, and the final text before it is signed, as well as improved access to information during negotiations.

6. We are deeply concerned by the Government’s recent statement that it does not consider the ‘Grimstone Rule’ – the verbal promise to provide for Parliament to debate trade agreements as recommended by the relevant committees – to in fact be a ‘rule’. This concession was instrumental in allowing the Trade Act to pass with the support of both Houses.

7. This part of the submission addresses the questions:

1. How adequate and appropriate is / are the Government’s strategic approach / negotiating objectives?
2. How are the terms of a new trade agreement between the UK and India likely to affect you, your business or organisation, or those that you represent?
3. What are the potential impacts of an agreement on social, labour, and environmental issues?

Strategy

8. There appears to be a strong disconnect between the Government’s stated objectives on development, human rights and climate change and its approach to trade post-Brexit. This was demonstrated at the end of last year through weak climate provisions in the UK-Australia FTA, and more recently in the choice of the Gulf Cooperation Council (GCC) as an FTA partner despite significant human rights concerns.

9. We call on the Government to develop an overarching strategy on its approach to trade, setting out how it will ensure that its trade policy aligns with its stated ambitions in these areas, including delivering on net zero and the Sustainable Development Goals.

Context

10. Traidcraft Exchange supports the alleviation of poverty through trade. We welcome UK trade deals that are designed to bring about the best possible benefits to vulnerable groups, whilst doing no harm.

11. Traidcraft plc has a long history of working with fairtrade producers in India, and Traidcraft Exchange has close links with workers and farmers across the country through our collaborations with communities exposed to economic exploitation and marginalisation.

12. India has a GDP per capita (PPP) of $6,500, compared to $45,900 in the UK.[1] 5% of people – almost 80 million people - live in extreme poverty (below $1.90 a day),[2] making India the country with the highest number of people living in poverty.

13. Covid lockdowns in 2020 across the country and in many states in 2021, alongside the global recession, saw India experience its worst recession since independence. Up to an additional 200 million people are estimated to have experienced poverty due to increased health costs, loss of jobs, wages and hours, and price inflation.[3] Already marginalised groups such as rural to urban migrant workers, lower caste communities, those in rural areas, informal workers and the self-employed, and women were hardest hit.

14. A UK-India FTA should ensure that the needs of these communities are carefully considered and addressed.

Workers

15. We recognise that increased opportunities for exports could bring benefits to communities that we work with in India, including across the agricultural produce, textiles, garments, footwear and leather, and hard goods sectors.

16. However, for the benefits of increased trade to be passed on to workers in these sectors, we would urge the UK Government to ensure that any FTA with India includes a strong and binding chapter on labour rights.

17. The ITUC’s Global Rights Index 2021 flags India as a country with ample scope for improving labour rights, at present providing ‘no guarantee of rights’ for workers.[4] Recent reforms of India’s labour laws have met with criticism from Indian civil society, amid concern the Government is targeting business expansion while failing to protect informal workers and MSMEs.

18. Pressure from a trusted trading partner would highlight the importance of this issue as India aims to make a raft of new trade deals.

19. A labour chapter should at the very least include provisions that are as strong as those in the recent FTA with Australia and in any subsequent FTA with New Zealand. This would include requiring India to ratify the core ILO Conventions, 87 on the Freedom of Association and Protection of the Right to Organise; and 98 on the Right to Organise and Collective Bargaining.

20. The Government has deprived itself of its best opportunity to ‘go better’ and develop a gold standard labour chapter within its first ‘new’ post-Brexit FTAs with Australia. Obtaining improved labour chapters within subsequent deals may now be more difficult. However, it is also more pressing, as the UK seeks to make deals with partners such as India and the GCC.

21. An improved chapter would set out a renewed list of internationally agreed conventions, and how parties will monitor adherence, including the formal involvement of civil society and trade unions, with clear sanctions applied to breaches of obligations. This would include instances of failing to enforce labour laws independent of their impact on trade, and could be informed by the US-Mexico-Canada Agreement (USMCA)’s Rapid Response Mechanism regarding implementation.

22. It could also commit parties to the development of strong social protection systems for informal workers, who lack employment contracts and associated benefits, and who constitute 90% of those employed in India.[5]

UK action for workers in supply chains

23. Beyond our trade agreements, action in the UK is essential to ensure that the benefits of increased trade are passed on to workers in countries such as India.

24. Labour right abuses in the supply chains of UK companies – and also wider human rights and environmental abuses – have been detailed in previous work by Traidcraft Exchange and the Corporate Justice Coalition.[6]

25. To address this, the Government should introduce a Business, Human Rights and Environment Act building on the requirements of the Bribery Act, Modern Slavery Act, and Environment Act. This would require all UK businesses to due undertake mandatory due diligence into risks of a wider range of abuses in their supply chains. It would introduce civil sanctions for failure to comply, and introduce criminal liability for failures to take steps to prevent abuses when they occur. It would also provide for compensation for victims.

26. In India, this law could help tackle child and forced labour in the garments sector. This sector employs 13 million people in factories, and millions more as homeworkers – the vast majority of whom are women – producing mostly for export markets.[7]

27. Research by Traidcraft Exchange has documented abusive working conditions throughout the sector, including poverty wages, withheld pay, forced overtime, evasion of holiday, maternity and sick pay, unsafe working conditions, and harassment and violence.[8]

28. UK garments brands must also be held accountable for the unfair purchasing practices that contribute to these abuses of workers in countries such as India.

29. Global supply chains in the garments sector allow UK brands to outsource production to competing countries with the lowest labour costs and levels of regulation, and subsequently enforce unfair terms of trade that transfer risks and costs to suppliers, who then pass these on to workers.

30. The covid pandemic and collapse in consumer demand highlighted the lack of support provided by UK garments brands to their suppliers and workers in countries such as India. Mass order cancellations and non-payments led to millions of workers losing wages and employment, with no social security institutions or savings to fall back on.[9]

31. We call on the Government to establish a UK Garments Trading Adjudicator, modelled on the success of the Groceries Code Adjudicator, to investigate breaches of contract and otherwise unfair practices by UK garments brands, with the power to levy significant and dissuasive penalties.

Micro, Small and Medium Enterprises (MSMEs)

32. MSMEs provide employment for 110 million people in India across all sectors - the vast majority through micro enterprises[10] – from a total of 460 million people in employment.[11] Key MSME sectors include agriculture, food products and retail, alongside textiles and garments, metals, chemicals, machinery, automotive and pharmaceuticals.[12]

33. Increased imports in sectors such as food processing, in which the UK has strong interests, could lead to reduced market share for Indian MSMEs. The lack of a developed domestic food processing sector could in turn impact the ability of Indian farmers to capture the benefits of productivity gains.[13]

34. The UK Government should accept provisions in an FTA with India allowing the use of safeguards should MSME-led sectors be impacted, appropriate liberalisation timeframes, and consider carefully Indian arguments in favour of designating such sectors as sensitive.

35. MSMEs have more difficulty meeting standards and regulations for export. Any review of how Indian exports can meet the UK’s standards, aimed at reducing technical barriers to trade (TBT), should be conducted with the specific needs of MSMEs in mind. This could especially benefit Indian producers of organic food.

36. The Government should consider the ability of Indian MSMEs to meet the procedural burden of Rules of Origin (ROO) requirements and consider simplification as far as possible.

37. The Government should also consider the impact of more stringent Intellectual Property (IP) provisions on Indian MSMEs, who may lack the resources to file patents, and may be inhibited from providing cheap access to essential commodities due to increased patent restrictions.

38. The Government should carefully consider its approach to negotiating investment liberalisation with regard to retail. Previous research by Traidcraft Exchange has highlighted the importance of Government regulations for the vast number of small family shops in India and the bargaining position of their suppliers, including farmers.[14] These currently include FDI restrictions on multi-brand retail (limited to 51% foreign-held equity) and domestic sourcing of goods requirements for single-brand retailers (set at 30% for those with over 50% foreign-held equity.

39. Indian Government policy sets a target of 25% public procurement from domestic MSMEs and has recently introduced domestic supplier preferences to support job creation. These are powerful development tools, given that India’s public procurement represents an estimated 20-30% GDP.[15][16]

40. The Strategic Approach outlines the UK’s interest in ‘secure more extensive market access to the valuable Indian government procurement market’, and the recent FTA with Australia includes the principles of ‘national treatment and non-discrimination’ which would restrict the use of the above policies. It is important that public procurement provisions include exemptions on development grounds.

41. Finally, a UK-India FTA should include a strong chapter on MSMEs, at least as good as that included in the UK-Australia FTA, taking particular account of MSME needs for improved access to credit, technology and training. It could also consider cooperation on ways to reward MSMEs who demonstrate social compliance, fair treatment of workers, and a positive climate impact.

Farmers

42. The Strategic Approach aims to ‘secure comprehensive access for UK industrial and agricultural goods into the Indian market’.

43. Agriculture provides 42% of all employment in India,[17] rising to 55% for women.[18] 70% of rural households in India depend primarily on agriculture, whilst 82% of farmers are small, marginal or landless, involved in subsistence farming or production for domestic markets.[19]

44. As such, the UK Government should consider the needs of Indian farmers carefully as part of FTA negotiations, including regarding the designation of Indian agricultural sectors as sensitive.

45. For example, both the UK and India have significant dairy sectors. Although the risk of domestic production being undercut by UK exports appears low due to much lower costs of production, consideration should also be given to the potential impact of UK companies investing in large-scale dairy production and processing.

46. India’s dairy sector provides livelihoods for 150 million people, predominantly small farmers in rural areas, many of whom are women. It includes an extensive network of co-operatives and small-scale vendors and producers of processed dairy goods, allowing over 70% of the final purchase price to be claimed by producers.[20]

The financial sector

47. The Strategic Approach outlines the UK’s interest in securing more access for the financial services sector.

48. Foreign companies are permitted to acquire up to 74% equity in private banks in India and can also set up as wholly-owned subsidiaries. UK banks with a significant presence already include HSBC and Barclays.

49. Previous research from Traidcraft Exchange has highlighted the role that foreign bank entry into India, and developing countries more generally, can play in capturing high profit accounts from domestic banks, impacting their returns and therefore undermining their ability to lend to marginalised groups, who offer lower returns.[21]

50. The Government should ensure that any liberalisation of the Indian financial sector – including through fintech - considers the need to protect and extend credit and banking services for under-served communities, including in rural areas and MSMEs.

51. The Government should also resist pressure from UK banks to challenge India’s ‘priority sector lending’ regulations. These require domestic and foreign banks to lend 40% of net credit (reduced to 32% for foreign banks with less than 20 branches) to agriculture, MSMEs, minorities, development projects, and as export credit.

Intellectual Property

52. Appropriate approaches to intellectual property (IP) can have huge development impacts. The ability to reverse engineer patented medicines, until TRIPS compliance began in 2005, allowed India to develop a thriving pharmaceutical industry, producing affordable generic medicines for both its own population and those of other developing countries. The sector has now become a global pharmaceutical manufacturing hub.

53. The Strategic Approach states that the UK ‘will uphold its commitment to the Doha Declaration on the TRIPS Agreement and Public Health, and agreed flexibilities that support access to medicines, particularly during public health emergencies in developing countries.’

54. It is essential that the UK does not seek to go beyond TRIPS in relation to pharmaceuticals in an FTA with India. For example, the EU pushed for data exclusivity during its FTA negotiations with India. This would have required Indian companies seeking to produce generic versions of medicines no longer under patent to repeat expensive and lengthy clinical trials in order to obtain a licence, rather than being allowed to use the originator companies’ data, effectively extending patent terms and maintaining inaccessible prices of medicines.

55. The UK should also reverse its opposition to the proposal by India and South Africa for a TRIPS waiver on IP related to covid products and technologies. Increased global production of vaccines, diagnostics and PPE and at affordable prices is urgently required to contain the pandemic and protect developing countries from even greater health and economic impacts. Current TRIPS flexibilities have failed to facilitate this.[22]

Other Developing Countries

56. The Strategic Approach’s impact assessment on other countries is disappointing in its level of detail and does not consider that impacts will likely be concentrated in low-income groups in these countries.

57. It notes ‘there could be short- to medium-term detrimental effects on some developing countries’ exports… (including) the textiles, clothing, and footwear sectors in neighbouring countries.’ It mentions risks to Bangladesh, Pakistan, and Sri Lanka, alongside Cambodia and Mauritius.

58. In the case of Bangladesh, the UK is its third largest trading partner. Garments represent 95% of Bangladeshi exports.[23] These currently face zero import tariffs under the UK’s Generalised Scheme of Preferences (GSP) Everything But Arms (EBA) Framework for Least Developed Countries (LDCs), against the 9.6% faced by India under the GSP General Framework.

59. As in India, the garments sector in Bangladesh is a key source of employment among low-income groups, especially women. Larger suppliers may be able to negotiate support from the Bangladeshi Government under increased competition from India, but it is likely any costs would be passed on to workers, putting further downward pressure on already abusive working conditions. The ITUC labelled Bangladesh one of the ten worst countries for workers rights in 2021.[24]

60. UK development assistance has previously funded projects supporting workers’ rights among women garment workers in Bangladesh. It is important the Government now ensures this work is not undermined by its trade policy.

61. Consideration should also be given to the impact of zero tariff imports of flowers and vegetables from India, sectors into which the Indian Government has recently invested, on countries in Africa.

62. Cut flowers represent 25% of UK imports from Kenya, 16% from Ethiopia, and 11% from Tanzania, [25] under a zero import tariff (Kenya as part of the UK-Kenya EPA, Ethiopia and Tanzania as LDCs under the EBA scheme), against the 4.5% currently faced by India under the General GSP.

63. Vegetables represent 34% of UK imports from Kenya, 39% from Uganda, 41% from Senegal, and 44% from the Gambia, [26] all under a zero import tariff (with all LDCS except Kenya), against tariffs for Indian exports ranging from 6.5% on green beans to 8.5% on aubergines.

64. The Strategic Approach mentions monitoring the FTA’s impact on developing countries and ‘considering measures to address risks’. However, in the recent Australia FTA this amounted to a provision that parties ‘may’ monitor the impact on other developing countries. The Government should include provisions for mandatory monitoring of impacts in an FTA with India, and specify what would trigger mitigating action, and what this action would be.

65. Options could include additional development assistance for affected sectors, or for trade diversification. Alternatively, the Government could consider the phased implementation of tariff liberalisation to allow third country sectors to adjust. In the case of Bangladesh, the UK has already extended its transition period for graduating from LDC status from 2026 until 2029, in recognition of the potential impact of premature competition with non-LDC countries.

Regional trade

66. The Government should allow regional cumulation within the Rules of Origin (ROO) of a UK-India FTA, to encourage regional trade across South Asia. This should be a key consideration in all UK FTA negotiations, given that regional trade has been demonstrated to be a key driver of the development of value-added activities.

Climate Change

67. Climate change is already disproportionately affecting communities in the Global South, including our partners in India, with whom we are collaborating on developing climate-resilient livelihoods. The efforts of these communities must be supported by a coherent approach to trade and climate change from the UK Government.

68. The impact assessment predicts a 0.08-0.14% increase in UK production emissions, and a 21-36% increase in transport emissions. As is the case with all FTAs, the Government must make clear how it will address these increases to align with its net zero strategy.

69. It also mentions the likelihood that over time, differences in climate regulation between the UK and India will continue to grow, increasing the risk for ‘carbon leakage’ as the UK imports more carbon-intensive imports from India. The UK Government must develop a strategy and targets to reduce ‘offshored emissions’, which equal 46% of UK emissions[27] and are not adjusted for in our progress towards net zero.

70. In developing this strategy, the UK must consider its impact on vulnerable groups in countries such as India. For example, proposals for a Carbon Border Adjustment Mechanism (CBAM), or for reform of WTO rules banning discrimination due to process and production methods (PPMs) could lead to loss of jobs in developing countries, or see costs passed on to workers, if not designed carefully.

71. The Strategic Approach states the UK’s objective is to ‘ensure parties reaffirm international environmental and climate protections, including Multilateral Environmental Agreements such as the United Nations Framework Convention on Climate Change and the Paris Agreement.’ This suggests a similar negotiating position as that used with Australia, which resulted in a weak climate chapter, with no mention of 1.5’C or fossil fuels. This preceding FTA weakens the UK’s hand in insisting in stronger climate chapters with future FTA partners, including India.

72. The UK must however reverse this trend, and work towards a first climate chapter in an Indian FTA, and one that improves on the FTA with Australia. This chapter must be covered by the agreement’s dispute settlement provisions.

73. This should include provisions targeting the development of agro-ecology - as opposed to industrialised agriculture, which has negative impacts on the climate and biodiversity and can lead to the marginalisation of small farmers.

74. The UK Government should also use an FTA with India as an opportunity to strengthen climate co-operation between the two countries. It could do this by re-committing to recognising common but differentiated responsibilities and providing adequate levels of climate finance for developing countries, alongside specific provisions on increased transfer of climate technology to India.

ISDS

75. We welcome the lack of inclusion of dangerous ISDS provisions at this stage, which would put the UK and Indian Government at risk for being sued by investors over measures to address climate change.

76. In the past two decades, the interpretation of ISDS laws has been broadened to include compensation for the impact of government policies on future profit expectations, effectively removing the right of a government to regulate in the public interest without risking huge fines.

77. Cases have been brought by fossil fuel corporations against: governments in Germany, the Netherlands and Canada over the phaseout of coal power; in France over the attempted phase out of fossil fuel extraction; in Canada over bans on new shale exploration; in Italy over cancellation of a new crude oil extraction site; and in the US over cancellation of the extension of the Keystone Pipeline.

78. We would urge the Government to oppose the inclusion of Investor State Dispute Settlement (ISDS) provisions in all future FTAs, and to review and remove those in the Bilateral Investment Treaties (BITs) of which the UK is already part.

February 2022