Quantitative restrictions (QRs) will have to go. The US is baying for theirremoval. The super power has the backing of WTO. Ergo, argues New Delhi,India should fall in line and replace QRs with tariffs within a ceilingimport duty of 30 per cent. The fallout will be cheaper consumer goods,competition and rupee depreciation. The prospect dazzles Murasoli Maran'smandarins.

Undoubtedly, the Indian consumer will benefit from low prices of importedconsumer goods in the post-QR regime. The question is, which consumer? Notthe 40 per cent of the country's population which subsists below the povertyline; and not the population in the four (perhaps even five) deciles abovethe poverty line with limited discretionary purchasing power. What New Delhihas in mind are perhaps the top 10 per cent of the population when it talksof the post-Seattle tariff-cuts benefiting the Indian consumer.

Press on with the question; but will low import tariffs make the Indianproducer competitive? Yes, when it comes to intermediate and capital goods.That will mean cheaper costs for Indian user industries. On the flip side,domestic producers of intermediate and capital goods will feel the heat.Many will have to close shop and most survivors will have to down size.There will be a consequent increase in unemployment.

Pursue the question: will producers of consumer goods benefit once QRs areremoved? True, Indian brands can fight back. Indian industry could becomemore efficient by using cheaper imported intermediates. But surviving theonslaught of finished goods imports will not be easy. Competition, includingintra-domestic competition, will certainly throw up strong survivors, butwill equally cast many by the wayside. There will be a net fall inemployment in the consumer goods producing sector.

Take the issue to its logical limit; as imports rise, the rupee willdepreciate, and raise import costs in rupee terms. On the face of it, thisargument of protection via the exchange rate seems plausible. But withdomestic manufacture on the retreat - that will be the first impact of asharp cutback in import tariffs - input imports of industry will declinewhile finished goods imports will rise: aggregate imports will thus be slowto rise. The pressure on the rupee will be mild. Besides, forex inflows byportfolio investors and remittances by Indian exporters will brake exchangerate depreciation. Thus, with a rise in imports, the rupee will tend todepreciate but the tendency seems slated to be firmly held in check.Protection via exchange rate depreciation will be chancy.

Post-Seattle, there will be a retreat of Indian industry and this along withwidespread downsizing will in the first round result in a net employmentdecline in the organised sector. Besides, if the rupee does indeeddepreciate, import costs will rise along with a decline in export unit value(the latter is the raison d'etre of depreciation). The pressure to depressreal wages in India will be inevitable.

Rather than talking about the benefits to the consumer in the alreadypampered top decile of India's population, the mandarins of the commerce andfinance ministries should focus on the impact of duty reduction and opendoor imports on employment and wages. External liberalisation has a stiffcost. Advance towards unrestricted, low-tariff imports must be in measuredsteps. And for every advance India makes, the west, led by the US, mustlower tariffs against Indian exports. And to start with, the first worldmust dismantle non-tariff barriers against developing country exports.

Such a response must be demanded to mitigate the heavy costs of externalliberalisation. The point must be underscored that the Seattle agendaimposes additional unemployment and wage reduction on India. Instead ofraising technically correct arguments that labour and environmentalstandards are the job of ILO, WHO and the UN Environmental Facility, Indiamust forcefully assert that the immediate consequence of Seattle will be theerosion of even current standards that it is desperately trying tomaintain.

Rapid import-liberalisation will export the employment multiplier tocountries from which India will source imports. Yes, labour in India ischeap; for that very reason its labour-intensive exports must have freeentry into the west. That will boost the employment multiplier in India'sexport industries. The employment trade-off is a purely trade issue.

The trade-off will increase employment and wages in the labour-intensivegoods exporting country (India and the developing world) but this isprecisely what the US and EU are trying to subvert by bringing inextraneous standards. The powerful West is defying the logic of growth andtechnological change fuelled by trade. When the Asian tigers first made aforay into exports with labour intensive goods, Japan moved out into hightechnology exports. East Asia, in turn, made a similar shift when Chinaentered the scene. Through three decades, labour-intensive exports as aproportion of total world exports remained, broadly speaking, unchanged. Butthese changes triggered the rapid growth of cheaper automated processes(with no evidence of a decline in wages) in the First World.

India must rebuff the labour and environment standards at any cost. The Westis trying to get these in at Seattle because it will then be able to use WTO(currently the only global body which can enforce a decision on amember-country) to frame the developing countries. Indian negotiators mustkeep the employment trade-off on top of the agenda at Seattle. That is thecentral issue (that is, employment-growth through export-orientation) andnot the access of the better-off sections of society to cheaper imports.