Trade is no panacea, its just a part of it

Updated: Jul 31 2006, 05:30am hrs
Immediately on his return from Geneva, commerce minister Kamal Nath said that after the collapse of the WTO negotiations, the only option left for India is to enter into a number of bilateral and regional trade pacts.

Naths words indicate that he has not come out of his mindset that trade is the only route to development. He has been quick to complain about the mindset of the developed countries in not agreeing to sacrifice their undue gains for the successful completion of the Doha Development Round.

However, Naths role in WTO negotiations needs to be complimented as he did not allow a bad deal to be struck. He was true to his words: No deal is better than a bad deal.

Nath suffers from the same mindset as that of other policymakers that trade is the route to development. Therefore, after the collapse of the multilateral trade talks in Geneva, he is harping on bilateral and regional trade pacts. There is no doubt that trade is necessary, but development of billions of people should be the first priority.

India has already signed free trade agreements (FTAs) with Thailand and Sri Lanka, and both these pacts are in operation. These FTAs are not without problems. The countrys auto sector have grouse over the FTA with Thailand. The domestic plantation sector and vanaspati (hydrogenated vegetable oil) industry have complained over the influx of cheap imports under the FTA with Sri Lanka. The India-Nepal Trade Protocol which is more in the nature of an FTA had caused influx of cheap vanaspati imports, which was later set right by channelisation of imports and fixation of a tariff rate quota (TRQ) for such imports against zero duty. The products of the country of origin and value addition still remain as issues not resolved satisfactorily.

Indias trade pacts may show gains somewhere, but there are pains felt particularly in the farm sector. It seems that either adequate homework had not been done before signing of these pacts or the actions had been deliberate.

There is a mad rush in this country for signing of FTAs, bilateral and regional trade pacts. There was a talk about signing of an FTA with China, the domestic industry rang the alarm bell ! The government immediately dropped the proposal. But when farmers complain about any such consequences, the government turns a Nelson Eye.

Trade pacts needs to be worked out in such a way that it turns out to be a win-win situation for both parties. Indias proposed FTA with Asean bloc has run into rough weather as India did agree to further pruning of the negative list for trade. Why at all any trade pact should be based on negative list The best way is to have only a positive list for trade. This is what Pakistan has done in case of its trade relation under South Asia Free Trade Area (Safta).

What after all matters is the total development gains out of trade. According to Timothy A Wise and Kevin P Gallagher of the Global Development at Tufts University, US, after adjusting special and sensitive products in agriculture, the developing countries stand to gain only $6.7 billion out of the total gain of $38.4 billion in global trade. The International Food Policy Research Institute estimates gains for the developing countries in the range of $8-20 billion. These estimated gains are for over 100 odd developing countries. Indias gain may boil down to some $1-2 billion ! This meagre development gain easily be extended by the government from its budgetary support.

However, the Carnegie Endowment for International Peace, however paints a sorrowful picture for developing countries. For India the net loss of $0.04 billion.

Then why there is a need for harping only on trade. It is better India open a new chapter by signing more of pacts relating to economic cooperation and development, in which trade aspect should be secondary. Trade should be done on the basis of positive list agreed upon by both parties to result in a win-win situation. This mad rush for signing a number of trade pacts should be given up. Added to this, restrain must be laid for unilaterally opening up for imports under the false pretext of shortage, as was done in case of wheat and sugar.