World trade and the nuclear deal

Written by PK Vasudeva | Updated: Jan 29 2008, 04:41am hrs
Nuclear experts feel that wrapping up the safeguards agreement with the International Atomic Energy Agency (IAEA) will enable India to fulfil a critical requirement of the 123 Agreement between Washington and New Delhi. Besides, it is billed as a gateway to supplies of nuclear materials and technology. However, many imponderables remain as far as the final outcome is concerned.

It is well understood that the US will influence the commitments that India undertakes at the IAEA and its equation with the Nuclear Suppliers Group. Also, it would be nave to expect American politics to play no role in the IAEA Board of Governors vote on the final version of the safeguards agreement. Other countries would think of themselves as having gained pressure points, too, on difficult issues such as reactor-specific safeguards and pathways for uranium imports and processing.

Pressure on the trade front is increasing already. In a phone dialogue with Prime Minister Manmohan Singh in 2007, US President Bush complained about hurdles posed by Indian trade negotiators in advancing Washingtons trade agenda at the WTO. He specifically referred to Indias lack of cooperation on issues of steeper import tariff cuts on industrial products. India immediately issued a statement on its flexibility on non-agricultural market access (Nama); India was ready to go for a Doha deal if its concerns on agriculture were addressed.

India has mixed its trade policy goals with other objectives in the past as well. The Rajiv Gandhi government was under pressure from George Bush Sr to cooperate in trade in 1989. It resulted in India accepting a mid-term review text on its Uruguay Round talks on trade-related intellectual property rights (Trips).

Should we yield to the US now on Doha for a nuclear pact No, for several reasons. On this, India must take its cue from Washington, which never mixes its trade policy with what it does in other areas. For example, the US and Israel are the closest of political and military allies. But on trade issues, the two are always at loggerheads.

Until now, India and the US have had diametrically different positions on almost all issues of the Doha agenda, including trade in services, thanks to differing economies and trading patterns. On agriculture, India and the US have fought a protracted battle. A senior Indian trade negotiator told the chief US farm trade negotiator during an important meeting sometime ago that your [Washingtons] proposal is not worth the paper on which it is written because of the lack of symmetry between what the US was asking for and what it was ready to give.

The US does not want to sharply cut its trade-distorting domestic subsidies to around $13 billion as demanded by India, but would gleefully pry open the Indian market for its subsidised farm products. Indian negotiators insist that the farm market is relatively open with (applied) import tariffs on wheat, oils and other items at historic lows, but needs the special product and special safeguard options in case of unforeseen events. This is not acceptable to the US.

Worse, the US insists that India accepts a low coefficient in the complex Swiss formula to lower its average bound import tariffs on industrial products from around 30% to well below 13%. Why must India give up so much freedom on this without commensurate gains elsewhere (say, in agriculture)

In services, the US shows no flexibility in addressing Indias demands on the short-term movement of service providers, or binding commitments with no restrictions on outsourcing, but wants more financial sector access for its banks.

It would be double jeopardy if India chooses to go along with Washington on Doha trade issues in exchange for its assistance on the nuclear deal. Aligning with the US on Doha issues will permanently undermine Indias support base at the WTO. Have we really thought long and hard about this

The author is trade professor Icfai Business School, Chandigarh. These are his personal views.