Trade is the driver of the world economy as well as a nations economy. Imagine a situation where everyone or at least, every village community is nearly self-sufficient and he or it does not buy or sell anything. Whatever the other consequences may be, one thing is certain: everyone will remain poor. Lets suppose India turns swadeshi with a vengeance, and we stop all imports. We must then prepare our people to travel by bullock- or horse-drawn carriages or, at best, bicycles. (Two-thirds of our crude oil requirements are met through imports). We must also brace ourselves for denuding our forests to find the wood for cooking. (All of our LPG is again imported).
It is obvious that swadeshi is not the way forward. No nation was ever ruined by trade, said Benjamin Franklin. There is ample empirical evidence to suggest that the more a country trades, the more prosperous it is likely to be. An open, competitive economy, where the trade intensity nearly equals (or exceeds) 100 per cent of the GDP is the best guarantor of development and prosperity.
The WTO is, currently, the only legal multilateral trade institution. That is an important fact. All other multilateral institutions, including the United Nations, function not on the basis of rules, but on the basis of consensus (wherever possible) or on the basis of balance of power.
The United States, for example, can ignore a resolution of the UN Security Council, but it cannot disobey a ruling by the dispute settlement body of WTO. That 146 countries have voluntarily agreed to abide by a set of rules is an awesome milestone in the political progress of the human race. Let us not, by silly or uninformed diatribe, undermine the enormous significance of this achievement.
Trade policy is not static. Trade policy will evolve over the years. The evolution will not be easy or along a pre-determined path. Member-countries will defend their interests. They will seek to give less and take more, but even while they do so, they implicitly recognise that trade negotiations among member-countries is a matter of give and take. Naturally, alliances will be formed. Regional trading arrangements (RTAs) will be forged so that countries belonging to an RTA can negotiate as a bloc. The member-countries will also strike alliances across regions or continents on the basis of being developed or developing or least-developed. All this should be taken into stride as natural features of any multilateral process and not regard as a conspiracy by the rich nations against the poor.
I have often emphasised the fact that New Delhis clout at the ministerials will be proportionate to its ability to forge alliances. Murasoli Maran unfortunately failed to grasp the point, and often behaved like a lone ranger. His intentions were entirely honourable, he was driven by the best national interests, he won brownie points at home, but he was the despair of fellow negotiators at the ministerials. Fortunately, Arun Jaitley has understood the need to win friends and allies before the Cancun meeting.
I am extremely pleased that there is more support for the India-China initiative on agriculture. At last count, the coalition was 17-strong, and this included 10 of the 18 members of the Cairns group of agriculture exporting countries. This will be a formidable combination against the US-EU alliance while re-negotiating the agreement on agriculture.
In my view, agriculture must remain the countrys priority item at the forthcoming negotiations. It is also on the top of the wish list of the US-EU, but for entirely different reasons. The US and the EU are, for political reasons, defending a dwindling number of farmers in their countries; at the same time, they are defending powerful commercial interests (backed by the industrial and services sectors) that are involved in agricultural exports. According to Prof Biswajit Dhar (ET, Aug 23), the share of the US in the total global trade of corn and soybean exceeded 50 per cent. In wheat, the US is the second-largest producer with a 25 per cent share of global trade. The EU has vital commercial interests in the trade in beef, sugar, butter and wheat. The high and increasing levels of domestic support provided by the US and the EU for these commodities is directly linked to their share of global trade in these commodities. It will not be easy for the India-China-led alliance to force the US-EU to scale down their domestic support.
New Delhis concern on agriculture are more livelihood than commercial concerns, although it is trite that growing commerce (i.e. exports) in agricultural products will bring tremendous improvement in the lives of the farmers. Sixty million out of a total of 90 million agricultural holdings in the country have less than 1 hectare of land. A full 65 per cent of our population is dependent on farm or farm-related activities. Domestic market prices for agricultural products are generally lower than world prices. Dr Ashok Gulati has estimated that, on an average, domestic prices were lower by 20 per cent during the 1980s, and the early 1990s. Our farmers, therefore, need market access and a more competitive world market where prices are not distorted by the domestic support extended by the US, the EU and other countries. The opposing positions are driven by self-interest.
At Cancun, the battle will be intense and, sometimes, bitter. Jaitley has rightly listed the three pillars of agricultural negotiations as domestic support; export subsidy; and market access. I wish him and his team and his alliance well, but he must guard against the temptation to see negotiations as an end in itself. Negotiations are only the means to an end, which is winning more favourable terms for trade in agricultural products than what is available now. As long as the member-countries are seen to be moving forward on this path, Cancun will be only one (albeit important) stop.
(The author is a former Union finance minister)