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Look beyond the horizon

There are more benefits for India from leveraging a multilateral trade deal than getting bogged down with regional pacts, writes N Chandra Mohan.

india Updated: Jul 22, 2008 20:01 IST
N. Chandra Mohan

India has been talking tough at the Doha round of the World Trade Organisation (WTO) pow-wow last week in Geneva that deals with trading rules between nations. Although there are indications of a compromise over these contentious talks — as sharp differences have surfaced between developing countries and the US-EU over ‘modalities’ for liberalising trade in farm products and industrial goods — these negotiations are far from being wrapped up. Reflecting its growing global stature, India’s role is important in closing a deal in the Doha round.

But there is still no clarity regarding the gains or losses for India from these multilateral negotiations. At one stage, it was even prepared to bid adieu to the Doha round, if it didn’t get a robust safeguard mechanism whereby duties can be imposed on surging farm imports that damage local production. On this account, the country’s interests in liberalising agricultural imports are purely defensive in nature, as it feels that this will adversely impact the livelihood of millions of its small farmers.

However, if for some reason the WTO talks drag on interminably, there is no option for countries like India but to ink bilateral or regional free trading agreements (FTAs). They are misleadingly called FTAs, but access is hardly free for those outside the agreement. Currently, there are 300 such regional agreements in operation, more than the number of countries in the world. Half the world’s trade now takes place under the umbrella of some FTA or the other. What are our options in this regard?

To be sure, India has inked an FTA with Thailand and a comprehensive economic cooperation agreement with Singapore. Talks are on for a trading agreement with the Association of South-East Asian Nations (Asean), exemplifying New Delhi’s strategy of looking eastwards. It earlier sought to participate in the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (Bimstec). But its experience of dealing with its unruly neighbourhood indicates that there are no greener pastures in such agreements.

In line with the global trend for FTAs, the members constituting the South Asian Association for Regional Cooperation (Saarc), notably, India, Pakistan, Afghanistan, Nepal, Bhutan, Bangladesh, Sri Lanka and Maldives operationalised a South Asian Free Trade Agreement (Safta) on January 1, 2006. As this region has 40 per cent of the world’s poor, the case for greater regional cooperation, if not integration, is compelling. But the reality is that politics casts a long shadow over this process.

This regional formation hasn’t taken off for a simple reason: India is the dominant economic power but Bangladesh, Nepal and Pakistan, which are rapidly becoming failed States, resent its dominance. Indo-Pak tensions have put paid to regional integration. Safta will not take off so long as Pakistan doesn’t extend most favoured nation status, to trade more freely with India, although its efforts to encourage Indian firms to make buses run on compressed natural gas are welcome.

The neighbourhood Manmohan Singh visits next week to attend the 15th Saarc summit has been fighting a long drawn-out civil war with the Tamil Tigers. Even if it is not true that a large contingent of Indian troops will guard him in Sri Lanka, reports indicate that three warships would be despatched as a security cover, given the threat perception. Terror and security concerns have indeed cast their baleful influence over this forthcoming summit.

The suicide bombing of the Indian embassy in Kabul exemplifies how vulnerable this regional grouping is to terrorism. India’s deepening engagement in Afghanistan is a cause for resentment across its border, as it includes building roads like the Zaranj project that will run from the Iranian border to Delaram in Afghanistan. As Pakistan has steadfastly refused to allow transit facilities, India can now offload shiploads of goods at Iran’s Chabahar port and then send the consignments overland to Afghanistan.

The challenge before India, to integrate South Asia through better physical connectivity, is daunting. Rabindranath Tagore’s Kabuliwala talked about an Afghan who travelled all the way to Bengal to make a living selling spices and fruits. Such links have since been disrupted due to politics. Clearly, there is warrant for reviving the Afghanistan-Pakistan-

India-Bangladesh-Myanmar corridor to facilitate intra-Saarc trade as argued in the think tank RIS’ South Asia Development and Cooperation Report, 2008.

As the region’s biggest power, India is prepared to accept asymmetrical responsibilities in opening her markets, without insisting on reciprocity, including allowing foreign direct investments from countries like Pakistan. But this hasn’t prevented these countries from registering massive trade deficits with it. The loudest clamour for unilateral opening up of India’s market has come from Bangladesh that registered a deficit of $1.1 billion in 2002-03, which further widened to $1.4 billion in 2006-07.

India must highlight the successful example of its FTA with Sri Lanka to impress upon Bangladesh, Nepal and Pakistan that freer trade with the dominant partner is not inimical to their interests. The Indo-Sri Lankan FTA is a huge success and the two countries’ trade with each other has grown manifold. Despite a trade deficit of $1.8 billion in 2006-07, Sri Lanka is confident enough to now demand a comprehensive economic partnership with India.

Despite such festering challenges, India cannot walk away from the neighbourhood and find deliverance looking eastwards. The truth is that regional FTAs are far less preferable to multilateral trade. A more efficacious course of action is to make the Geneva talks work to our advantage. Although the country has been holding its ground in the Doha round, there are more benefits from leveraging a multilateral deal than getting bogged down with regional agreements like Safta.