Trading up


The Financial Express (India)
FE Editorial
August 13, 2009

The inking of the Indo-Asean free trade agreement will have significance beyond that delivered by freeing up trade. First, getting this through is UPA-II’s first major reformist success. This is crucial in terms of assessing the government’s ability to stick to its plan in the face of opposition, and opposition was considerable, including ministerial, in the case of the Asean FTA. Kerala, an important state for the Congress, hosted most of the opposition. There’s a lesson here for UPA-II when petty local dissent challenges national policies. The second significance is that the bruising Asean FTA battle was a good test for the new commerce minister, Anand Sharma. Sharma has the bigger trade battle, WTO negotiations, coming up and his shepherding of the FTA deal means he goes into the September ministerial of WTO—the venue is New Delhi—with good trade conduct on the part of India. A sabotage of the Asean FTA so late in the day would have hurt India’s prestige and weight at WTO forums. The third significance is that the Asean FTA has hopefully made our economic bureaucracy more appreciative of trade openness. All countries fight hard during negotiations, and they should, but the big picture is that negotiators have to take a call on the overall benefits. Tea held up the FTA with Sri Lanka for a long time, and apparently rubber was among the reasons the Asean FTA was in danger. This needs to change. You fight for the big things.

And, to come back to WTO, the big thing India should be fighting about is what it will get in return for agreeing to a certain formula under which farm imports into India can be allowed. WTO rules are such that even if such a thing was agreed, there’s no danger of a flood of imports. But negotiation demands that India extracts a concession, possibly on services. There will be the usual big political brouhaha over Indian farming coming under threat and it will be misinformed but noisy. For the commerce minister, that will be another test—he will have to clearly articulate India’s position domestically and he will have to show what he has got in return. This will not be easy, because trade ministers are judged by the political class by how much he has blocked, not intelligently negotiated. The thing is that the blocking was done during UPA-I by Kamal Nath, who became the West’s least favourite trade minister, and taking advantage of that, now’s the time for smart give-and-take. Anand Sharma has his job cut out.

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