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Fiction and fact: an IBSA pact

Financial Express, India

Fiction and fact: an IBSA pact

N Chandra Mohan

14 September 2006

IBSA will be a powerful bloc in south-south cooperation with echoes of ‘non-alignment’ in earlier times but from the economic point of view, IBSA is a little fictitious” was Union minister of state for commerce Jairam Ramesh’s reported take on this regional formation that includes India-Brazil-South Africa just ahead of Prime Minister Manmohan Singh’s visit to Brazil and Cuba to attend an IBSA and NAM summit. But, contrary to the commerce minister’s scepticism, the IBSA summit bids fair to throw up exciting prospects.

With the multilateral WTO talks heading nowhere, India, Brazil and South Africa have to explore regional options to trade more with one another. True, existing volumes are low, but they are growing rapidly. India’s trade with Brazil has expanded from $200 million in 1998 to $3 billion this year. India’s trade with South Africa was $4 billion in 2005. Taking into account South Africa’s trade with Brazil, intra-IBSA trade is close to the targeted $10 billion. To raise it further, can an IBSA free trade agreement (FTA) be far behind?

For all the enthusiasm for such pacts, the recent work of Research and Information System for the non-aligned and other developing countries (RIS) cautions that a trilateral FTA may not be feasible, as Brazil and South Africa are already members of customs unions (Mercosur and SACU respectively) and are bound to maintain common external tariffs with other partners. The way forward is to consider an IBSA free trading arrangement between India-Mercosur-SACU, and create a framework for trade on a preferential basis, besides giving access to other members of these customs unions.

While forging a trilateral FTA or comprehensive economic partnership is easy, intra-IBSA trade and investments are unlikely to rise without better connectivity. The sheer geographical distance between Brazil, South Africa and India is a constraint with transportation costs accounting for more than 12% of the value of trade between India and Brazil, according to RIS. The low trading volume makes this business unattractive to shipping firms. Our Union Cabinet has approved a proposal to promote IBSA shipping links. Direct air links are also imperative.

The exciting prospects for trilateral cooperation include sharing of expertise in energy, transportation and IT. Brazil can extend cooperation on ethanol production while tapping India’s prowess in solar photovoltaics and IT. South Africa has expertise in coal liquefaction. Similarly, there is scope for cooperation between South Africa and India in gold, gems and jewellery. IBSA can thus synergise its complementarities to forge a market for 1.2 billion people, $1.8 trillion of GDP and trade worth $600 billion.