Trade pacts - new pillars in India’s economic diplomacy
Malayala Manorama, India
Trade pacts - new pillars in India’s economic diplomacy
6 December 2005
Trade pacts - new pillars in India’s economic diplomacy With signs of failure looming over global trade talks in Hong Kong in December, India has drawn an ambitious agenda to forge bilateral, regional and multilateral trade pacts with a host of countries and trading blocs as a new pillar of its economic diplomacy and globalisation drive.
From countries in the Far East to those in Latin America and the European Union, India wants to enlarge its trade and economic engagement like never before with Prime Minister Manmohan Singh setting the agenda for such trade pacts.
The pacts will not only cover every country in the region spanning the Persian Gulf to the Malacca Straits but also Mauritius, Israel, Russia, South Korea, the African Union, the European Union and the Association of South-East Asian Nations (ASEAN).
India realises that free trade pacts are a sine qua non for the country’s economic progress and the process has been given a new thrust by the Trade and Economic Relations Committee (TERC) with the prime minister as its chairman.
"Countries, developed and developing, look to regional economic integration as a means of strengthening their international competitiveness and as an engine of economic growth in recent years," Manmohan Singh said in a lecture in November.
"The new-found interest in regional arrangements is based not just on trade promotion but on exploiting the potential of efficiency-seeking restructuring of industry on a pan-regional basis," he added.
Manmohan Singh’s emphasis is based on concrete evidence - as has been revealed by the statistics compiled by India’s commerce ministry from sources such as the World Bank and the United Nations Conference on Trade and Development (Unctad).
Preferential trade pacts, preferential trade agreements and regional unions now account for over 50 percent of the world trade. In the North American Free Trade Area, for example, trade among member countries jumped from $289 billion in 1993 to $689 billion in 2004.
Experts also argue that India’s share in world trade, although growing, still languishes at 0.8 percent, while countries like South Korea and Singapore that are engaged in some form of regional grouping have a share of over two percent.
Closer home, India’s free trade agreement with Sri Lanka saw its exports to the island nation jump from $500 million in 2000-01 to $1.3 billion in 2003-04. Similarly, India has emerged as the third largest source of foreign capital for Sri Lanka as against a negligible share a few years ago.
A similar agreement with Thailand provides for a free trade area in goods by 2010 and negotiations are currently on to add more items to the list of 82 that have already been identified for tariff reduction in a phased manner.
"The India-Thailand free trade agreement should lead to a 20 percent jump in exports to India, which is a big market for us," said Uraiwan Anukul, director of Thailand’s Export Trade Centre.
"So far, we have been focusing on countries like Japan and the US and the EU. Now we are encouraging Thai companies to look to new markets in China, India, Africa and the Middle East," said Anukul, reflecting a similar mood among the Indian policy-makers.
"Economic cooperation agreements will be building blocks and drivers of global trade. The multilateral system cannot drive south-south trades," said Indian Commerce Minister Kamal Nath.
"There are over 200 regional trade agreements currently in operation - more than the number of countries - and it is estimated that 60-70 percent of global trade will take place via such pacts in the future," he added.
Amit Mitra, secretary general of a premier industry lobby, the Federation of Indian Chambers of Commerce and Industry (FICCI), agreed: "India is not part of any big trading bloc. It is imperative we seize the opportunity."
In fact, it was at the instance of Indian industry that prime minister decided to review all existing and proposed free trade pacts, since India Inc. felt threatened by the prospect of the country being swarmed by exports.
The TERC was set up by the prime minister in view of this apprehension and the outcome of its sixth meeting - the latest being in the national capital on Oct 5 - has completely satisfied the prime minister to push for such pacts.
Besides, the prime minister and the commerce minister, the high-profile panel comprises Finance Minister P. Chidambaram, Planning Commission Deputy Chairman Montek Singh Ahluwalia and former central bank governor C. Rangarajan.
"Industry has always been represented in the study groups that provide inputs before India signs any trade pact with another country or regional grouping," said Commerce Secretary S.N. Menon.
Among the first regional trade agreements being pushed by India is a South Asian Free Trade Area (SAFTA) - comprising Pakistan Nepal, Bhutan, Bangladesh, Sri Lanka and the Maldives, besides India.
"By removing trade policy barriers, SAFTA would lead to an estimated trebling of intra-regional trade on a conservative estimate," Manmohan Singh said recently, adding that India will ensure smaller countries also benefit from the integration.
"This would make South Asian internal trade much more respectable compared to a four-five percent share now. By making it possible to trade directly rather than through third countries, it would lead to cost savings for the region."
Raymond Bonner, who authored South Asia: Issues and Challenges, says a common market in South Asia with complete withdrawal of trade barriers is key to the region’s development, since poverty is a common denominator here.
The commerce minister, too, realises this — all the more since, being at the helm of negotiations at the World Trade Organisation (WTO), he understands the perils of a failure to conclude the existing round of global trade talks.
The Uruguay Round took eight years to settle. The Doha Round has already taken four. When the WTO process reaches its culmination, perhaps in the next 15 years or so, regional trade pacts will be redundant. But that is a long way off.
