Business Standard, India

Exporters should take note of US Inc’s call to promote FTAs

By TNC Rajagopalan

29 November 2010

Last week, the Wall Street Journal assembled nearly 100 chief executives of large companies for a day and half to discuss the policy choices facing the US and the effects those choices may have on business and the economy. Their recommendations have something to take note by Indian exporters and policy makers.

The most significant recommendation of the chief executives was to aggressively promote a global market place that benefits US businesses and consumers. The call was to promote free trade agreements, launch joint public-private efforts to promote trade and remain open to imports that provide lower priced goods to US consumers.

The call for not restricting imports is significant because it comes at a time when protectionist pressures generated by global imbalances are increasing and when the political consensus in favour of open trade and investment is already under strain from stubbornly high levels of unemployment in many countries, especially the US.

Already there are, what World Trade Organization Director General Pascal Lamy calls, ‘the danger of a steady accumulation over time of measures that restrict or distort trade and investment’ and ‘the challenge of managing the trade and investment impacts of stimulus and bailout measures taken in response to the crisis’.

Does this mean that the US administration would be persuaded to take the Doha Round to a quick conclusion? That may not happen but, certainly, the moves towards Indo-US FTA might get some thrust. Our businesses must note that the US is pursuing free trade agreements with other countries also and the countries that get duty-free access to US markets can keep Indian exports out.

Despite widespread talk of currency wars, the CEOs did not have much to say on that point. They did say that the US should encourage China and emerging markets to adopt incentives for domestic-led growth. However, on US currency, they recommended that the US should recognise the value of the dollar’s reserve currency role by avoiding policies that depress its value or undermine the credit worthiness of the US.

In short, they did not ask for weaker currency to promote exports — something that our exporters can take note of. In fact, the chief executives did not ask for export-specific incentives — either by way of tax-free enclaves or other incentives. They only wanted better market access and were willing to give improved market access to other countries. They did ask for tax breaks to increase investments in the US.

The wish list of the chief executives included the expectations from the leadership. The President must advocate for a competitive business environment to create healthy companies, jobs and rising standards of living and he must be an advocate for business in general, they said. Many Indian exporters would certainly expect that from our leadership also.

The chief executives said that businesses should talk more about the jobs created from trade and the benefits to consumers and support retraining for those adversely affected and education for future prosperity. They talked of rebuilding consensus around free trade by emphasising the benefits to the developed world and of encouraging flow of intellectual capital through immigration across borders. All these should be sweet music to Indian exporters of goods and services, although what actually transpires remains to be seen.