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VIEWPOINT: KAUTILYA
A Common Heritage
The idea of a US-India free
trade agreement gets new and influential support a common heritage?
By Jairam Ramesh
The Heritage Foundation
in Washington is one of the pre-eminent think tanks of the American conservative
establishment and has close links with the Bush regime. Very recently,
after a visit to India, Dana Dillon, a policy analyst at the foundation,
has produced a report, "Time for Expanded Trade Relations with India",
in which he advocates a free trade agreement (FTA) between the US and
India.
The idea is not new. Last year, just before
Bill Clinton's yatra to this country, two Washington-based Indian economists,
Aaditya Mattoo and Arvind Subramanian, had put forward the idea of USINTA,
a US-India Free Trade Area. Writing in the January-February 2000 issue
of Foreign Affairs, Robert Zoellick, now Bush's top trade negotiator,
had said the US should propose trade and investment liberalisation to
India.
 In
a free-trade area, countries maintain their own import duties against
outsiders while scrapping duties among themselves. This is different from
a customs union where countries have common tariff nomenclatures and identical
tariff rates. In a common market all restrictions on the movement of labour
and capital are removed while in an economic union national economic policies
are harmonised. Worldwide, there are 130 FTAs in force and India itself
is committed to a South Asian FTA (SAFTA) by 2003.
The US has had an FTA with Israel for some time.
The North American Free Trade Agreement (NAFTA) involving the US, Canada
and Mexico came into force seven years ago. Currently, the US is negotiating
FTAs with Chile, Singapore and Jordan and an FTAA-the Free Trade Agreement
for the Americas-involving 34 countries of South, Central and North Americas.
The three bilateral FTAs could be concluded in the next few months while
the FTAA is slated to come into force by January 2005.
How will India gain from an FTA with the US?
As Mattoo and Subramanian and Dillon explain:
- textiles and clothing exports will face lower
import duties, as indeed will our exports of labour-intensive manufactured
goods;
- highly skilled Indian technical personnel
will have greater employment opportunities in the US;
- inflows of US investment in key sectors like
telecommunications, it, financial services and infrastructure will get
a boost;
- broader strategic engagement between the
world's largest and richest democracies will be strengthened;
- the European Union will be encouraged to
seek a similar agreement with India.
- Of course, an FTA does not automatically
guarantee market share. That would depend on how competitive our exports
are and this, in turn, will be influenced largely by domestic economic
policies.
Are there any costs to an FTA? Decidedly so,
on at least two counts.
First, the US could insist on including non-trade
issues like labour and environment in the FTA. The US-Jordan FTA follows
this approach. But on the other hand, labour and environment do not form
part of the main NAFTA but are the subjects of two side agreements which
commit members to enforce their own standards and to only engage in consultations.
The Jordan template is bad but we could live with NAFTA.
Second, there is a real danger that bilateralism
will undermine the multilateral process and the WTO. The guru of trade
economics, Jagdish Bhagwati, has called FTAs not "building blocks"
of free trade but actually "stumbling blocks" to the goal of
free and fair trade since they constitute preferential, discriminatory
trade liberalisation. His fear that the world's trading system could be
damaged in the name of free trade rather than in the name of protection
is genuine. But with multilateral negotiations, to use Dillon's term,
"ensnared" by a whole host of issues and with the US committed
to a three-pronged global, regional and bilateral strategy for trade negotiations
on the grounds that by moving on multiple points, competition in liberalisation
is created, India cannot afford to reject the FTA route. However, we cannot
wish away Bhagwati.
India should proactively engage the US in talks
about a bilateral FTA even as it works with the US and others to launch
a new round of multilateral trade negotiations in Qatar in November 2001.
Great progress between the two countries in the field of security has
been made by the so-called Track-II diplomacy where non-officials from
both sides exchange views to facilitate convergence of official positions
and a consensus. Non-officials are not hamstrung in discussions as officials
are. A similar Track-II effort is now needed in the trade area as well.
Running with the multilateral hare while hunting with the bilateral hound
will do India no harm, keeping in view global realities.
(The author is with the Congress party. These
are his personal views.)
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