T N C Rajagopalan: Govt in dilemma over trade reforms

EXIM MATTERS

The government seems to be in a dilemma on how to go about trade liberalisation. On the one hand, the domestic lobby of producers i.e. farmers, industrialists or service providers resist greater market access to foreign producers.

On the other hand, there is a realisation that trade cannot be a one-way street all the time coupled with pressures to move forward the Doha Development Agenda.

Before leaving for Bangkok, the Prime Minister said that the Framework Agreements for Free Trade Agreements (FTA) with Thailand and ASEAN, signed by the previous Government, will be reviewed.

Obviously, the statement was intended to reassure domestic producers who are worried that they may be unable to cope with steep tariff cuts proposed in the Agreements.

Yet, the latest report from Bangkok speaks about taking the FTA forward, as envisaged. From September 2006, the two countries will have no duty at all on 82 items.

The second phase of the agreement would see India and Thailand having a free trade regime by 2010. Modalities have to be worked out to address the fears that without any safeguard like the 40 per cent local components clause, goods from Australia and China, which have FTAs with Thailand, would flood the Indian market.

At the World Trade Organisation (WTO) headquarters in Geneva, desperate efforts to take the stalled Doha Development Round forward saw the European Union (EU) soften its stand. The first draft for discussion put out on July 16 dropped three Singapore issues regarding Competition, Investment and Government Procurement.

Further negotiations brought up a second draft on July 29. India rejected the second draft but the Commerce Minister has flown back to Geneva to resist pressures from the rich countries.

The second draft, labelled as a 'take it or leave it' deal, came after closed-door discussions between US, EU, Australia, Brazil and India. It reflected a number of points where WTO members had clearly felt changes were needed.

These included what delegations saw as a serious imbalance between the amount of detail on provisions for developed and developing countries, including "sensitive products" (for which developed and developing countries would be allowed some flexibility in increasing market access), and "special products" (available to developing countries for additional flexibility or exemptions). The latest version attempts to improve the balance.

Also new in the text are provisions on cotton, a down payment of a 20 per cent reduction in trade-distorting domestic support in the first year, and clearer provisions on ensuring that the elimination of export subsidies is matched by the elimination of subsidy components of export credit, food aid and the exports of state trading enterprises.

Director General of WTO, Supachai Panitchpakdi urged delegations to view the text from three perspectives: a broad view that recognises that different people have different interests, and that these have to be balanced against each other; a longer-term view of using the document to move the negotiations up to a higher level; and the membership's shared responsibility to avoid "the destructive influence of the status quo".

Yet, Kamal Nath would like nothing better than status quo to enable the government cope with a belligerent Opposition, intransigent left and protectionist lobbies. His preoccupation with the trade talks have claimed their first casualty.

The Exim Policy announcement is now likely to be postponed to end August.

tncr@sify.com