D Ravi Kanth: Non-nuclear trade policy

TRADING THOUGHTS

Wrapping-up the Safeguards Agreement with the International Atomic Energy Agency (IAEA), the global nuclear watchdog, will enable India to fulfil a critical requirement of the 123 Agreement between Washington and New Delhi. Besides, it is a major gateway issue for securing international cooperation for the supply of nuclear materials and technology to India. However, a host of imponderables remain as far as the final outcome is concerned.

That the US administration will have a major role in influencing the commitments that India will undertake at the IAEA and subsequent developments in the Nuclear Suppliers Group is well-known. Politics is bound to kick in when members of the IAEA Board of Governors vote on the final version of the Safeguards Agreement.

Many countries would attempt to leverage their support for India's Agreement with the IAEA in other areas where they expect New Delhi to deliver. Difficult issues, such as reactor-specific safeguards and the roadmap to be adopted for the imported uranium and its processing, are likely to generate quid pro quo demands.

Indeed, the Bush administration began exerting pressure on the trade front even before the final international arrangement on the nuclear issue emerged on the horizon. During a telephone dialogue with Prime Minister Manmohan Singh last year, President Bush complained about the hurdles created by Indian trade negotiators in advancing Washington's trade agenda at the World Trade Organisation.

He specifically referred to the lack of cooperation from the Indian team on issues centring around steeper cuts in import tariffs on industrial products. Immediately, India issued a statement saying NAMA (non-agricultural market access) was not a problem for New Delhi in the Doha trade negotiations. If India's concerns are addressed on agriculture, the government is prepared to go with the final deal, the Prime Minister's Office said.

This is not the first time that India has mixed its trade policy goals with developments in other areas. In the heydays of a previous period of warmer Indo-US relations, when Rajiv Gandhi was Prime Minister, there was pressure on India from the senior Bush (in 1989) to co-operate in the trade arena. That co-operation resulted in India accepting a mid-term review text on the TRIPS (trade-related intellectual property rights) negotiations during the Uruguay Round.

The moot issue is whether India should be beholden to Washington in the Doha trade negotiations because of the nuclear deal? The answer is no "" on several grounds. India must take its cue from Washington which never mixes its trade policy with what it does in other areas. For example, the US and Israel are the closest of allies on political and military fronts. But when it comes to trade issues, the US and Israel are constantly at loggerheads.

Until now, India and the US have had diametrically different positions on almost all issues of the Doha agenda, including in the burgeoning area of trade in services. This is understandable given their economies and trading patterns.

In agriculture, which is reckoned to be the locomotive of the Doha Round, the US and India have fought a protracted battle. A senior Indian trade negotiator told the Chief US farm trade negotiator during an important meeting sometime ago that "your [Washington's] proposal is not worth the paper on which it written," because of the lack of symmetry between what the US was asking for and what it was ready to do.

The US does not want to sharply cut down its trade-distorting domestic subsidies to around $13 billion as demanded by India, but wants to pry open other markets, especially the Indian market, for its subsidised farm products. Indian negotiators insist that their farm market is relatively open with (applied) import tariffs on wheat, oils and other items at historic lows, but they need the Special Product and Special Safeguard flexibilities in case of unforeseen events. This, however, is not acceptable to the US.

Worse, the US insists India accept a low coefficient in the complex Swiss formula to bring its average bound import tariffs on industrial products from around 30 per cent to well below 13 per cent. Effectively, such a cut would remove the gap ('water', in trade jargon) between India's applied and bound tariffs. Indian negotiators rightly ask why they should give up their freedom by agreeing to bind their tariffs at such low levels without commensurate gains in other areas.

Lastly, in the area of service where both the US and India have something to gain, they are also sharply opposed to each other. Washington is not prepared to show flexibility in addressing India's demands in the short-term movement of service providers or binding commitments with no restrictions on outsourcing, but wants more financial sector opening for its banks.

In a nutshell, India would be committing double jeopardy if it chooses to go with Washington in the Doha trade negotiations, in return for the assistance on the nuclear deal. Washington is not prepared to move an inch in accommodating India's demands due to opposition from its powerful domestic constituencies. Aligning with the US on Doha issues will permanently undermine India's support base at the WTO to the extent it might look like a banana republic.