Trade agreements

TRADE ZONE/ VIEW POINT

Do trade agreements comprimise SSI interests?

Since the collapse of the Cancun Ministerial Conference of the WTO in September 2003, India has embarked on an ambitious path to negotiate a series of trade agreements at a bilateral and regional level.

A historical overview of trade engagements of India shows that India has also inked such agreements in the decade of the eighties and nineties. Prominent amongst these are the India-Sri Lanka Free Trade Agreement, the South Asian Preferential Trade Agreement (SAPTA), the Bangkok Agreement and the bilateral agreements with Nepal and Bhutan whereby India provides preferential basic customs duties on certain imports originating from these countries.

Besides these agreements, India also provides preferential treatment to around 100 products originating from 45 developing and poor countries under the Agreement of Global System of Trade Preferences. All these have been duly notified by the Central Government from time-to-time.

We must realise, though, that there is a structural difference between the agreements that India is penning post-2003 and those that have been signed by it before 2003. The agreements that have been signed before 2003 only relate to trade in goods and are not "comprehensive" in character, i.e. they do not encompass trade in services and investment.

A quick read of the agreements that India has signed post-2003 shows that India and its trading partners are willing to engage with each other on a "comprehensive" platform. Hence one finds that the agreements that have been signed by India with Thailand, ASEAN and Singapore are termed as "Comprehensive Economic Cooperation Agreements" or Comprehensive Economic Partnership Agreements".

These agreements include clear and unambiguous language pertaining to liberalisation of trade in services and also investment liberalisation. They speak about cooperation in various sectors of mutual interest such as information technology and fisheries. In fact, the Agreement that has been signed between Singapore and India is so comprehensive that it even addresses issues pertaining to double-taxation.

A number of questions have been raised about the need to sign such agreements by India. The arguments being put forward is that why is India sacrificing its domestic small and medium industry on the altar of free trade when the government is not in a position to provide state-of-the-art physical and financial infrastructure to its industry and cannot reduce the transactions cost.

It is beyond doubt that these concerns of industry are genuine. What is although imperative for the small and medium industry to note is that if India has to carve out a global role for itself in the realm of geopolitics it cannot do so without being a responsible global economic player.

Being a responsible global economic player will involve allowing greater market access for goods and services into the hitherto closed Indian market. It will involve into creation of institutions that will serve as effective regulators and not 'controllers' of sectors. Hence, domestic monopolies and lobbies are bound to suffer as a consequence.

Should small and medium industries perish in such an onslaught? No, in fact they should utilise this pressure emanating from such trade arrangements to demand mechanisms, which will truly enhance their capacities to access markets and retain their domestic market share.

Such measures could manifest themselves in the form of export incentives and credit mechanisms. While the WTO compatibility of such instruments should not be comprised, one should not sacrifice the mechanism just because it is not WTO compatible.

Small and medium industries have historically played a critical role in the economic growth trajectory of India. They should stand up and play a strategic role too.

The author is a chief economist at Economic Laws Practice, Advocates & Solicitors