[India] ‘Bilateral free trade areas are being used for self-serving agendas’

from Financial Express

In his latest book, “Development and Nationhood: An India Perspective,” this renowned trade economist says that the emphasis on social protection institutions does not militate against the economic argument for trade liberalisation. Prof Jagdish Bhagwati, University professor of economics and law, Columbia University, USA spoke to fe’s Poonam Madan on a range of issues at the recent Ficci seminar “In defence of globalisation; an India perspective.” Excerpts:

Prof Bhagwati, could you share with us your views on the Hong Kong Summit; do you see the North-South divide on trade issues narrowing?

I take a line of cautious optimism. There has been a settlement of many issues, including export subsidies. Even the NGOs, which have played often a damaging role at the WTO negotiations, were divided and weakened at Hong Kong. Oxfam, which wanted removal of agricultural subsidies in the rich countries, for instance, was confronted by Mr. Bove of France and the South Korean farmers who were opposed to removal of such agricultural protection.

Many in the media erroneously commented, however, that nothing was accomplished. The least developed countries were also virtually gotten out of the way with tariffs and quotas removed on them by EU, Japan and the US.

With Trips and Singapore issues also out of the way between Cancun and Hong Kong meetings, the way is now clear for the “big four” to negotiate the concessions on agriculture, manufactures and services among themselves.

On this front, I believe we can be optimistic. Mandelson has said he could do something more on agriculture provided big countries like India and Brazil also do some more on manufactures and services. There is every indication that India can. In manufacturing, India has been unilaterally bringing down its average applied tariffs—from 80-85% in 1991 to the 20% levels at present. We can surely do a little more—lower them to 10%, for instance.

In fact, most industrialists I meet are confident on India’s ability to compete. And the communists and socialists around Sonia Gandhi are so busy fighting privatisation and labour reforms, the bigger game of anti-globalisation, that trade liberalisation is small potatoes for them. So, Kamal Nath and the PM can go a little further. The US Trade Representative Robert Portman has good relations with the US Congress, and President Bush, unlike the Democrats, embraces freer trade without hesitation. Brazil will also come on board, I think.

You have emphasised that S&D treatment has a downside for developing countries.

Yes, because its value disappears, as more countries get it and more MFN liberalisation happens. Against that, on the other hand, the advanced countries collect all kinds of obligations from developing countries—which endure. I would ask instead for MFN liberalisation in products of interest and ask for aid and technical assistance where necessary.

How do you view the fears of disruption in the West from greater liberalisation of Mode 1 (ie ‘arm’s length’ or ‘long distance’) trade in services?

The fact is that while the US imports many low-value services on the wire, it exports far more high-value services in accounting, legal, medical, professorial and other areas. This is more recognised now among knowledgeable policy circles.

But the labour unions persist in these fears and have infiltrated the Democratic Party in this regard.

So when people like Hillary Clinton come to India, they must be told some home truths about how damaging to both India and the US would be a protectionist reaction to outsourcing on the part of the US.

The imposition of IPR issues in WTO has acted as a pressure against developing countries—and you have criticised the Trips agreement’s inclusion. Why?

The objection that I, and economists such as Professors Arvind Panagariya and TN Srinivasan, had to Trips was to its inclusion in the WTO. Intellectual property (IP) protection is a matter of royalty collection, and the issue is what the optimal level of such protection should be from a social viewpoint (my answer is that the optimum protection lies between zero and the 20-year protection put into the WTO).

Though not a trade issue in an essential way, it was pushed into the WTO by the US and other rich nations, as the WTO’s ability to use trade sanctions was sought by the IP lobbies such as pharmaceuticals.

This as encouraged other lobbies such as trade unions and domestic environmental groups to seek entry into the WTO. These measures are mainly aimed at the poor countries, largely because they are often mixed up with self-intested competitive concerns such as those of the rich-country unions. Bilateral free trade areas are now being used to advance such self-serving agendas by the US and the EU.

You have spoken of having “appropriate governance” in managing globalisation. Can you explain?

I argue in my book, In Defense of Globalization, that globalisation has a human face. It helps attack poverty, reduces child labour, helps women’s issues, is not the cause of environmental damage, is not a threat to mainstream and indigenous culture, and so on. But this does not mean that this human face can’t be improved through appropriate policies, both domestic and international. In my book, I argue for three types of measures.

Occasional downsides must be addressed. The achievement of social agendas such as reduction of child labour must be accelerated through supplementary policies. And one must not assume that, in economic reforms, the optimal speed is the maximum speed.

Do you see the Left in India coming round at some point in time?

Indian reforms are being undertaken in the democratic context. The speed at which our governments can unravel the huge inefficiencies, many detrimental to the welfare of the poor, is therefore constrained by politics.

As I say in my 1993 Radhakrishnan Lectures at Oxford University (India in Transition, Clarendon Press), we economists proposed autarkic policies, proliferation of the public sector, massive capital-intensive projects and extensive licensing restrictions. And then institutions such as licensing committees grew up around these ideas, as also did interests (lobbies). Now that mainstream economists have changed their minds, the reformers have to confront such inherited and obsolete institutions and interests—not an easy task. Much has been done, especially on the trade and industrial licensing fronts (though here also a few economists in India who know little about the subject still argue against these reforms, aided and abetted by erroneous assertions of the populist economists Dani Rodrik and Joe Stiglitz).

But the Left continues to be wedded to the public sector and to the old, inflexible labour policies. There too, I expect that change will come eventually.