Backward on trade

Fears of losses from trade should not be exaggerated

The growth of vast, regional trading pacts like the Trans-Pacific Partnership or TPP has effectively, if unfortunately, sucked up all trade negotiations-related energy for the past few years. The Doha Round of the World Trade Organization is effectively on the back burner. India, which would be among the biggest gainers from progress on multilateral trade negotiations, must nevertheless adapt to the new order in which bilateral or regional trade agreements are the norm. Unfortunately, there appears to be little willingness among decision-makers in New Delhi to accept this. The reluctance with which India is approaching talks at the Regional Comprehensive Economic Partnership, or RCEP, is a signifier of this. Although India has been left out of the TPP, it is a crucial part of the RCEP negotiations. This large proposed trading bloc includes the constituents of the Association of South East Asian Nations, or Asean, with which India already has a free trade agreement, as well as Australia, China, India, Japan, New Zealand and Korea. It provides an excellent chance for India to use its existing trade agreements to multiply opportunities for its exporters.

However, it has been reported in the Mint that India intends to "negotiate hard" at the RCEP, using claims of possible revenue losses from freer trade as a bargaining chip. The reports suggest that the commerce ministry might use an internal estimate that lower tariffs might reduce government revenue by 1.6 per cent of gross domestic product or GDP. This figure will be, according to the report, quoted in the negotiations, and other countries will be asked to make similar sacrifices. If true, this would be quite absurd. It makes little sense, first of all, to compare the revenue losses between a still relatively high-tariff jurisdiction like India and others, such as many Asean countries, who have long ago sacrificed tariff revenue by lowering their rates. And it also betrays a fundamental lack of understanding of the purpose of freer trade - which is to ensure that producers and consumers gain from plugging into world markets. The possible loss to government revenue from freer trade should be the least of any possible concerns. Fear of being swamped by goods from, in particular, the People's Republic of China, is something else. That fear should not hold back greater trade integration - after all, China already has access to Indian markets, and manufactured goods from China already flow in to Indian markets. If Indian manufacturers are struggling to hold their own in spite of being a cheaper-labour economy than China's, then that simply reflects deficits in soft and hard infrastructure and other supporters of competitiveness. It is these that must be addressed; being suspicious of greater trade openness is pointless and self-defeating.

Overall, the Indian trade policy establishment is still more than a decade behind the times, and desperately needs to catch up. Trade talks are no longer about tariffs. They are about "behind-the-border" technicalities like harmonising regulations and phytosanitary conditions. These underlie the TPP, for example. RCEP is a way to make a beginning towards modernising India's trade. Backward-looking principles should not be applied.