New trade winds

DOHA ROUND talks are finally off, and any progress seems unlikely for months, if not years. With the talks goes the chance to boost world income and raise millions out of poverty. The WTO in its present form is way too unwieldy – due to its sheer size, the enormity of the task and the multitude of conflicting interests – and biased in favour of the richer players. Its reform would take a reform of the underlying structure of international trade – a contentious, long-drawn out process. Meanwhile, it makes sense for players to keep open the regional and preferential trade routes.

Given the dismal state of the multilateral trading system, Indian trade policy which envisages pursuance of all tracks – multilateral, bilateral, regional – is well-suited to the needs of the times. For instance, the two proposals announced last week – India’s trilateral FTA with Mercosur and SACU and the comprehensive economic cooperation agreement (CECA) with the EU – make sound economic and strategic sense. The FTA with Mercosur and SACU will bring together the economic and trade powerhouses of the developing world – Brazil, Argentina, India and South Africa (besides Uruguay, Paraguay, Namibia, Botswana, Lesotho and Swaziland). Already, trade between these countries is expanding steadily – e.g., trade between India, Brazil and South Africa in 2005 stood at $2.34bn, double the 2004 figure of $1.207bn. India is well placed to benefit from the vast Mercosur market, with its focus markets and products schemes that offer WTO-compliant export incentives and the special concessions to companies trading with this region. The FTA is also strategically significant as Brazil and South Africa are members of the Nuclear Suppliers Group. Moreover, improving ties with African countries is important given India’s bid for a permanent seat in the UN Security Council.

The proposed CECA – an agreement on trade in goods and services, investment, movement of service providers and taxation – meanwhile, will cement India’s relationship with the EU, its largest trading partner. Strategically, it is a good move given that the EU has proven more adaptable regarding agriculture issues at the WTO. This pact will also be significant none the least because it will enable Indian professionals to work in the EU. Overall, these moves show that India’s foreign trade policy is on the right track.