Back‘We don’t need (India-US) free trade agreement to build trade’
'We don't need (India-US) free trade agreement to build trade'
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United States trade representative (USTR) Susan Schwab spent the better part of the last four days in the Capital, taking part in last-ditch negotiations with her counterparts from several other countries to salvage the deadlocked Doha trade round, and pushing bilateral investment and trade ties with India.
In an exclusive interview with Mint, Schwab sat down to discuss the prospects of successfully concluding global trade negotiations as well as her views on why India remains particularly reluctant to make concessions on the agricultural front. Edited excerpts:
How realistic is the December 2007 deadline that the trade ministers from six countries have announced last week? Particularly, since many trade experts point out that it could take anywhere up to a year from a new fast-track trade promotion authority to be set up by the US when the present one expires in June?
Trade promotion authority (TPA) is needed to implement the trade agreement and we don’t really need that till the trade negotiations are over—that is a legal matter. This negotiation is one of such complexity, that, our assumption is that from the date of a breakthrough, if we can get one, it would probably take at least a year before we need the trade promotion authority to enact and implement the legislation. Because, from the point of the breakthrough, you are likely to have at least six months of negotiations and then another six months of clean-up in terms of countries making sure that their tariff lines conform with what was negotiated. There will be a lot of verification, lot of due diligence, there is a lot of key work that goes into a trade negotiation. So, that is a legal matter and that is well past the time-frame needed for setting up a trade promotion authority.
As a practical matter, we believe, and I think that our trading partners would agree, that the US is in a much stronger position at the trade-negotiating table with a TPA than without it, because it gives our trading partners comfort. A TPA does not guarantee that a trade pact gets enacted into law, it is just a process that we use that ensures faster consideration, which is why our effort is to create a TPA as soon as possible. Our legislative process takes a while, which is why we need to show substantial progress before 1 July, when our present TPA expires. Some time this year, ideally, I am not putting a date, the Bill will move through the House and Senate and then there will be a conference (meeting between the House and Senate to thrash out differences, if any). As I said the other night, it’s something we need to have since we do not have a Plan B.
Is the progress significant enough to help to push for a new TPA after 1 July?
Well, 1 July is when the present TPA expires and there is a lot of spotlight on that date. In fact, for purposes of the Doha round, the TPA has already expired. So, I am trying to use that in my work with the Congress to say that we can’t leave a big gap between the expiry of the present TPA and the new one. So that’s the significance.
But are you making sufficient progress that would justify getting political backing for setting up of TPA?
Well, one of the reasons I have to get back to the US by Monday is because the Congress is coming back on Tuesday after their recess. And I am having discussions with the Congress, chairmen of the committees on moving trade legislation. There are labour and environment provisions that the Democrats and the Congress would like our administration to put in the free trade agreements (FTAs). It has nothing to do with TPA. That negotiation is going on right now and I am hoping that we will have something to show for that in the coming weeks. If we are able to get a breakthrough with the Congress, it would open the way for FTAs to move and for TPA. So, it’s a matter of clearing the path, so we are making some progress, but we are not there yet.
The process of ‘conditional offers’ is going to start soon. Considering that the US is under a lot of pressure to offer fresh reductions in its domestic farm support, would you be willing to put new numbers on the table, conditional to the other offering you something in return?
The process of conditional offers, if by that you mean the process of ‘what if’, then that is already going on. The key decision taken by the G-4 (the US, the European Union, Brazil and India) here is related to accelerating that and expanding that process, and the US has made it clear that we are prepared to do more in terms of cutting trade-distorting domestic support in agriculture, in the context of a package that has significantly more market access. The key contributor to economic development from a trade agreement is from new market access, from new trade flows. You open the market and increase trade flows and that generates growth. We know that we need to do more, so yes, in the context of more market access, the US is prepared to do our share.
Both India and the US have, at the trade policy forum meeting, announced the intention to begin discussions for a bilateral investment protection agreement. Is there scope for having a bilateral trade pact with India in goods, services or investment?
India and the US for so many years, so many decades, neglected each other as trading partners. It is so obvious when you think about it, there had been a benign neglect as trading partners. We sort of rediscovered each other as trading partners. President (George) Bush’s visit and the visit of Prime Minister Manmohan Singh, and the initiative that they launched together, have resulted in entrepreneurs of both countries perking up and thinking that there’s business we can do together.
I think the trade policy forum is a first step in a very pragmatic and practical approach to resolving trade problems. We have a lot of different approaches—the trade investment framework agreement, FTAs, bilateral investment agreement—that we use. The trade policy forum is a useful vehicle for us. Who knows where we go. I think we are a long way away from an FTA, but on the other hand, as we address issues of certain segments of our economies of benefit to each other, we don’t need an FTA to build trade.
You first visited India in 1992. What were the impressions you had of India and what has changed of that this time?
In 1992, I was director general of the US and foreign commercial services, the export promotion arm of the US government, and from a professional perspective there was not much in the market. It was largely closed and there was talk about opening the market. And you come back 15 years later and you see a lot more affluence, you see gaps obviously in terms of income, significant gaps, but, by and large, people seem to own more things, the billboards are evidence of an incredible amount of commercial diversity in the economy. Both here in Delhi and in Kolkata, we were looking at the billboards to see what was being advertised by the Indian businesses, their investment opportunities, apartments, condominiums, housing, fashion, electronics, but what has a sense of optimism and affluence.
The economist in me looks at the statistics and the vibrance in the economy and guesses what is the relationship between the sectors that were opened 15 years ago in the early 1990s and the sectors that are thriving today. So, I am sorry to have stayed away as long as I did. It would have been interesting to be coming back in five-year segments.
You are an old Asian hand. You grew up in Asia and Africa. So how do you see Asia’s recent emergence?
I have always found Asia to be fascinating. I first came to Asia when I was a teenager and was in Thailand and visited a lot of countries, particularly in Southeast Asia, and lived in Japan. In my lifetime, the transition that one sees in these economies—in China (it is) even more dramatic than in India—a sense of vibrancy, a sense of optimism, a value placed on education and hard work and again speaking as an economist and an observer, it is something that I believe is in the US interest, in the global world interest. It creates challenges, but I think one of the hardest messages of trade politics, as opposed to trade policy, is that international trade is a positive-sum game and not a negative-sum game, you can actually have winners and winners and not just winners and losers. It is clear, for example, that there is a great debate going on in China as to whether it should continue on the path to market reforms or whether it should start protecting some segments of the economy. But by and large, it is a positive picture.
The Indian trade minister, Kamal Nath is now in China. How do you see the prospects of the two countries coming together?
They both have large populations so they have obvious things in common, but very different historical backgrounds. There’s surely some competition there, but from a trade perspective, China and India are increasingly important in international trade policy—in terms of WTO, in terms of the Doha round. I think that is a very positive development. I think it is a challenge for both India and China as to how do you position yourself as a leader among leaders rather than a leader among opposition. You are now inside of the tent. I think it’s a healthy development.
You spoke about wanting to have a first-hand impression about the grass roots in India. Tell us about your trip to West Bengal?
It was a wonderful trip. Met with the chief minister (Buddhadeb Bhattacharjee) who is a fascinating gentleman who has a strong sense of the economic development in the state and its potential. We visited a Frito-Lay’s factory, which has created a unique relationship with potato farmers in the surrounding area. The farmers have an interesting two-way relationship with the factory. They have a contractual relationship in terms of providing the factory with potatoes, yet they also get help in growing quality potatoes, so it is a symbiotic relationship, which is very interesting. Then we spent a couple of hours in a village and in an agricultural initiative that is sponsored by the Ramakrishna Mission, and had a chance to walk through the fields and talk to the farmers, met with some of their families, village children. The women were involved in a self-help programme, which I found fascinating in terms of progress they were doing in terms of self-awareness. So, it was useful, since we often get into these trade debates about market opening, subsidies and subsistence agriculture and it’s really good to see what it looks like on the ground, instead of just reading about it and talking about in theory.
Did it in any way help you understand the Indian government’s concerns on agriculture?
Absolutely. I have always understood the Indian government’s concerns. The issue has never been whether livelihood and subsistence agriculture can be negotiated away. They can’t. And there is clearly the need to look after subsistence agriculture and livelihood issue. It is clearly addressed in the Doha agreement, so that has never been the question. The question is how do you distinguish between subsistence agriculture and livelihood and more competitive agriculture where India is in a position to be more open in terms of its market. Keep in mind that the Doha (trade) round covers a wide range of issues and lot of the press coverage is just about disagreements in agriculture. But there is manufacturing and services. You asked me about my impressions of the economy. I look at what India has to gain in successful Doha round negotiations—it is phenomenal, even more than I thought. Talk about changed impressions, I always knew that India had something to gain. You look at the services sector, for example, where India has already liberalized for its own sake—telecommunications, financial services, audio visual (sectors). India is in a position to go into the Doha round services negotiations and seek comparable market liberalization from other developing countries. Why not? These sectors are pretty much developed in the US, but yes, India has so much to gain from a successful Doha round outcome. So, in terms of an overall assessment, there is tremendous potential and obviously India has a need to look after its subsistence farmers; but at the same time there is no trade solution per se to the agriculture issue that everyone in the Indian government realizes needs to be addressed.
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