The financial crisis has found many a victim, but the most disturbing of these is the West’s championship of globalization. With the world’s wealthy nations retreating to their national borders, it’s time for India and China to step up as defenders of free trade.
If there’s one thing economists have largely agreed on since World War II, it’s the free movement of goods and services across borders. This consensus, led by the US, pushed for the creation of the General Agreement on Tariffs and Trade in 1947, and the World Trade Organization (WTO) in 1994.
Illustration: Jayachandran / Mint
It’s disappointing, then, to see the US succumb to protectionist pressures, as its stimulus package last month showed. What’s more, US and UK financial institutions are withdrawing capital from emerging markets to their home fronts; UK Prime Minister Gordon Brown describes this as “financial protectionism”. The European Union even slapped a punitive tariff on US biofuels on Tuesday.
Where the West is failing, there are encouraging signs that India and China—the two largest economies still growing this year—may fill the void. Commerce minister Kamal Nath stressed last month that the World Trade Organization (WTO) members must set a target to conclude the Doha Round of trade negotiations by the end of 2009. India this week also relaxed its January ban on Chinese toys.
On Wednesday, China’s ambassador to India, Zhang Yan, reiterated that country’s commitment against protectionism. Its vice-commerce minister, Jiang Zengwei, had also assured last month, “We won’t practise ‘Buy China’” in response to the US stimulus’ “Buy America” provisions.
Yet, there’s still much wanting on India and China’s part. Nath, singularly responsible for stalling the 2008 Doha talks, needs to keep a more open mind this time around. China, found in violation of WTO norms on export subsidies and intellectual property several times in recent years, should also act more responsibly. Intra-Asian trade is one area that can quickly grow; India itself has been slow to finalize a free trade agreement with the Association of Southeast Asian Nations. As far as symbolism goes, there’s nothing like an India-China free trade pact to stem the growing tide of protectionism.
In this unprecedented crisis, there’s concern that nations, particularly India and China, will only pay lip service to free trade. But they had better act before another Smoot-Hawley Tariff Act sinks the world into depression.
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