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‘Free-trade agreements must protect vulnerable sectors’

‘Free-trade agreements must protect vulnerable sectors’
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First Published: Fri, Mar 23 2007. 12 30 AM IST
Updated: Fri, Mar 23 2007. 12 30 AM IST
He has worked in various capacities in the commerce ministry; now the 1973 batch Indian Administrative Service officer from the Madhya Pradesh cadre, K.T. Chacko , has taken over as director of the prestigious Indian Institute of Foreign Trade (IIFT), an academic institution and think tank specializing in trade policy. The ministry is keen to develop a World Trade Organization (WTO) centre in the institute to study the subject and help define the country’s trade strategy. Chacko, former director general of foreign trade in the ministry spoke to Mint’s Monica Gupta . Excerpts:
What are your priorities as director of IIFT?
The prime objective is to ensure that IIFT continues to be a centre of excellence and contributes to capacity building within the country in understanding global business. We also want to continue to train young people to handle business management and business in general. We’ll also give equal emphasis to applied research and provide inputs to the government of India for policy information, and to the industry to help it increase market access and competitiveness.
Which areas of research will IIFT focus on?
We are keen to research areas of India’s increasing engagement through free-trade agreements (FTAs) and comprehensive economic cooperation agreements.
We are strengthening our WTO centre, which will provide inputs to the Central government and the states in understanding the impact of such agreements on various sectors and regions. In addition to this we’ll help set up WTO centres in the states.
There is a perception that India is rushing into FTAs with other countries. Do you share this view?
Any action regarding FTAs by the government is done after deep thinking; it is not a knee-jerk reaction to other countries’ moves in this direction. An ideal scenario, of course, is to give the most favoured nation (MFN) status to all countries, but short of that there has been an international practice to increase regional arrangements and bilaterals cutting across continents.
In such a case the fundamental principle has to be that any arrangement has to be mutually beneficial, and products and sectors that are vulnerable should be protected. India cannot be seen to be excluded or isolated from any (trade) arrangement that others are getting into, but has to ensure that such agreements contribute to its growth.
India has been looking to capture 1% share of global trade. However, this continues to elude it. What are the reasons?
We have been talking about export facilitation and reducing transaction costs for a long while. These measures have no adverse impact on the exchequer. A 2-3% cut in the free on board value of transaction costs would be win-win for all.
Unless we ensure that our products have market penetration, our role (as a global trader) will remain on the periphery. We need to increase our competitive advantage by pricing our products in a competitive manner. In addition to pricing, we have to ensure that products are shipped out and reach the markets in time.
There are bottlenecks galore in speedy and smooth movement of goods for import and export purposes. Hence, we need to improve the infrastructure. These are areas we need to act upon.
Since we have already removed quantitative restrictions and are unilaterally reducing import duties every year, do you think we still need an annual foreign trade policy (FTP)?
If you look at it, every successive year the emphasis on duty exemption and fiscal incentives is coming down. The industry itself is also no longer seeking fiscal incentives. They are only saying that exports should not be taxed, which is also the policy of the government. Even the Union Budget has become less significant.
As we go along, the FTP should focus on export facilitation, positive steps for market access, better market study to have advanced information, simplification of procedures and reduction of transaction costs.
What are your views on India’s stance in agriculture at WTO? Some trade experts are of the view that India is too defenive in agriculture?
Yes, it is true that our offensive interests in agriculture are significant but it is important to ensure that this is calibrated to our need for a more receptive regime where other countries are willing to pull down their market-access barriers.
The sector has to become more transparent, which is why the government has been reiterating that there can be no agreement in WTO for an agreement’s sake. The prime issue is that six years after we have had a WTO agreement on agriculture, market access is eluding developing countries such as India.
What about negotiations in services, particularly financial services, where countries such as the US are expected to put pressure on India to open up?
I do feel that service sector is one area where we are unduly defensive. We can play a crucial role in a number of service sectors since we have highly skilled manpower. There is a reluctance about estimating our potential in some service sectors. The commerce ministry has set up a services export promotion council to look at policy initiatives for 11-13 service sectors which may not be big now, but which have the potential to garner rich returns for India in the years to come such as education, health, printing and engineering to name a few.
We at the IIFT will also see what inputs we can provide to understand these sectors better.
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First Published: Fri, Mar 23 2007. 12 30 AM IST