BackSwipe right for free trade
India must not sign up for TPP or, indeed, for RCEP, if it turns out to be stacked in favour of China as TPP is for the US
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One of the paradoxes of globalization is that in a world which is more dependent than ever on free flows of trade and investment, support for the principle of free trade among the world’s major economies appears to be at a low ebb. One natural explanation is that, after decades of trade liberalization, barriers to trade and investment flows among the major economies are relatively low. There is, therefore, little appetite for these economies to take up the cudgels on behalf of further non-discriminatory, rules-based, multilateral liberalization.
However, developing and emerging economies, including India, still have much to gain by reforming existing trade barriers that remain heavily distorted as measured against global best practice. The key question is how? Should the approach be classical unilateral liberalization, of the type famously pursued by Great Britain in the 19th century? Should one double down on the beleaguered World Trade Organization (WTO) and try to breathe new life into the all-but-moribund Doha Development Agenda (DDA)? Or should one embrace one or more of the proliferating “mega-regional" preferential trade deals currently on offer, a veritable alphabet soup of new possibilities?
It is clear that the US, the current global hegemon, albeit a weakening one, has little appetite either for unilateral or multilateral liberalization. Indeed, in the increasingly protectionist climate on view in the unfolding presidential campaign in America, it is not even clear if a preferential trade deal such as the Trans-Pacific Partnership (TPP), which has been rigged to favour US corporate interests, will ever be ratified by the US Congress during the remaining tenure of President Barack Obama.
What is also evident, at least judging from campaign rhetoric, is that none of the major presidential contenders, from either major party, will reintroduce TPP, should it fail on Obama’s watch. And if the US fails to ratify TPP, the agreement is dead on arrival.
That leaves India, in particular, in a difficult situation. This columnist has argued strongly against a putative Indian embrace of preferential deals such as TPP (Trade and national interest, 12 October). I have also lamented the apparent demise of the DDA (Message from Nairobi, 21 December) and defended the stance that India took at the failed Nairobi ministerial conference.
Obviously, India lacks the clout either to engineer a reboot of DDA or to shape the structure of emerging alternatives to TPP, in particular, the Regional Comprehensive Economic Partnership (RCEP), which is likely to be a Chinese-led (read: Chinese-captured) agreement.
What to do? To paraphrase Sherlock Holmes, when one eliminates the impossible, whatever remains, however improbable, must be considered a possible policy option.
In the case of India’s trade policy options, that improbable, but possible, option is to pursue unilateral trade liberalization in sectors where it makes sense for the Indian national interest, while at the same time holding out for the possibility of a reinvigorated multilateral process at some point in the future. The flip side is that India must stand firm for genuine free trade and not be suckered or cajoled into signing up for TPP or, indeed, for RCEP, if it turns out to be stacked in favour of China as TPP is for the US.
This will require not only that Indian trade negotiators continue to demonstrate intestinal fortitude, but that Indian policymakers and commentators push back against the insidious Orwellian newspeak which allows well-known folk shilling for the US to assert that India, in particular, is hung up on “old-fashioned" issues such as tariffs and conventional trade barriers and is missing the bus on tackling “beyond the border" trade-related (read: non-trade-related) policy areas such as domestic regulatory standards, the intellectual property regime, and so forth.
Conceptually, there is a hugely important difference between tariffs and other policies which mimic the effects of a tariff (such as taxes and subsidies, as well as quantitative restrictions such as quotas), which are fair game for trade negotiations, and non-trade-related domestic policies which may nonetheless have an indirect impact on trade.
The latter were traditionally considered off limits for international negotiation, in line with the Westphalian conception of the nation-state. But with the advent of preferential trade agreements, such as the North American Free Trade Agreement (Nafta), which included chapters on labour and the environment for Mexico, but not for the US or Canada, and with the unfortunate capitulation of the WTO, bringing intellectual property protection within the fold, thereby legitimizing it as a trade issue, the classical Westphalian distinction is becoming blurred.
The correct litmus test, therefore, is whether any particular policy domain included in a trade negotiation is likely to result in mutual gain (swipe right), or whether it is likely to involve a transfer of surplus from one to the other party (swipe left). Reducing or eliminating tariffs and other distorting taxes and subsidies easily passes this test. Harmonizing labour or environmental standards or the intellectual property regime does not.
It is crucially important for India to hold firm for, and to pursue, genuine free trade. Equally, we must not be bullied into signing up for Trojan horse so-called trade agreements such as TPP, which do not serve our national interest.
Every fortnight, In the Margins explores the intersection of economics, politics and public policy to help cast light on current affairs.
Comments are welcome at views@livemint.com. To read Vivek Dehejia’s previous columns, go to www.livemint.com/vivekdehejia
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