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Monday, June 27, 2022

Tricks of trade

India should not have suspended trade talks with the EU. Drama and posturing have their place — in the negotiating room.

Written by Rahul Khullar |
Updated: September 23, 2015 12:05:25 am
European Union, Broad-based Investment and Trade Agreement, BITA, ban drugs, generic drugs, 700 pharma products ban, , GVK, Indian express, business news, express column There are several problems that beset India’s trade negotiations. First is the often unfounded but firmly held belief that the partner needs India more than India needs it.

Last month, the department of commerce (DoC) suspended negotiations with the European Union on the proposed Broad-based Trade and Investment Agreement. This came on the heels of EU regulators banning the sale of some generic drugs on grounds of data manipulation. The DoC’s decision has invited three criticisms. First, that there was no need to take such an extreme measure; negotiations could (and should) have continued. Second, that India’s action suggests trade negotiators are unaware of global trends and the prospective emergence of large trading blocs like the Trans-Pacific Partnership (TPP); instead, India should be actively seeking opportunities for bilateral and regional trading arrangements that expand its commercial outreach. Finally, that India’s approach to trade negotiations ought not to be restricted to free-trade agreements (FTAs); it should embrace sanitary and phytosanitary (SPS) as well as technical barriers to trade (TBT) measures and trade in services. Some of this commentary is spot on; part of it is misplaced and inaccurate.

There was no need to suspend the negotiations. It smacks of a lack of maturity in dealing with trade partners. In the past, there have been numerous instances of agri-product consignments being destroyed or the entire EU market being effectively closed. Even in such trying circumstances, dialogue continued. Commercial diplomacy means remaining engaged.

Drama and posturing are always part of trade negotiations. But that should remain strictly within the confines of the negotiating room. The unwritten widely accepted rule is that theatrics should never spill into the public domain. Negotiations cannot and should not be conducted under the glare of the media. Moreover, a display of petulance sends avoidable signals to other prospective trade partners with whom similar economic arrangements are being negotiated. There is another major downside. Since India suspended the negotiations, it will be for India to seek to resume them — and that will come at a cost.

With a weakened WTO, it is vitally important to be alive to global trends and newly emerging trading blocs. However, there is no reason to presume that Indian negotiators are not. As for their political masters — that is another story. Fortunately, the TPP does not appear to be imminent. In all likelihood, it will be hostage to the next US presidential elections, and once the silly season starts in January 2016, the prospect of a trade agreement will rapidly recede. Some partner countries in Asia and Europe may heave a sigh of relief as they have reservations about components of the treaty. Yet others will be relieved given the rough economic patch they are going through. However, there are other disconcerting global trends. The WTO has been enfeebled by the developed countries. The US will never allow the Doha Round to be completed; witness how it has stalled it from 2008 on. The WTO will, therefore, be confined to salvaging the remains of Doha, arrangements for bits and pieces — that is, those that do not materially impact global trade flows or correct major distortions. Hence, India must start looking at alternatives, such as regional and bilateral trading blocs. This has been conscious policy since 2004.

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It is certainly true that in the initial stages trading arrangements were confined to trade in goods, or FTAs. However, for over a decade, India has worked on comprehensive economic partnership agreements (CEPAs) that embrace trade in goods, trade in services, investment, SPS, TBT, competition, mutual recognition agreements (MRAs) and a number of other subjects. It is, therefore, plain wrong to aver that India has confined its approach. These add-on topics are technical and replete with legal pitfalls. It is these complexities that have delayed culmination of many CEPAs. It is easy to talk about why such matters should be addressed; it is quite another matter to negotiate legally binding arrangements.

There are several problems that beset India’s trade negotiations. First, and a favourite among politicians, is the often unfounded but firmly held belief that the partner needs India more than India needs it. Second is the erroneous notion that India must win on all fronts. Negotiations are about give and take. Third, the give and take has to be viewed from a pan-economy perspective, not an individual ministry’s. And, yet, this is precisely what we do. Hence, the innate reluctance of ministries to cede anything until they have something in exchange. Fourth, negotiators need bargaining chips; if India wishes to access developed country markets in services, it has to open up its markets in services. And it fails on the latter. Fifth, the counterpart’s negotiating team strength is five to 10 times that of India’s. Our negotiators are amongst the ablest in the world, but they are seriously short-handed. Last, occasional hiccups prompt a disproportionate outcry motivated by narrow interests. Playing to the domestic gallery yields meagre and short-term returns. But that is invariably what we do.

Over the past year, the woes of domestic industry have been ascribed to preferential trading arrangements, mostly without any factual basis. And there have been calls by publicly elected representatives to review the entire policy surrounding such arrangements. In stark contrast, the prime minister has repeatedly asserted his view that commercial and economic relations must be the cornerstone of diplomacy. The PM has affirmed his commitment to CEPAs. It is, therefore, astonishing that both the deeds and words of others in the establishment convey completely different signals. It is time the government provided a clear-cut policy announcement, if only to assure prospective trade partners. Else, there will always be the lingering doubt: Is India really serious?

Some thoughts on what the government needs to do immediately. First, credible commitment to preferential trading arrangements has to be demonstrated, and only the PM, who carries conviction, can do this. Second, CEPAs have political economy dimensions and some subserve larger strategic objectives. This is why the Trade and Economic Relations Committee (TERC) was established. Chaired by the PM, the TERC comprised the finance minister, external affairs minister, agriculture minister, commerce minister and others who could take an overall view on the balance that needed to be stuck through negotiations and the political red lines that could not be crossed. This was useful to set goals (and limits) for trade negotiators. The TERC should be reactivated.

Third, in 2010, a proposal was mooted to significantly strengthen India’s negotiating teams by inducting subject-matter specialists, blind to their origins. Despite repeated reassurances of the primacy of our ambassadors, this proposal was systemically stymied by interested parties in the MEA. It has languished there for five years, as has our ability to strengthen negotiating teams. This must change. Again, only the PM can get this done. Finally, India’s competitiveness has been eroded because of the steady real appreciation of the rupee. Why should we be so concerned about a strong exchange rate? Why not let it depreciate? With low commodity prices, the pass-through effect on inflation will also be muted.

The writer, a former chairman of Trai, is also a former commerce secretary.

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