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A historic opportunity for India

JAGDISH BHAGWATI & ARVIND PANAGARIYA

 With the Doha Round at a critical juncture, India has a historic opportunity to seize the leadership role in bringing the Round closer to a successful conclusion. Such an initiative promises to place India among key players on the world stage as it seeks the Indo-US nuclear deal and a permanent seat on the Security Council.

The challenge and the opportunity for India are best understood against the progress that has been made in the Doha Round. For, progress there has been, despite the cacophony of condemnation, now mostly from financially flush NGOs such as Oxfam and a handful of anti-globalisation economists.

The 2003 WTO meeting in Cancun, following the launch of the Doha negotiations in 2001, was regarded as a failure simply because, after two years, it failed to conclude. But the earlier Uruguay Round took over eight years; and the Tokyo Round before that took over five years! As it happens, Cancun produced some progress.

The EU had insisted on an agreement on the four "Singapore issues," opposed by many developing countries including India, before it reduced its agricultural subsidies and trade barriers. Pascal Lamy abandoned three of these at Cancun: investment, competition policy and government procurement.

Cancun also gave the developing countries a place at the table. The developing country group, G-20, emerged as a serious force for the first time in the history of multilateral negotiations. It is equally significant that after Cancun we have witnessed the death of the traditional quartet of developed countries, the so-called Quad, consisting of the US, Canada, EU and Japan, which had made many of the key decisions in the past.

Today, we have a different quad - the US, EU, India and Brazil-that, with greater sensitivity to other negotiating countries and with a significant role for Japan (which is a major power and must also make significant agricultural concessions), effectively takes major initiatives.

 The 2003 Hong Kong ministerial also registered progress on several fronts. The Least Developed Countries were promised quota- and duty-free access to at least 97% of the goods in rich country markets.

Thanks to Indian leadership, when Brazil was dragging its feet, a compromise was also worked out whereby rich countries would eliminate agricultural export subsidies by 2013 instead of 2010. On domestic subsidies and agricultural and non-agricultural tariffs, progress was more limited but real: agreements were reached on the formulas that would cut higher barriers more and lower barriers less, with precise levels of the cuts to be decided later by April 30, 2006.

We can therefore see Cancun and Hong Kong as having effectively cleared the way, leaving the negotiations now focused on the major players, the new Quad, who must make mutually acceptable concessions to close the Round. The negotiations are nevertheless truly deadlocked. With the crucial April 30, 2006 deadline having been missed we run the risk of losing the Doha Round altogether. How do the key players stack up in this final game? The US, which has a strong comparative advantage in agriculture, wants substantial cuts in both domestic subsidies and tariffs in agriculture in the EU in particular before cutting its own agricultural support. Its lobbies in manufactures and services are also seeking concessions, especially by India and Brazil in manufactures and services.

The EU has already agreed to eliminate export subsidies and also to some cuts in the trade-distorting production subsidies. With no comparative advantage in agriculture, it argues that any further cuts in agricultural protectionism must be matched by significant reciprocal cuts in manufactures and services abroad.

Developing countries-read Brazil and India-have so far taken the view that unless the EU moves further on agriculture, they are not willing to move on non-agricultural market access (NAMA) and in services. Japan has suggested it will cut rice protection but it is not identified with any impassioned demands for reciprocal concessions. The talks are deadlocked as everyone waits for others to move.

Now, consider that President Bush is a surefire friend of India as also of free trade. The President would like to close the Doha Round before his Trade Promotion Authority (TPA) expires. He has already made a journey to Europe two weeks ago to press the case for Doha. But to-date the EU has remained a reluctant player beyond its current offer.

This is where India can seize initiative. By moving ahead of the curve and offering real concessions in manufactures (meaning cuts in the applied tariffs) and services in return for concessions for its own exports, it can take credit for moving the Round forward and also advance its friendship with the US. But, aside from the kudos we would get for breaking the logjam, it is important to appreciate that our lowering of our own trade barriers is in our own interest.

 There are now few who doubt that opening up to trade has been good for India. It was the reforms of the mid-to-late 1980s that helped place India on the higher growth trajectory starting in the late 1980s while the more systematic reforms of the '90s helped sustain that growth over the long haul.

The major advantage of moving aggressively within the Doha framework, however, is that it will also earn us the trade concessions by others, "doubling" the benefits to us. Five years from now, we would be bringing down our industrial tariffs to the 5 to 7% range with or without Doha.

But with Doha, whose full implementation would take five or more years, we can simultaneously bring down the peak tariffs on our labour-intensive exports such as apparel in the rich countries and extract assured and expanded market access for our IT and other service exports. On top of that, we are bound to make gains in agricultural markets and become substantial agricultural exporters with suitable internal reforms.

The determination of President Bush to win the Doha trophy is manifest and there is much sentiment for moving the Round forward worldwide among the political leaders. So the likely scenario today is that President Bush will succeed in striking a deal with the EU and moving the negotiations forward. If he succeeds, is it not better that we would have taken the lead instead of having waited to become a reluctant follower? So, Dr Manmohan Singh and Mr Kamal Nath: go right ahead and win this one for India!

Economic Times JULY 01, 2006

 

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