Balance costs with benefits - Shun the FTA straitjacket
Economic Times, India
Balance costs with benefits
Shun the FTA straitjacket
TIMES NEWS NETWORK
13 April 2006
The proposed review of India’s Free Trade Agreements points to a much deeper malaise in the process of formulating trade policy. Too often, a fondness for a general principle is allowed to completely overwhelm the specific concerns of each case.
With India tending to be isolated in WTO negotiations and regional trade agreements not being particularly promising, FTAs with individual countries or regional blocs was an option India had to develop.
But eagerness on that score has, evidently, overshadowed the question of real benefit from each specific case. In several cases, India’s trade partners benefit far more than this country does.
There is also an insensitivity to who exactly is bearing the burden of greater market access provided under the FTAs. It is often the most vulnerable sections that have to bear the burden of this access to Indian markets.
Since many of those sections, such as farmers, are also politically quite powerful, continuing with the more unequal of these agreements would be not just economically, but also politically, unviable.
Using tariff rate quotas to address this issue is, however, only designed to limit short-term damage. Restricting the concessions to a quota, and then raising tariffs will limit the access to Indian markets.
But in the long run it will prevent investors from moving away from economic activities where they are not globally efficient. Deciding the size of the quotas and how they will be distributed can also bring back some of the worst practices of licence raj.
It would be much more meaningful to offer market access in an FTA only after first assessing who bears the burden of increased market access. FTAs are most successful when the price paid for greater access to imports from one country is paid for by a reduction in imports from another country.
And when domestic producers are expected to bear the burden it is important to consider whether they are in a position to do so or not.
