The Hindu Business Line : Is selective protectionism `sugar' to FTAs?

THAT the Indo-Thailand Free Trade Agreement (FTA) has caused some discomfort tothe domestic auto component manufacturers as they have to contend with zero duty Thai imports is widely known, with the former appealing to the Commerce Ministry for some sops. Instead of demanding concessions to survive the imminent free import period, the industry should demand total exemption for its products from the purview of FTA with Thailand. And there is a precedent too.

For this is what the US, the champion of free trade and which has signed the largest number of FTAs, has done to safeguard the interests of its sugar industry. Despite the claims by the US President, Mr George Bush, in his February 9 2003 Economic Report that the US wants to continue to work on negotiations through the World Trade Organisation, it has also worked rapidly to expand a set of FTAs at the bilateral and regional levels to remove overcome trade barriers.

"Free trade is good not just because it allows us to export, but also because it allows us to import. Providing goods and services to people in other countries is worthwhile because it allows Americans to consume the goods and services made in other countries. This is analogous to why most people work at their jobs — to earn the income with which to buy goods and services. That is, people `export' the product of their efforts and in turn receive income with which to buy goods and services made by other people," proclaims loftily the Bush Administration's latest report from White House.

But the virtues of free trade and its analogy sound hollow going by the latest publication of the Washington DC-based independent think tank Cato Institute's Centre for Trade Policy Studies. Its policy analyst Mr Aaron Lukas states that the US sugar programme stands in "stark contrast" to the Bush Administration's avowed goal of igniting "a new era of global economic growth through a world trading system that is dramatically more open and more free". Most recently, the chasm between the free-trade rhetoric and the reality of sugar protectionism came to the fore during negotiations for an FTA between the US and its close ally Australia.

The American FTA negotiators announced on Sunday in Washington that Australia had accepted a deal that excludes sugar. The US, in turn, softened demands that Australia open up a raft of protected sectors. Mr Lukas says this fight to "keep sugar off the table" is a disappointing departure from the US commitment to negotiate high-quality FTAs that open markets for all products across all sectors.

Going by the Cato study, sugar's exclusion from the US-Australia FTA is noteworthy on three counts. First, sugar stands out as a symbol of a perceived American hypocrisy on trade. The reluctance of the administration to even attempt to dismantle self-defeating protectionism in a relatively insignificant sector calls into question its larger commitment to open markets. Second, in order to get their way on sugar, American negotiators were compelled to ignore Australian protectionism on wheat, broadcasting and audio-visual services and other areas. Third, the exclusion of sugar from free trade disciplines sets a precedent that could set other import-competing producers into seeking similar treatment.

The US dairy market, for instance, would also be spared from full competition under this FTA. Mr Lukas laments that the US sugar programme has always been wasteful and unfair, taxing American consumers and sugar-using businesses to protect a relatively few well-connected growers. Now, he cautions, the programme threatens to add the US trade agenda to its list of victims.

If powerful and wealthy trading partners like the US and Australia could mutually agree to safeguard their closely-shielded and cosseted sectors from the consequences of the FTA, why should the cry of a promising auto component sector to be protected against free relatively cheaperimports from Thailand not be heeded?

As FTAs are a sort of covenant between consenting partners, the Commerce Ministry should explore the option of excluding auto components from the Indo-Thai FTA's purview, instead of reducing the industry to seeking sops or pitching for a level playing field on the duty paid on inputs to survive. If agricultural commodities such as sugar and wheat can be kept out of the FTA, should it not be ensured that an industry with an export turnover of close to $1 billion is not smothered by cheap imports from an FTA partner?

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