The Hindu Business Line : Singapore FTA: Against Asian unity?

While India's Free Trade Agreement with Singapore has been generally welcomed, there is more to it than meets the eye. What seems to be a win-win situation for both countries is in reality something like a cartel, and one, moreover, that seems to favour inefficient producers in the partner country while keeping out the efficient producers of others.

THE FREE Trade Agreement with Singapore has generally been welcomed in the country. Singapore will impose zero duty on all imports from India. India will reduce import duty on most items and eliminate duty on many. Indian accountants, architects and pharmacists will be able to provide services in Singapore.

The 6,000 multinational companies that have offices in Singapore will be encouraged to buy Indian products. India will gain access to global markets while Singapore will get cheap goods and qualified labour from India. In all, it is touted to be a win-win situation.

But there is more to it than meets the eye. It seems, we are dealing with something akin to a cartel. In fact, the very basis of an FTA is cartelisation. We impose import duties at one uniform low rate on imports from all member countries of the World Trade Organisation under the MFN (most favoured nation) provision. We impose especially lower tariffs on imports from a partner country under an FTA. In the process, we give advantage to inefficient producers in the partner country while keeping out the efficient producers of others.

In much the same way, we are giving undue advantage to the inefficient producer from Singapore if we impose zero duty on computer chips imported from that country while levying a 20-per cent duty on the same imports from China. Regardless, we go ahead with the FTA and accept the loss inherent in it so that, jointly, we can get bargain better with other countries. In other words, cartelisation, not complementarity of resources is the inherent logic of an FTA. An ideal FTA would secure the benefits of both complementarity and cartelisation, as is the case with NAFTA (North American Free Trade Agreement). We must examine, therefore, whether the FTA with Singapore helps us form a cartel to further our interests globally. This requires us to identify the main fault line of the global economy.

The main problem is that 20 per cent of the people located in the US, the European countries and Japan consume 80 per cent of world's resources. Will the FTA with Singapore help us in right this imbalance?

US policy has been that of divide and rule. Munakata Naoka writes in Japanese journal Jiji Top Confidential: "After the Malaysian Prime Minister, Dr Mahathir Mohamad's proposal 12 years ago to create the East Asia Economic Caucus (EAEC) met strong objections from the US, East Asia — wide regional initiatives remained a taboo for years. But the 1997 Asian currency crisis changed the tide.

"From the late 1980s through the early 1990s, when concerns mounted in the US over Japan's economic power, Washington fiercely opposed the EAEC vision. And it attempted to reinforce and utilise the APEC framework as a tool to promote trade liberalisation in Asia... Following the conclusion of negotiations with China on its WTO accession, the US has become active to drive a wedge into Asian moves toward bilateral FTAs among them. The US made its first move in the fall of 2001 when it suddenly agreed with Singapore to launch FTA negotiations."

The 20/80 asymmetry requires that we build an alliance of the 80 per cent people of the world who are now consuming only 20 per cent of the world's resources despite most of these resources being in their countries. The US is striking an alliance with the European Union, Japan and Singapore to drive a wedge among the developing countries — especially India and China. As Geethanjali Nataraj writes in The Hindu: "It becomes imperative for India to forge ahead in its ties with Asean so that the adverse impact or trade diversion resulting by the creation of NAFTA and the EU can be combated by enhancing growth within the Asian region."

The implication is that we must create an India-China-Asean bloc to challenge the high consumption of the US-EU-Japan group by shifting terms of trade in our favour by cartelisation just as OPEC has done successfully in West Asia.

Yet, the Prime Minister, Dr Manmohan Singh's media advisor holds out China as the main threat: "China looms large over the region and in the new `balance of power' which all ASEAN member countries are trying to help shape. India, Japan and the US will be increasingly viewed as checks and balances against growing Chinese economic and military power in the region.

All Asean member countries are committed to developing friendly and profitable relations with China, and are equally committed to good relations with other major powers in the region, including India."

In formulating the problem thus, he places China-Asean in one bloc, which is to be contained by an India-Japan-US axis. But this approach does not explain how the 20/80 asymmetry will be resolved.

Singapore is, really, the breaker of Asian unity. That country has signed, or is in the process of signing, FTAs with Canada, the EU, Japan, Mexico and the US. Japan is also negotiating FTAs with Canada and Mexico. Thus, Singapore and Japan are firmly entrenched in the US-EU block of 20/80 division of the world economy.

True, there is complementarity between Singapore and India and an FTA makes sense from that standpoint. But this is contrary to our long-term interest of forging a Developing World front against the First World to redress the basic inequality of the world economy. It appears our leaders have been swayed by the US propaganda that China is the emerging treat to India.

India is making efforts to join the US-EU grouping along with Singapore and maybe Asean to contain China; whereas the need is to create a China-India-Asean group against the US-EU-Japan. How else will we redress the imbalance in the consumption of world resources?

We may be able to increase our consumption of the world's resources from two per cent to three per cent through FTAs with the US-EU bloc; but to increase our consumption to 20 per cent to which our 20 per cent people of the world are entitled, a steep reduction in the consumption by the US-EU-Japan bloc will be necessary.

That cannot be secured by making an FTA with them. The Singapore FTA is regressive because it gives preferential treatment to a country that is firmly entrenched in the opposite bloc.

(The author is a New Delhi-based freelance writer. He can be contacted at bharatj@nda.vsnl.net.in)

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