The Hindu Business Line : EU `support' should be tested

The recent visit by the EU Trade Commissioner, Mr Peter Mandelson, to Delhi promises to be successful considering all the talk about a regional trading arrangement between New Delhi and Brussels and the tons of mutual benefits that await the two sides at the end of the process. To any average person, this is a good development because greater trade contact usually leads to greater efficiency in production which, in turn, leads to a larger economic surplus.

Trade exchange

The entire structure of the economic contact is, of course, fashioned by the complementarities of the two economic systems involved, the underlying assumption being that the complementarities can play out their roles effectively only if the trade exchange is conducted as freely as possible. In other words, the impact of trade-distorting bilateral policies should be kept at a minimum if the economies of the two sides are to interact with each other as profitably as possible.

For the `greater good'

This is the theory, and well-wishers of both the EU and India would like things to work out in this precise way if the "theory of comparative advantage" is to benefit the two sides in practice. But, of course, as everyone knows, there is a wide gap between theory and practice, and it is seldom a fact that trade between nations is allowed to be transacted freely — especially when such trade leads to an adverse impact on economic sectors in either or both of the sides involved.

Since the social and political aspects of trade cannot be ignored beyond a point, if at all, it can be argued that there is nothing improper if trade-distorting steps are taken by either New Delhi or Brussels to protect specific sectors and segments of their respective populations for the "greater good" of the populace concerned.

Seen from this perspective, and broadening the canvas to take into account international trade as a whole, it is of a piece that Mr Mandelson should be seen to agree with New Delhi that the interests of Indian subsistence farmers should be safeguarded in the WTO negotiations just as, needless to say, the interests of European farmers have been protected in the Geneva negotiations by the stand adopted by the EU negotiating team. And why only the Europeans?

The Americans too have adopted the same strategy, as have the Japanese, the Australians, the Brazilians, among others. The only problem is that there is no unanimity on the acceptability of the consequent trade-distortion of such protection-measures, the stakes being so high that it has led to a suspension of the Doha Round negotiations.

On the international plane, the name of the game is working out quid pro quos which would be acceptable to as many of the players as possible, and certainly to the principal protagonists. That this is not always so is strongly indicated by the experience of the Doha Round talks, which are at the moment floundering because of the uncompromising stands adopted by players such as Brussels, Washington, New Delhi and others. The interesting part of the whole thing is that no one can be said to be the main culprit because every Government involved in the WTO negotiations is squarely answerable to its constituent population back home, which means, among other things, that no commitments can be made which will lead to a weakening of the domestic support base beyond a point.

It may be argued that Government leaders are (in theory at least) meant to be people with a larger vision who can help others to see beyond their nose, the inference being that such people, on occasion, ought to provide leadership and take decisions which may appear to be unpopular immediately but which, in fact, will only lead to greater benefits in course of time.

Sadly, neither the EU nor the US have shown such leadership in the ongoing WTO negotiations, Brussels in fact probably being the bigger culprit given its farm inefficiencies and the web of support measures it has had to put in place to enable its farmers to find a place in the sun.

This is not to suggest that the US can be absolved of its share of responsibility for getting the WTO negotiations into its present moribund state.

The Administration probably could have done somewhat more to enable greater movement towards a settlement of the difference on the farm-support front, but then it has already been held up to the world as being the chief wrecker of the WTO talks (the July 1 failure and the subsequent suspension of the negotiations) — which is unfortunate because Brussels is equally to blame for the present state of affairs.

All along, both sides have been clear in their stand that whatever their offers on the negotiating table, they are conditional on adequate steps being taken by the others. Thus, in the middle of September last year, while speaking at the UN, President Bush declared: "The US is ready to eliminate all tariffs and subsidies and other barriers to the free flow of goods and services if other nations do the same".

In the second week of October the same year, the then USTR, Mr Rob Portman, followed this up by stating that the US was ready to jump-start WTO talks by offering to make steep cuts in domestic farm and export subsidies "if other countries make similar concessions".

In the last week of May this year, Mr Mandelson himself said: "If the circumstances allow — that is, and only if, key partners also put something worthwhile on the table — the EU will be prepared to enhance its current offer".

US' point of view

It is more than likely that the latest EU offer, which was not responded to by Washington and which led to the suspension of the WTO negotiations, was not `worthwhile' from the US point of view, especially in view of the fact that Brussels spends substantially more than the US on farm support measures.

Mr Mandelson's reported support to New Delhi on a bilateral economic cooperation agreement and on WTO farm issues should be seen in this perspective and also against the fact that the Commerce Minister, Mr Kamal Nath, described (in October last year) the EU Trade Commissioner's view of farm concessions by the rich being dependent on developing economies easing access rules for industrial goods as "offering post-dated cheques on subsidies but asking for cash upfront on market access".

More Stories on : Foreign Trade | Wide Canvas

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Nursing a dream

Powering up India

EU `support' should be tested

Love thy European neighbour

Speeding up security clearances

Blowing hot and cold

Man can be irrational

Trivialisation of employee engagement

A return to freedom

Agricultural productivity

Quality labour