The Hindu Business Line : Protectionist test

The dangers of appearing protectionist cannot be minimised in these times when governments will be sorely tested for their commitment to free trade. India cannot afford to fail the test.

Barely had the echoes of the Prime Minister, Dr Manmohan Singh’s, fervent plea at the G-20 meet “to take urgent steps to strengthen the global trading system and forestall any protectionist tendencies” faded than the Government slapped import duties on iron and steel products and crude soya bean oil. The Finance Ministry may say that the duty of 5 per cent is only a third of what the industry desired and half of the Steel Ministry’s recommendation b ut the message that it sends will certainly not help forestall the protectionist tendencies that India has been so concerned about. By agreeing to protect domestic steel producers against cheap imports from China where inventories are piling up, India may hurt itself more as countries around the world are tempted to renege on their promise to keep global trade alive and kicking.

There is the unhappy prospect of the traditional defence about protecting domestic industries from cheap imports being resurrected as one developed economy after another falls into recession. But there is hope that such a retrograde movement will not cripple world trade; China, for one, is busy signing free trade pacts with Australia, Singapore, Japan and parts of Latin America. Welcome as this spirit of free trade is, the danger of bilateral arrangements for a multilateral trading system that the WTO has been trying to uphold can hardly be minimised. At the G-20, European nations and the United States agreed about the dangers of protectionism. That is also reassuring since both regions account for the bulk of exports from emerging economies, including India. The recession will definitely hurt our exports despite all the efforts of the Commerce Ministry to keep them going. In this backdrop, imposing import duties is uncalled for by a nation that desires an expansion of its exports. Domestically too, the attempts to deter cheaper imports will not simply protect high-cost producers but also disadvantage other related sectors and finally the consumers. The domestic steel industry is very competitive and has benefited from the high demand growth witnessed so far. A far better way to defend itself against cheaper competition would be to increase efficiencies by using this slowdown to restructure.

Policymakers will deny that they are not practising what they preached at the G-20 meet and at Sao Paulo’s BRIC finance ministers’ conclave. But the dangers of appearing protectionist cannot be minimised in these times when governments will be sorely tested for their commitment to free trade. On all counts, that is a test India cannot afford to fail.

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