The Hindu Business Line : `SEZ should prove a good mechanism'

`Despite all the controversy it has raised, the Special Economic Zone should ensure high growth and remove regional imbalances. If there is misuse, it is our responsibility to see this is corrected... ' — MR S. N. MENON, COMMERCE SECRETARY

India's exports have seldom been on such a high as in recent years particularly with merchandise exports sustaining a high growth trajectory for the fourth year running, averaging 24 per cent per annum. The latest RBI Annual Report contends that the success story of Indian exports reflects the increasing competitiveness of the technology-intensive domestic manufacturing. India has also been playing a proactive role in the ongoing multilateral trade talks of the Doha Round under the World Trade Organisation, even as the talks are deadlocked for want of accommodation from the stakeholders.

Though the development round has reached a stalemate, India has been pursuing free trade agreements (FTAs) where tariff concessions are agreed among the participating members. This pragmatism would become manifest in terms of heightened trade volume, as demonstrated in the fully-functioning India-Sri Lanka FTA.

The Commerce Secretary, Mr S. N. Menon, who has been in the thick of the developments on the trade front for over two years, says that exports are the priority of the Government, especially sectors such as garment and leather, particularly footwear. He maintains that schemes such as DEPB (duty-entitlement passbook) played a major role in pushing up exports and that if "all the 149 members of the WTO neutralise duties/levies and if we don't, we become uncompetitive." Mr Menon has done a stint in the same Ministry as Special Secretary on WTO affairs and trade policy division.

Mr Menon, who is to demit office on September 30, gave Business Line his take on the problems and prospects of the country's crucial export segment that holds the potential not only to generate foreign exchange but also to ensure employment.

Excerpts from the interview:

On export performance:

From 2002-03 onwards, our export growth rate, on a compounded annual growth rate (CAGR) basis, is more than 20 per cent in dollar terms.

The same will be true for this year too from the trends during April to August. The continuous attempt of the Government is to simplify procedures/practices and put the system into place particularly for the electronic data inter-connectivity (EDI) — Customs, ports and airports, banks and DGFT. When this becomes 100 per cent, it will definitely make it much easier to export... indeed for anyone engaged in international trade — both export and import.

The most important aspect of the entire range of support that is required for export/import is not really so much the financial support as simplification of procedures/practices, EDI connectivity and single-window clearance, which lead to substantial reduction in transaction cost.

The Indian manufacturing industry has over the years tightened up, technologically upgraded itself, and become leaner, meaner and tougher to compete both domestically and internationally. I think from the kind of growth that is fuelling the services sector and that in manufacturing sector, the Commerce Ministry feels that gems and spices cannot be the arbiter of the future, and that the manufacturing sector has to grow at the present rate.

On misuse of SEZs:

Despite all the controversy it has raised, the Special Economic Zone (SEZ) should prove to be a very good mechanism to ensure high growth and remove regional imbalances. There are two parts to this. There are certain sectors of domestic industries, which need massive support. One is electronics, the entire range of electronic manufacturing... and if you don't do so all the studies show that in another ten years we will be importing more consumer electronic goods than petroleum items.

So, we have to promote the domestic manufacturing industry. A lot of this can happen in the SEZs. This is already happening at Sriperumpudur, near Chennai, which is a classic example of units going into SEZs. Nokia, Motorola, Flextronics, Dell along with vendors are coming — this is going to lead to substantial employment creation and multiplier effect. I foresee this happening in other places too.

Second, required are some checks and balances in the system. If one or two parties are going to misuse something, it is our responsibility to see this is corrected and come out with a transparent system. We are trying continuously to improve.

On FTAs:

In the India-Asean FTA, it appears, the entire dispensation is being taken by one product — palm oil. You need to find ways to handle palm oil separately and that is the way it should be.

In response to India's negative list, where tariff concessions would not be exchanged, Asean also gave a list of some 600 items, the same it gave to China. We will study, examine and then the negotiations will move forward. With SAFTA, Pakistan must change its attitude and respond positively to ensure that trade flows smoothly bilaterally. The FTAs are the stepping stones and enable domestic reforms to be carried out but still I am a firm believer that multilateralism is the correct route because it is predictable and rule-based.

For India's FTA with the European Union (EU), the high-level Trade Group is expected to submit its report by the end of this month, addressing the concerns of both sides to ensure integration of India and the EU as we have several common features.

With Japan, the study group recommendations have been accepted and negotiations for an FTA will commence soon, while with South Korea two rounds have been held.

On the Doha Round stalemate:

I don't think things will move forward till the Congress elections in the US are over, by November.

Developed countries should understand that this is a development round ... July Framework, Hong Kong Ministerial Declaration have all been negotiated. There cannot be any going back on this — you can't be expected to reopen anything, then you have to open the whole Doha Work Programme (DWP).

Countries have reluctantly agreed for the DWP on the basis of an understanding that this will be a development round, which will take care of the interests of developing countries in getting greater market access to the developed countries and not the other way round. In agriculture, we are talking about what happened after the Uruguay Round. In the case of industrial products, we are looking at what happened after 1948, which is over 50-60 years now. Obviously there has been a consistent plan over the last 12 rounds by which countries have liberalised and opened themselves in the industrial products.

You cannot expect what has been done in 10 years to happen in one round for agriculture, which is politically and economically volatile. You have to give time. Countries will have to understand that, and you cannot push a point beyond which no country can go.

Developed countries need to be far more sensitive to these aspects particularly when their own agriculture system is heavily subsidised.

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