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Trade deals are victims of the global power shift

August 09, 2014 09:08 IST

Every country is a free trader when it sees advantage, and a trade warrior when it does not, says T N Ninan. 

Much has been written in criticism of the government's torpedoing of a global agreement on trade facilitation.

There is another side to the story. If the West could have got a deal with India by offering to end the absurdity of using agricultural prices of 1986-88 as the benchmark for deciding whether price subsidies exist in 2014, why didn't it?

There is manifest logic to shifting the base years (which would have eased Indian concerns about its food security situation), just as there is logic to not holding up trade facilitation. If there was no deal, therefore, does the blame rest only with India - or with everyone else too?

When one strips the masks away, what is laid bare is that trade talks, while preferable to trade wars, are still essentially power play in which there is no right and wrong.

Every country is a free trader when it sees advantage, and a trade warrior when it does not.

The operating reality is that if you have clout, you influence the trading rules. If you don't, you play by the other guy's rules. The emerging world is not one for weaklings. 

Win-win was possible when equals negotiated. The Kennedy Round (1964-67) of trade talks was provoked by the formation in 1960 of the European Economic Community, and American concerns about the implications for trade.

Similarly, the Tokyo Round (1973-79) was prompted by Japan's growing might as a trading nation. Once again, the real negotiations were between the major trading powers. The poor countries were given the generalised system of preferences (GSP), partly to keep them in the western tent during the Cold War.

The first trade round where the emerging countries had something of a voice was the Uruguay Round - which, as a consequence, took eight years to negotiate (1986-94). Even after that, the poor countries felt they had got a raw deal.

What was called the Doha Development Round, launched in 2001, was meant to address the issues not dealt with earlier. It has turned out differently; after 13 years, there is still no overall agreement. 

Both trade and climate-change negotiations are victims of the global power shift. Big multilateral trade negotiations have run their course, as most countries now feel they are being asked to give more than what they get.

Also, the rich countries face domestic challenges even as they see a growing threat from emerging powers. With the perception gaining ground that India is no longer the poor country it once was, extracting concessions in international forums will become increasingly difficult, if not impossible.

The truth about trade diplomacy is the same as with all diplomacy - you will be heard even if you talk softly, provided you carry a big stick. Without that, you can shout as much as you want, but the others won't hear, or listen - as has just happened. If the country does not want to be boxed into a corner, the answer is not trade strategy but domestic reform, including of agriculture. 

Raghuram Rajan talked last year of bullet-proofing the economy's balance sheet. That has to be done for more than the balance sheet - the whole economy has to be made bullet-proof - that is, relatively immune to global shocks, as well as global pressures.

That will facilitate a change of negotiating stance, from being a supplicant to negotiating from strength - when you can both give and take. Specifically, if the country finds itself vulnerable on agriculture, blame the failure to reform agriculture.

The public procurement and distribution system cries out for reform. There is time between now and the relevant trade talks deadline of 2017 to bring about change; the government should hunker down to the task.