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Time To Bargain

Author: Jagdish N. Bhagwati
March 3, 2006
India Today


President Bush’s impending visit to India is regarded as a milestone, much like President Nixon’s celebrated visit to China that brought China into the modern world. But the contrasts are equally striking. President Bush is building on his own efforts at a close relationship, preceded by those of the Clinton administration; Nixon was more of a Lone Ranger, striking out on his own, or perhaps he was the Shiva with Henry Kissinger as his Nandi bull (or sidekick as the Americans would put it less reverentially).

The China breakthrough was covertly handled; transparency and fanfare are the rule with the India visit next month. China was still not integrated into the world economy as it is now; India starts with a greater presence, perhaps exceeding her true economic weight right now. Most of all, the accommodation with China was, not from admiration, but from awe: her authoritarian, communist regime was an anathema but one that had to be accommodated to.

By contrast, India is democratic, indeed the doyen among democracies, most of whom broke out of dictatorships or Hobbesian chaos only in recent years in the developing world, and her politics with peaceful changes of power among her parties are the envy of many, particularly the US, which seeks to spread democracy worldwide (though not always with appropriate caution, as evidenced in Iraq).

India and the United States are, therefore, "natural allies", except to those on the extreme left who are still on the anti-American bus, which is no longer the one you want to be on if you are of sound mind. So, despite the coalition with the Communists and the presence of some impassioned socialists within the Congress party, one can be confident that the era of close relations between the two countries has arrived and it is hard to imagine circumstances in which we would regress into a state of mutual frustration.

Yes, the US involvement in Pakistan, a theocratic dictatorship (which stands in sharp contrast to the secular democracy we have), is understandable given the "war on terror". But, despite mutual irritation at the time, both countries understand the complexity of the situation in Pakistan and the geopolitical necessity that has driven the United States back into the embrace of a military dictatorship. There is little doubt that the US policy has been shortsighted; and that a total and continuing opposition to the removal of an elected civilian government and to the exiling of legitimate non-theological political leaders would have served American, and our, interests better in the end. But, alas, this is not the first time that the US authorities have been playing checkers rather than chess, acting myopically rather than strategically looking ahead.

Problems and Possibilities: Economics

President Bush’s visit should be the occasion to air and contain the problems that must be faced and to recognise and advance the mutually advantageous possibilities. Consider the economic issues first:

If the United States offers a Free Trade Agreement (FTA) to Pakistan, one that is already being discussed, that would mean trade diversion directed against us. But we cannot sign on an FTA with the United States as it would have several drawbacks. At the outset, the US lobbies insist on not signing FTAs with developing countries unless the “lesser partner” agrees to a variety of trade-unrelated concessions dictated by special-interests. Among these would be the inclusion of labour standards in the FTA. The Indian (and for that matter the Brazilian) governments correctly oppose the inclusion of these trade-unrelated items in trade agreements. Such trade-unrelated requirements never figure in FTAs where only developing countries are members; they are always imposed at the insistence of self-serving western lobbies when a hegemonic power like the US is a member of the FTA.

So, an FTA is a non-starter; and we have every reason to oppose, not merely an FTA with the US but also the one by the US with Pakistan unless the ’most-favoured nation’ concessions are made by the US in all products where Pakistan and India compete. In fact, if the US proceeds with the FTA with our sub-continental rivals in trade, we should accelerate the proposed signing of one with Japan which makes no demands for inclusion of trade-unrelated requirements and is keen on developing closer relations with us. We can also remind President Bush that we too can play the game of discrimination: their Boeing orders can be switched to Airbus, for example. In fact, the United States is being taught a good example on such tit-for-tat in Asia. Having pursued FTAs in South America, and also FTA for the Americas as a whole, the US is now being repaid in the same exclusionary coin by many Asian nations who would have the US excluded from their own emerging FTA arrangements.

On outsourcing, which is simply protectionism, the Prime Minister must recognise and compliment President Bush, as distinct from the Democrats like Senator John Kerry and nearly all others in the Senate and the House, that he has never opposed outsourcing. He deserves our applause. But the Prime Minister, while complimenting him on his trade leadership, should also reiterate that the President needs to have his administration actively oppose the anti-outsourcing Democratic rhetoric and to contain the local legislations in this regard.

Then again, both India and the US now see eye to eye on the multilateral trade negotiations, the Doha Round. President Bush has put a substantial amount of energy, while my fellow Democrats have hesitated and sometimes whined, behind the Doha Round. We have now joined with them, in a creative way displayed to advantage at the WTO meeting in Hong Kong last year, with Minister Kamal Nath playing a splendid role that was a most helpful departure from our previous hesitations at the GATT and WTO on issues of trade liberalisation. So the prospects for our joint efforts in securing the success of the Doha Round seem very bright.

True, some of our anti-globalisation and anti-trade economist critics, invariably “know-littles”, have tied up with a handful of US economists (unfortunately including my Columbia colleague Joe Stiglitz who has a Nobel Prize, which is rarely a guarantor of sound economic advice) and with incompetent but hugely funded NGOs like Oxfam, Christian Aid and Friends of the Earth, who write populist rubbish on the subject, to oppose the Doha Round. But few pay attention to them in the US; and it is time India did the same firmly. Development and poverty reduction are too important to be left hostage to this motley crew.

Foreign Policy: China and Nuclear negotiations

China is on the US mind also. We have profited from this in the past, as when the US compared us with China, wrongly thought that an authoritarian system would produce better economic outcomes than a chaotically democratic India, and decided under President Kennedy to provide us with aid to offset that “democratic disadvantage”. Now, there is no such illusion; and many believe that democracies provide more sustainable growth paths. Now, the support for India is more geopolitical than economic. The US sees India and Japan as Asian counterweights to China, which it thinks must be contained. India must, therefore, be supported economically and politically. We can profit from this bit of geopolitics but obviously we cannot be seen as going along with the China-containment strategy. China sits on top of us; and the Himalayas are no barrier to military adventurism as we discovered in 1962.

The US sanctions after our nuclear explosions under the BJP government in 1998, which I had argued at the time as manageable, have indeed been lifted. Now, the present government has negotiated a nuclear deal that would de facto admit us to the nuclear club and lift restrictions that apply to all outside that club. This remains an important issue where, again, more Democrats than Republicans seem to be opposed to an accommodation of India. President Bush is again on our side; and we need to see what he can deliver, in consistence with our interests. If a deal is pulled off in a way that is acceptable to both India and the US Congress, that should be a major breakthrough. It could truly cement our relationship: trade is the water and a nuclear deal the fertiliser that will make this exotic plant grow.

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