Debating India

WTO

Frictions to the fore

Friday 12 March 2004, by MURALIDHARAN*Sukumar

The recent visit of U.S. Trade Representative Robert Zoellick to India with the stated aim of resuming global trade negotiations only serves to highlight the continuing discord between the two countries on a range of trade issues.

ROBERT ZOELLICK, the United States Trade Representative, stopped in New Delhi for a meeting with Union Commerce Minister Arun Jaitley on February 16. His visit was part of a cycle involving other major trading nations, and the purported agenda was nothing less than the resumption of stalled global trade negotiations. But the official statement issued on the occasion was almost cursory on this main item of the agenda, confining itself to a formal reiteration of both countries’ intention to "engage constructively" in moving the negotiations forward. This almost routine statement though, was overshadowed by a very public articulation of discord on a range of other issues.

Jaitley focussed on the new protectionist fervour possessing the U.S., leading to exploratory legislation in some States that would severely curtail the freedom currently enjoyed by firms to outsource key business functions to overseas service providers. The Jobs for America Act that has recently been tabled in the U.S. Senate by leading Democratic Party legislators effectively moves this process from the State to the federal level. Among other things, the proposed law would require U.S. companies that plan to lay off 15 or more workers to make a full public disclosure of where they intended to relocate the jobs and provide satisfactory explanations for their decision. "It is strange", said the Indian Minister "that on the one hand people are talking about opening of markets and on the other hand, banning business process outsourcing". And in puncturing the U.S. demand that India should liberalise its agricultural trade, Jaitley minced no words: "Our agriculture is fragile as it is not subsidised, as in the U.S."

Zoellick for his part held out the assurance that the outsourcing controversy was not all that it had been made out to be. Trade opening would benefit all sides through job growth. And if India were to liberalise, it would create a context of increasing trade that would effectively neutralise the outsourcing controversy. Much progress could be achieved, he said, if India and the U.S. were to look at the areas on which they agreed: like the elimination of trade-distorting export subsidies in agriculture and the reduction of domestic support.

The U.S.’ top trade negotiator could not have been unaware of the odds he faces. Senator John Kerry, who is rapidly emerging as the most likely challenger to President George Bush in the November elections, routinely chooses the figure of Benedict Arnold, the emblematic representative of high treason in U.S. history, to castigate the business leaders who he alleges have been exporting jobs from the U.S. Gregory Mankiw, the chairman of Bush’s council of economic advisers, recently made bold to suggest that outsourcing was "just another way of doing business" that was "probably" good for the U.S. economy. The qualified endorsement of outsourcing as an economic plus for the U.S. economy, it transpired, had been prudent, since Bush has studiedly chosen to distance himself from his top adviser’s opinion.

His political fortunes increasingly threatened by weak economic fundamentals, the U.S. President recently issued the bravura claim that his first term in office would end with 2.6 million new jobs in place for the U.S. workforce. He has since been rather reluctant about being held to that standard of numerical precision. The last six months have reportedly seen job-growth of the order of 360,000. The economist Paul Krugman has estimated that to work itself out of the slump it is currently in, the U.S. economy would have to add jobs at the rate of about 275,000 every month.

The total employment in India’s business process outsourcing (BPO) sector currently stands, in the estimation of the industry association, at less than 250,000. The number of jobs created in this sector during 2003-04 would, according to the National Association of Software and Service Companies (NASSCOM), be in the range of 74,000. Adjusting for differences in relative wages and infrastructural endowments - which have a bearing on the investment required to create an extra job - this would be the equivalent of fewer than 30,000 jobs in the U.S., or a mere 2,500 additional jobs every month. In relation to the magnitude of unemployment in the U.S., the impact of outsourcing is quite obviously marginal, rendering the overheated rhetoric about "Benedict Arnold" businessmen just a little ludicrous.

Zoellick’s visit to India nevertheless signals that this item could prospectively be moved onto the agenda of global trade negotiations. The U.S. since the failure of Cancun, has shaped its response along two distinct tracks. It has gone into a series of discussions with "strategic partners" and concluded a number of bilateral free trade agreements. Ecuador, Australia and Singapore have all concluded such deals since Cancun, helping the U.S. to multiply the pressure on countries that have sought to resist the imposition of its agenda on the WTO. With India also identified as a "strategic partner", though on a different plane, outsourcing could potentially become a source of bilateral pressure. Senator Kerry has freely held out the promise that he would review all the recent trade agreements that the U.S. has entered into, once elected to office as President. This includes a commitment to bring on board the environment and labour standards as intrinsic elements of trade policy. India obviously has much to fear on this front.

India today is a region of emerging U.S. investor interest. Unlike, Mexico, Canada and China, which currently host large volumes of U.S. corporate investments and enjoy huge bilateral trade surpluses, India represents a soft target. The threat to cut off the flow of investment and jobs to India is unlikely to elicit strong opposition from U.S. corporate interests. Yet, the influence that India has traditionally exerted within WTO negotiations makes it a target worth focusing on, to move the larger U.S. trade agenda forward.

An incentive for India has been held out in the shape of the final dismantling of textiles export quotas on January 1 next year. A recent report issued by the U.S. International Trade Commission projects an increase of between 40 and 100 per cent in India’s textile exports once quotas are removed. The main competition, it predicts, would come from China. But China’s exports could potentially be constrained by bilateral disciplines that are permitted all WTO member-states under the terms of that country’s accession to the body in 2001. But to merit these special attentions, India would presumably have to move ahead in liberalising agricultural trade, which is the U.S.’ single most important demand. The costs of adjustment could, in other words, be immense for a country where subsistence-oriented peasant agriculture is still the sole source of livelihood for the vast majority.

See online : Frontline

P.S.

in Frontline, volume 21 - Issue 05, February 28 - March 12, 2004.

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