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Saturday, September 27, 2003

Marc Brazeau of Blogonaut requested us to respond to the weekly economy question that he poses to bloggers:

Given the collapse of the WTO talks in Cancun, what do you feel is the most strategic next step for the G21 countries?

He has posted all the responses here. Here is the complete response we sent him:

I am happy that the G-21 nations are willing to take unified, structured and long-term approach to trade negotiations. But I dont share the view of some observers that the breakdown of Cancun trade talks was a good thing. From all that I have heard or read, there was more on the table from the developing countries perspective, than there ever was before..And multilateral negotiations work much better for developing nations with less economic muscle than does bilateral negotiations which is what the Western countries may prefer.

The widespread discomfort in G21 countries about the Singapore issues are uncalled for. Singapore issues are about negotiation in four different areas- Transparencies in Government Procurement, Competition Policy, Trade Facilitation and Foreign investment. Does anyone really think that greater transparency in government procurement in any country is not in the best interests of its citizens?

The massive bureaucracy associated with the complex government procurement in India had spawned even bigger corruption, shoddy quality of goods and greasy family owned firms that are doing all they can to subvert trade reform. Similarly, as the numbers will testify, facilitation of trade and increasing foreign investment have been serving both India and China increasingly well and have been serving them much better than the earlier era of protectionism did. We are benefiting from foreign direct investment while our bureaucrats and politicians are still mouthing the shibboleths from a previous era.

I think it is in our best interests to make government procurement more transparent, to open the doors to easier trade and investment regulations. That strategy can become dangerous and destructive only when the objective relationship between industry and government (or the party in power in some instances) gets corrupted. In order to fight that, G21 countries need to put into place independent infrastructure, strong capital markets, regulatory mechanisms and redressal forums with teeth, not close their doors to reform.

What everyone is really scared about is competition, i.e. market access. And to a certain extent it might even be justified in certain scenarios. But the real cost of subsidies and / or high tariff to protect domestic industry are really paid for by common men who bear the brunt of higher cost of delivered goods. It is not fair. As we are finding out in Asia, if the governments can unshackle themselves from the influences of the subsidized, then a policy of incremental/gradual market access works reasonably well.

This course of action is especially important because I am convinced that the breakdown of trade talks will harm the developing economies much more than it will harm the developed economies in the West and Japan.

Which brings us to the subject of agricultural subsidies in Western economies. Agricultural subsidies are really a complex, greasy tale of entrenched political influence and votes rather than that of genuine good will; it is as true of USA as it is of Japan or India. The election in USA is round the corner and I dont see the current crop of US politicians going out of their way to enter trade talks again. The French farmers are rather glad that negotiations broke down. What with the cumbersome decision making process of EU; I dont think we would see anything happen for the few years.

G21 is right now, a highly disparate group of nations with very different needs, political systems and priorities. Using the next two years to find common points of interest and building a strategy around them is important. What countries discuss on international trade talks are decided upon much earlier and are influenced as much by the voters and the general needs of the economy as by the back rooms of the senates, the editorial pages of newspapers, and the talking points the various lobbying groups. G21 should seriously try to invest in influencing policy in USA, Japan and EU before they get into the next round of trade talks. It is an effort that is going to take money, energy and intellect, but it could prove very worthwhile.

But the G21 also needs to get rid of its hang up over Singapore issues. We can use the intervening few years to make our markets more competitive, procurement more transparent and foreign investment much easier. There is no reason why we can not approach the two things together. If we do, we may find that by the time the next round of trade talks comes up, we are in a much stronger position to negotiate than we now are.

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