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New Trend in India’s Foreign Trade – Social Issue Essay, Article for Class 12, Graduation and Competitive Examination.

Essay on “New Trend in India’s Foreign Trade”

At the third ministerial meeting of WTO held at SETTLE, we were aware of the fact that the trade policy in not just about economic policy but is also foreign policy as well as an act of national security policy.

Many years ago, in 1971 to be precise, a distinguished US economist and strategic policy analyst, Thomas C Schelling, made the following submission to a US government commission on ‘United States International Economic Policy in an Interdependent World’ (1971):

“Trade policies can be civilised or disorderly. US trade policies can antagonise governments, generate resentment in populations, hurt economics, influence the tenure of governments, and even provoke hostilities…Aside from war and preparations for war, and occasionally aside from migration, trade is the most important relationship that most countries have with each other. Broadly defined to include investment, shipping, tourism, and the management of enterprises, trade is what most of international relations are about. For that reason, trade policy is national security policy”.


It can be argued that even India adopted this perspective in the past when it opted for a development strategy that reduced India’s share in world trade (from two percent in the early 1950s to half a percent in the early 1990s), hoping that not doing trade was a way of ensuring national security. Clearly, that is not the import of Schelling’s deposition. While recognising the wider foreign and security policy considerations that inform trade policy negotiations, it is necessary for a large economy like India not only to be a bigger trading economy but to also participate effectively in multilateral and regional trade negotiations and agreements.

Even China, which has remained outside the multilateral trading system but now waits eagerly to secure entry into the WTO, has come to recognise the importance of foreign trade. The Chinese view on trade policy was best articulated at the 15th Party Congress of the Chinese Communist Party by General Secretary Jiang Zemin who emphasised the importance of “working hard to extend the degree of openness” of the Chinese economy and summed up the party line stating: “We should actively join and participate in regional economic cooperation associations and global multilateral trade systems.

By contrast, with our approach to the Uruguay Round of trade negotiations we have been better prepared in dealing with the challenge of a new round, the so-called Millennium Round, even though it could be argued that both the government and the corporate sector could have invested more resources to better encounter the challenge ahead. While there may be deficiencies in the way we argue our case and pursue our agenda, there has been a sea change in attitudes and one no longer encounters the kind of resistance to greater trade openness today as one did a decade ago. There are several reasons for this. First, there is wider public acceptance of the desirability of India being more open to external trade and investment flows; second, India has found new niches in the world market (apart from gems, jewellery and textiles) where it hopes to do well, namely, computer software and software services export; finally, a wide cross-section of our political leadership has come to recognise the strategic and foreign policy gains from increased trade.

In the case of WTO, it is today possible for India and the United States to join forces in some areas like e-commerce, competition policy, and industrial tariffs while accepting differences in other areas like the movement of natural persons and labour standards and environment issues, provided both approaches the dialogue on trade policy from a broader perspective that forms their dialogue on strategy policy issues. The inter-ministerial coordination now being attempted in approaching the Seattle meeting augurs well for a strategic policy perspective, but its success will rest on our ability to ‘give and take’ across the negotiating tables.

Commanding the India-Sri Lanka Free Trade Agreement, the external affairs minister, Mr. Jaswant Singh, echoed the Schelling view of trade when he said that regional economic cooperation can enhance regional security. In preparing for the Seattle WTO meeting as well as for the BIMSTEC ministerial meeting, we must recognise the positive political externalities of increased trade openness. BIMSTEC offers new hope for enhanced cooperative economic interaction between most South Asian nations, and the framework in which large international infrastructure projects can be taken up in India’s backward northeastern states involving India, Bangladesh, Myanmar and Thailand, and even Nepal which has an observer status in BIMSTEC.

It is becoming increasingly clear that the South Asian Association for Regional Cooperation (SAARC) has got hobbled by Pakistani intransigence on economic cooperation. If SAARC cannot grapple with trade policy issues it will remain a talking shop and slowly lose its relevance. Rather than spend energy on breathing new life into a moribund SAARC, India will be better of allowing SAARC to grow at its own pace and at the pace that Pakistan will allow it to grow by, and instead devote greater energy and more resources to BIMSTEC.

Incidentally, BIMSTEC is nothing but an association of the rim countries of the Bay of Bengal and can, in fact, be renamed the Bay of Bengal Community. Not only does this association, where Nepal has been invited as an observer, include an important neighbour of India, namely Myanmar, but it also acts as a bridge to ASIAN, another group in which India must be more actively involved. If there is one forum where foreign relations and national security can be truly improved through trade relations, it is BIMSTEC. The fact that another large and economically more self-confident nation like Thailand can balance India’s overwhelming presence in the region can help deal with the problem of India’s “bigness” in BIMSTEC. This problem will continue to haunt SAARC.

An integrated approach to trade, foreign, and security policy in dealing with WTO, SAARC, and BIMSTEC can help create a more forward-looking foreign and economic policy for India.


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