But while in New Delhi two weeks ago, Bhagwati lent his weight to a
radical idea (radical to us, not to the world!) that has been floating
around since March 2000-an India-USA Free Trade Agreement. It was first
mooted by two young Washington-based, Indian-born economists Aaditya
Mattoo and Arvind Subramanian, eliciting support thereafter by sections
of Indian industry. In June 2001, the conservative Washington-based
think-tank, the Heritage Foundation, endorsed the proposal and Mukesh
Ambani joined the chorus in a speech he gave recently at the Wharton
School in Philadelphia.

The US is following a three-track strategy of “competitive liberalisation”
in trade. It is concluding bilateral free trade pacts–the one with
Jordan has been done and another with Chile was finalised two weeks
ago. Yet another with Singapore is likely very soon and negotiations
are on the anvil with Australia. Then, there are regional deals. The
North American FTA came into being in January 1994 and an agreement
establishing a 34-nation Free Trade Area of the Americas is to be completed
by January 2005. Negotiations have just been announced for an FTA with
sub-Saharan Africa. The third leg consists of multilateral negotiations
under the auspices of the WTO which, alas, are facing an uncertain future.

Clearly, the Americans believe that bilateral and regional promiscuity
is perfectly compatible with multilateral virtue. That, however, has
not been India’s position. We have all along held that multilateral
forums like the WTO maximise gains for economically weak countries.
While this is right, we have also to ensure that we are not elbowed
out of lucrative markets because of bilateral or regional trade agreements.
That is one reason why the Prime Minister in his visit to Bangkok last
month proposed, albeit half-heartedly, an India-ASEAN free trade agreement,
well after the Chinese have moved further ahead in this direction.

To be sure, there are risks. The Americans have incorporated labour
standards in their FTA with Jordan and have forced the Chileans to abandon
all forms of capital controls for all time. Environment will be another
contentious issue although all that NAFTA does is commit Mexico to implement
its own standards strictly. One way to “manage” US pressure during negotiations
is for India to launch FTA negotiations not only with ASEAN but also
with Europe and Japan.

The constraints to increased Indian exports to the US lie here at home
with poor infrastructure, restrictive labour laws and outdated policies
of reservation for the small-scale sector. Nevertheless, our competitiveness
can be enhanced with a FTA particularly in labour-intensive manufactured
goods like textiles, leather and footwear. We can also arrive at a special
regime for trade in services, an area of great Indian strength from
every point of view including the time-zone in which we are located.
US merchandise exports to India that have stagnated at around $3.5 billion
for the past five-six years will also increase and this is to our economic
and strategic advantage.

While it is no quick-fix to our growth deceleration in recent years,
a FTA may well be the tonic to revive flagging American interest in
the Indian economy. But more than mere trade, the FTA will be a significant
political statement and move on our part. Indeed, we might even envision
a FTA between the USA and SAARC that could speed up economic integration
in our accursed region.