Principles of the trading system
The WTO discussions should follow these fundamental principles of trading.
1.A trading system should be free of discrimination in the sense that one country cannot privilege a particular trading partner above others within the system, nor can it discriminate against foreign products and services.
Can someone explain what the first part means?
Does the second part mean that ideally we should always allow 100% FDI in all sectors and give all priviliges which we give to a local company?
2. A trading system should tend toward more freedom, that is, toward fewer trade barriers (tariffs and non-tariff barriers).
Can someone explain this further? Are "trade barriers" similar to our policies in the 60's-80's wherein we did not allow foreign companies? What kind of trade barriers do we have now in 2006 wherein other countries are disadvantaged (other than the non-100% FDI trade barrier).
3. A trading system should be predictable, with foreign companies and governments reassured that trade barriers will not be raised arbitrarily and that markets will remain open.
Guess not very difficult to understand. It means we should not change our policies just like that. Though I guess we are notorious for doing the same. A simple hypothetical example from my work.
Assume I set up a office in China for manufacturing something. I would have set the factory in china (say for a 10% cost advantage over setting the factory in India) assuming certain factors like freight charges, real estate charges, labour charges,
local taxes etc. Now, the last one, local taxes is one extremely important component. If the Govt of china feels like increasing its tax component from say 6% to 17% then I am done! My cost advantage of 10% is offset and I am in deep trouble. This is very much possible and can happen any time. This is also one of the main reasons why hue and cry is created over the budget by the corporates (if things change for worse) coz all their calculations go wrong. Hence one of the reasons why democracy is preferred is that its assumed such kind of laws will not be passed on the drop of the hat, whereas in a non-democracy economy, say in china, they can pass whatever law they want whenever they feel like.
PS : The India-China e.g. was just an e.g. lets not digress the topic getting into nitty gritties. If the concept/understanding per se is wrong, plz correct me.
4. A trading system should tend toward greater competition.
No doubts. I guess it means we should not protect any particular industry or any particular company or subsidize them to artifically create cheap products and create a market for them thus affecting other companies which may actually be more competitve. guess this is a typical example how India was a few decades back. Even now we protect many companies. More on this later.
5. A trading system should be more accommodating for less developed countries, giving them more time to adjust, greater flexibility, and more privileges.
Someone please explain. Does this not contradict the most of the above 4 points?
Lets discuss these issues. Extremely important points. And also the answers to deepu's question. very simple questions but answers may not be so simple.
Gr8 job god2be and deepu.
Tati : will post my stuff once this discussion is over.
RPK
