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11 October 2013, Gateway House

“You cannot divorce economics from politics”

Gateway House speaks to Ujal Bhatia, Member, Appellate Body, World Trade Organisation, on the importance of economic diplomacy; India’s assertiveness during trade negotiations; the role of Indian business in the negotiation processes; the relevance of SAFTA; and on ways to boost intra-SAARC trade.

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The growth of economic relations in South Asia holds the key to improving the political climate in the region, which is in danger of being overtaken by Africa in terms of trade connectivity and social and health indices. India’s struggle to cement meaningful regional trade agreements in an expeditious manner – or even at all – highlights the necessity to reform the trade bodies, which are the principle actors in trade agreements. Until these reforms are undertaken, what should India’s role and priorities be? And how can its businesses participate in the process?  Ujal Bhatia, Member, Appellate Body, World Trade Organisation, tackles these questions in an interview with Gateway House’s Senior Researcher Karan Pradhan. 

Q. In this globalised world, how important is economic diplomacy vis-à-vis conventional diplomacy?

The focus of diplomacy has shifted significantly from preventing wars to economic diplomacy. Countries that trade with each other find a way of managing their political differences. Therefore, Trade is important for our diplomacy. You cannot divorce economics from politics in real life.

Q.  India has a trade agreement, SAFTA, with the South Asian countries which is not believed to be a useful one. To what extent do you feel this perception is justified? 

This view is not entirely accurate because you have to start with what SAFTA intends to achieve in its entirety. You cannot separate economics from politics. The South Asian agreement, taken at face value, is an economic agreement to promote economic integration in the South Asia region. At the same time there is a huge subtext of the agreement which is about bringing these countries together in a political sense. You can argue that in economic terms, it has not delivered very high results as seen by the trade within SAFTA, which is approximately 5-6% of the total trade of these countries. To that extent, it is valid that SAFTA has not achieved the kind of integration we seek to achieve. But the fact that the agreement provides a platform for economic engagement is also significant.

Q. What can the constituent members of SAFTA do to create a more meaningful engagement with one another and boost regional volumes of trade?

At one level, there is a lack of complementarities in the economies of this region. If each country is producing apparel, then they are competitors. There is hence a natural reluctance to liberalise vis-à-vis such countries, whom you view as competitors. But there are ways around this. Look at the textiles and apparel sector in South Asia in totality. We are all textiles and apparel producers but each of us has a unique USP. India is the only country with strengths along the entire value chain from cotton to finished products; Bangladesh has competence in high volume apparel and so on. If you were to integrate the whole sector within the region, each of us would play to our strengths which would add to the region’s global competitiveness. Some interests will be adversely affected but that is how life is. Overall, there would be a significant welfare gain for the region.

Q.  India is seen as timid and not as aggressive as needed, in trade negotiations. How asssertive or aggressive should the country be?

All countries have sensitivities in terms of openness. If we are fully committed to the idea that South Asian integration is essential for optimising our collective economic potential and bringing the region together politically and economically, then we would be  able to surmount the sectoral problems that we have, in terms of the individual sensitivities of various industries such as textiles. I believe we could have been a bit more open than we have been. Then there is the elephant in the room — India-Pakistan relations. One way of reducing conflict with Pakistan is by increasing trade and building up a constituency in Pakistan which has an interest in shared prosperity and stability. As the largest economy in the region, India has the responsibility of leadership.

The South Asian region is a great test for Indian competitiveness. If India cannot compete with the economies of South Asia, how can it compete with the rest of the world? I have always advocated that openness should be exercised first with your neighbours and then the rest of the world. I have always advocated that openness should be exercised first with your neighbours and then with the rest of the world.

Q. What role does Indian business traditionally play in trade negotiations?

If you want to launch a negotiation with a country you prepare a pre-negotiation study to understand the pros and cons. After government approval, inputs are taken from business chambers and a table-top study of the secondary data relating to the desirability of the deal is conducted. Once the decision to start is made, a team is put together and preliminary contacts are made with the country to lay down the rules for the negotiation. A wish list is made together on areas within which we seek openness and others do the same.  Over successful rounds of discussion, we pinpoint those areas as easily achievable, those that require more discussion and that need political input.

Within this process there is a consultative process with concerned business sectors. Once you have narrowed down areas of interests and what the other side is demanding, you start a consultative exercise with your own business sectors as to how they look at these proposed exchanges. Naturally, when you are opening up a sector, the normal reaction of your businesses in that sector is a cautious one. But the negotiator has to balance the gains for the economy with the pain for individual sectors.

Ujal Singh Bhatia is Member, Appellate Body, World Trade Organization (WTO). He previously served as India’s Ambassador to the WTO from 2004-2010.

This interview was exclusively conducted for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.

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