That’s perhaps what Pascal Lamy has set out to do. A task force has been set up to assess the impact of the financial crisis on the WTO and its implications for the multilateral trading system.
Likened to the Great Depression in severity and impact, this time through the credit crisis and collapse of the banking system also comes accompanied with a plethora of problems such as food security, energy crisis and climate change.
The primary concern vis a vis its impact on international trade is the drying up of credit lines required to finance trade transactions as well as the increase in the cost of trade credit finance.
‘Around 90 percent of the $14 trillion of world trade is financed by trade credits, which according to Lamy are the origin of banking. But recently rates for trade credit have shot up, with spreads rising to 300 basis points above Libor interbank refinancing rates, three times their level a year ago.
One third of the world economy, mainly in emerging countries, still has a big growth potential and we must try and make sure that this engine can work through trade.”
Added apprehension is the possibility of the emerging economies resorting to the tendency of adopting protectionist measures aimed at insulating domestic producers and industry.
That be, in the light of the world crisis, what would be the appropriate Indian approach in crafting its trade diplomacy agenda
As seen from the Doha round the emerging economies, as India, China and Brazil displayed significant clout, ensconcing themselves strategically in the multilateral trade hierarchy.
Noticeably , on the other hand courtesy the American meltdown the U.S has ended up loosing economic clout and intellectual authority As has been remarked ‘unfettered capitalism died at the time of the $700 billion bailout.
What does the changed world view of multilateral trade bode for India? Does this signal an enhanced multilateral status for India? What is the future course for Indian economic nationalism? Lastly and most importantly does the impending financial innovation signal a new direction for innovation per se?
India has often been at the end of stinging criticism that it follows a dodgy trade policy. Criticized for bringing down the Doha talks, India nevertheless displayed formidable economic muscle and stuck to its pro-farmer and agri subsidy stance. Key issue at Doha was the question of cotton subsidy / tariffs and the migration of services
The high subsidies offered to the U.S farmers has already rendered a devastating blow to Indian Cotton exporters. The price of food cereals has seen unprecedented price hike. The crisis in Indian Cotton farms and the inflation in the food cereal industry require that India continues its vigil and protect its domestic farmers and agriculture. On one hand, India and the developing countries are asked to bring down our shackles on protectionism while the U.S, EU and Japan continue to do so.
India understands that it needs to get proactive in handling the world economic crisis and as such cannot distance itself from the multilateral community. However it cannot in adherence to WTO policies be oblivious to the impact the crisis will have on its domestic industry and agro economy. India would have to necessarily exercise greater vigil in safeguarding its national interest
In such a scenario, what would be sensible for India is to follow is an approach of ‘smart and targeted protectionism’. It may be recommended for India to follow a balanced process of sensible economic integration where its seeks to foster ties with countries that will collectively promote an egalitarian world society. India has come on its own and no longer needs to pander to the ‘beggar thy neighbor’ attitude. Further we are also witnessing a shift in the manner in which global alliances are being reconfigured. The rather nebulous working of the multilateral order has prompted many countries towards shifting focus and establishing bilaterals, FTAs’ and Regional trading agreements. India could well follow this trend and chart a more active course in this direction.
This is neither the first, nor will it be the last. Bust and bubbles are cyclic as much as is the ebb and tide of life.
Financial Innovation will work as the operative word for some more time to come-a kind of innovation that is based on new patterns of living, doing, innovating and investing.
It is not about living on plastic currency and borrowed green anymore. Credit is a dirty word .It is about finding ways to do things in a manner that is cost effective, efficient and resource optimal. Innovation and technology that is green, clean, energy- wise, and healthy in a overall manner is what should ideally dictate the making of the new world order.