Thursday, August 6, 2009

When Free Trade Means So Little

The new bilateral free-trade agreement between South Korea and India is not all it's cracked up to be: there are plenty of exceptions and the package will take 10 years to implement. Chung-Ho Kim of South Korean, and I argue here that fully free trade is the best possible way of recovering from the global slump, in this article titled "When free trade means so little", published in the Mint on Aug 6 2009.

India and South Korea are due to sign an agreement on Friday 7 August that they say will cut barriers and boost trade between our two important economies. But behind the political rhetoric, the reality of the Comprehensive Economic Partnership Agreement (CEPA) is in the fine print. By signing a freetrade agreement that does not actually free trade, our governments are denying us the best tools to fight the global recession.

They admit as much by saying it will pave the way for removing more barriers to commerce in the future, even though this agreement has been in the works for at least three years. It is at least a step in the right direction: With the Doha Round in a coma, both governments are right to seek other ways to boost trade.

But both governments are being far too timid in trade agreements that will not boost trade much at all, such as South Korea's recent free-trade agreement with the European Union and the one India is seeking with the Association of Southeast Asian Nations (ASEAN).

Liberating trade between Indians and Koreans would make a lot of sense: India's massive labour force and emerging globally competitive companies, particularly in information management and software, match up well with a relatively capital-intensive South Korea, whose expertise includes information technology, electronics and automobiles. In 2007-08, bilateral trade was about $10 billion--this pact could eventually boost that by one-third, but it does not go far enough.

South Koreans have long understood the value of trade with the rest of the world. In the early 1960s, they suffered living standards similar to those of Ghanaians or Kenyans then. Today, South Korea is at least 30 times more productive per capita than those two successful economies in West Africa and East Africa.

Some 70% of South Korean jobs are now directly related to some form of international trade.
India has taken a lot longer. After a disastrous experiment with self-sufficiency that not even an economy with more than a billion people could sustain, India's liberal reforms, beginning in 1991, have made dramatic improvements. Further liberalization has brought the average import tariff in India down from 32% in 2000 to 15% in 2007, according to the World Trade Organization; in 1991, the average import tariff in India was 115%. India is now the world's 16th largest trading nation overall but sixth largest for trade in services.

In the 1990s, both South Korea and India grew a full 3 percentage points faster than countries that did not open up to trade, according to World Bank economists Aart Kraay and David Dollar.
Trade was the key to growth before the global slump and remains the only sustainable route to recovery.

India's booming automobile sector shows how. After putting up for decades with very few choices in cars--thanks to the government-protected oligopoly, with massive import tariffs on foreign vehicles--keen Indian consumers are buying 9% more cars every year, making India one of the world's fastest-growing markets. Among the many investors that have taken advantage of a more open market is South Korea's Hyundai, now India's second largest car manufacturer.

Through joint ventures with foreign producers and newly gained expertise from trade, Indian manufacturers are becoming globally competitive too.

Despite all this, the flip side to India's booming automobile market is the remaining tariffs on auto components, benefiting a tiny minority who fiercely opposed Cepa and got special protection--at the expense of Indian consumers who pay more for products that could be imported more cheaply or made more cheaply in India with the right investment and with open competition.

The other victim, of course, is the components sector, which will prevent itself from becoming a serious international player.

India has also secured limitations and exceptions in Cepa for other so-called sensitive sectors, such as agriculture and textiles. In other words, India's negotiators are preventing Indians from getting cheaper food, clothes and vehicle parts.

New Delhi continues to insist that coddling India's farmers is the route out of poverty, while constraining their property rights and their freedom to trade even inside India. Opposition to free trade is also deeply rooted among South Korea's rice farmers, who fear competition will erode their 60% grip on their market. Again, it is the consumers who pay higher prices for this favouritism.

Protection for a variety of vested interests means that even the limited terms of this agreement will be implemented slowly, over 10 years. It is great that the two countries have agreed to speed up talks on removing double taxation, on a maritime and aviation agreement, and other stimuli to trade and investment--but why wait to boost two-way trade by (what South Korean negotiators calculate at) $3.3 billion a year?

Both governments will proudly announce CEPA today as an historic achievement, but we should be worrying about the details instead of admiring just another photo opportunity. Let us sign a free-trade agreement that does what it says on the tin: Free trade.

Sunday, August 2, 2009

Decriminalising homosexual behaviour

Repealing IPC 377: Recognising diversity and dissent

Delhi High Court has passed a landmark judgment that severely restricts the scope of the section 377 of the Indian Penal Code. The decision noted, “Respect for human rights requires that certain basic rights of individuals should not be capable in any circumstances of being overridden by the majority, even if they think that the public interest so requires. Other rights should be capable of being overridden only in very restricted circumstances. These are rights which belong to individuals simply by virtue of their humanity, independently of any utilitarian calculation.”

In this article titled, "Recognising diversity and dissent", published in Pragati: The National Interest magazine, in August 2009, I discuss the significance of decriminalising Section 377 of the penal code in the wider political and constitutional context.

The Delhi High Court’s ruling decriminalising consensual adult homosexual acts has not only enabled gays to come out of the closet, but has also revealed many other strange bedfellows. Many leaders of different religions – Christians, Hindus, Muslims, find themselves united in expressing their disapproval. Many others who normally prefer to wear their secular credentials on their sleeves, some seem to have suddenly discovered their affinity to tradition and culture and come out strongly against this judgment, others seem to have discovered that ambiguity and silence are the better parts of valour. The communists, hardly the epitome of tolerance, seem to be the only group among the political class to have welcomed this verdict.

The opposition from the conservatives and the ambiguity among the “secular” political class stems from a failure to distinguish between ethical values and legal implications of this judgment. While laws need to stem from moral values, moral values do not necessarily become laws. Not everything that one disagrees with need to be made illegal. One way to look at this is that while the law provides the floor, the basic framework for individual behaviour in a society, moral values represent the high ceiling, which one should aspire to, but which is well beyond the legal norm. Just as we may endorse the right of smokers or drinkers to pursue the freedom to exercise their choices without actually endorsing many of those behaviours, everyone can endorse the right of homosexuals to pursue their lifestyles, regardless of whether they approve or disapprove of homosexuality. In that context, the Delhi High Court’s ruling to decriminalise homosexual behaviour among consenting adults is a very welcome and long awaited step forward. We human beings have the right to make choices – that is what makes us humans. As Voltaire is famously supposed to have said, “I may not agree with what you, but I defend to the death your right to say it.”

The judgment says, “Respect for human rights requires that certain basic rights of individuals should not be capable in any circumstances of being overridden by the majority, even if they think that the public interest so requires. Other rights should be capable of being overridden only in very restricted circumstances. These are rights which belong to individuals simply by virtue of their humanity, independently of any utilitarian calculation.” This is a lofty and noble idea, and if the Indian judiciary lives up to it, it will be an extraordinary step forward.
The judges relied on Articles 14, 15 and 21 of the Constitution to minimize the scope of section 377 of the Indian Penal Code. A logical consequence of this judgment ought to be decriminalisation of prostitution—same-sex and heterosexual. If, a consensual act among adults of the same sex individuals in private is legitimate, then there can hardly be objection to the oldest profession. That would be a truly historic.

It is also interesting to note that the judgment did not invoke Art. 19(1)(a), and expand the scope of “reasonableness”, although that is what the judgment has sought to uphold by sanctioning diverse sexual inclinations.

The socio-political question is that by making the present HC verdict as a symbol of the change, the gay community may have attracted upon themselves unnecessary attention, and now they may have to prepare to face their long dormant, but reactivated vocal critics. Needless to say that society progresses through such churnings, unpleasant ideas come to the fore, and one has to debate and decide to take sides, but one has to be prepared to pay the price that such churning may unfortunately demand at times.

Law to Legitimacy: Shifting perception of property

The contrast between Section 377 and the right to property could not be starker. Here is a century-old law, part of which had been defunct for all practical purposes. There is hardly a case in recent decades where this section has been invoked to prosecute consenting adults exercising their choice in private. This particular section is largely irrelevant, and could easily be retired. Yet, when the section is read down by the court to achieve precisely that, a fresh debate is ignited around sexual inclinations.

On the other hand, consider the land acquisition act of 1894, another vintage of the colonial era. For decades various governments have been invoking eminent domain, routinely displacing hundreds of thousands of people from their homes, all for the sake of some wider public interest. No court has ruled against the substantive validity of eminent domain so far, upholding acquisition of private property, although increasingly restrained by qualifications. Yet, there is no political authority in the country today that is keen to invoke the law, even as it stands in the statute, to acquire private land any more, increasingly aware of the rising political costs of such endeavours.

The Delhi HC judgment profoundly notes, “The role of the judiciary is to protect the fundamental rights. A modern democracy while based on the principle of majority rule implicitly recognizes the need to protect the fundamental rights of those who may dissent or deviate from the majoritarian view. It is the job of the judiciary to balance the principles ensuring that the government on the basis of number does not override fundamental rights.”

This is an admirable sentiment. For democracy to endure, majorities of the day could not be allowed to degenerate in to mob rule and suppress dissent. The basic feature of democratic functioning is to protect the right of the minority to engage in the debate, and to recognise the prospect that today’s minority opinion may become the majority view of tomorrow if it can peacefully persuade more people.

But how has the judiciary fared amidst constant onslaught on the fundamental right to property? This right is the foundation of all human rights, and there is hardly any right that can manifest without the right to property. The right that the gay community claims is fundamentally a right to use their own body, their most fundamental property, in the way of their own choosing – the right to property, and freedom to express themselves. Why have two pieces of law have generated such diametrically opposite responses? What has changed?

In one there is a ground swell of popular support, in the other, there may be some voyeuristic curiosity, but not much popular support. In one, powerful governments have been brought to its knees. In the other an apparent non-issue has made the powers that be wary of disturbing the status quo. There is a very powerful political lesson in these two contrasting experiences. When the ground shifts, laws either have to reflect the new mood of the public, or become redundant. And without that change in the popular perception, even the most progressive law, may not carry the day. For all these years, the gay community had sought to bring attention to their cause by waving their flag, by standing apart, by claiming to be different. Today, they find themselves largely isolated, the support from the visible and vocal classes not amounting to much politically.

The difference is between legitimacy and legalization. Law is not what is on the statute, but what is perceived to be just. Even in their greatest victory till date, the gay community in India is unfortunately as far from gaining that legitimacy as ever.

The gay community, just like any other minority, need to move away from their sense of collective right as gay, nor flaunt their sense of victimhood. Framing the issue as collective rights invariably leads to pitting one collective against the other, and in such conflict it is not easy to overturn the collective that claims to represent the majority. But the smallest minority in any society is the individual, and his rights need to be protected, so that all minorities may enjoy the same protection, and are treated as equals before the law.

To gain that legitimacy, however, one has to discover the fundamental right, the right to property, which means to recognize and respect that right of every individual human being.
Once society begins to recognise the value of property rights, gays along with the rest of us will find that we can live together respecting each others’ choices and values, even when those values apparently conflict with each other. That would be a victory which all of us would be able to celebrate irrespective of our various identities, status and inclinations. And then the law will not merely be legislation in the statue book, but also legitimate in the popular eye.