The flavour of protectionism is spreading in the US sometimes at the cost of impeding market access for trade partners. The recent law signed by US President Barack Obama to raise work visa fees will hit Indian companies immediately and US companies with global operations in the medium and long term.
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First, there is a direct reference to Indian companies. Second, and more serious, is the issue of raising revenue through increased visa fees to fund a $600-million initiative for securing the US-Mexican border through 1,500 new border personnel, a pair of unmanned drones and military-style bases along the border.
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An announcement by United States Trade Representative Don Kirk says that “the Government of Guatemala’s apparent failure to effectively enforce its labour laws harms US workers by forcing them to compete against substandard labour practices and tilts the playing field away from American workers and businesses. By holding the Government of Guatemala accountable to its labour commitments under the CAFTA-DR, we can help to ensure that US businesses and workers are able to compete on fair terms”.
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Both these incidents bring two very important points to the fore. One, the unhindered use of policy space to safeguard domestic interests. Two, the use of social clauses in the FTA to provide a level playing ground to its workers.
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Both these decisions by the US provide valuable lessons. First, there would be a continuous effort by the developed world to pander to protectionist lobbies through use of domestic policy. With the pace of growth increasing in the developing world, this form of protectionism will thrive. Businesses in India will, therefore, have to remain dynamic to emerging situations and adapt quickly to remain on top.
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Second, the larger lesson is that though FTAs provide a platform for increasing trade, there is a need to be very careful while negotiating any specific clause with the developed world. The environmental and labour clauses are the most important to watch.
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It is important for FTA negotiators on both sides to understand that policing by other partners on social issues can lead to unfair situations where developing countries would find access to markets restricted.