Manifesto #4: Political Economy of Trade

We should be really interested in the trade policies of our political party manifestos.

While our trade has improved over the years with India, our trade deficit is growing at an alarming rate of almost Nu.30 billion a year. Trade statistics shows the commodities which are primarily responsible for this deficit. It’s the import of essential goods like rice and petroleum to hydro electric equipment.

 

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India ranks in 7th in the world in GDP and 47th in its economic complexity index (ECI). While we don’t have ranking for Bhutan, Switzerland ranks 20th in GDP but No.2, far ahead of India in its ECI because of their high knowledge intensity. So, while there is no point in competing with India in manufacturing, we should reassess our position on our free trade agreement. I argue that we should be protectionist in tradable items like goods and finances but be open to some of the non-tradable services and attract high end workers.

On trade, sometimes we seem to have resigned ourselves to two things: that India might retaliate by shutting off the borders and that we have no other options to survive. I see that argument highly flawed for two reasons; that India will never resort to such a thing if negotiated in the right manner and also we will come up with options as a nation to survive if push comes to shove. We need to explore the idea of free movement of tacit knowledge and skills instead of products and trade. This means put tariff on Indian goods and relax permits for Indian high end skills in IT, engineering and medicine to come into Bhutan. This is a win-win situation where Bhutan does not compete with India for mass manufactured products but will provide a fertile ground for innovation and skills given our naturally conducive environment as a mecca for intellectuals.

The Free Trade Agreement with India could be renegotiated to protect and promote our most basic agricultural products which is an accepted international norm, even in the WTO. Tariff could be raised on some few products grown in Bhutan over a period of three years so that farmers in Bhutan could plan on increasing their production and efficiencies. This is selective protectionism, one that impacts the lives of 60% of the population who are farmers and it is high time that we did this.

Border immigration at Phuentsholing could be improved to render efficient services to the Indians coming by road but with an increase in processing tariff of Nu.1000/day per visitor. This will generate over INR. 500 million which can then be used for cross border automation, security and in country vigilance of environmental or cultural abuses, if any. Border controls with bio-metrics facilities can effectively monitor outside visitors including logging in of their activities and specific targeted contributions to the Bhutanese economy. The point is that while size does matter in international trade and economy, accumulation of tacit know-how and knowledge intensity can push a small country like Switzerland ahead of the pack.

 

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