Debate on Global Competitiveness–Essay

(i) The asymmetries of the present trading system: The concern is that WTO Agreements will operate against the interests of developing countries. The dominant share of a small number of developed countries in world trade and weak preferential treatment for developing countries (under the Special and Differential provisions) will make it difficult for many of the developing countries to face global competition at a time when their domestic development agendas have still not been achieved.

The pragmatic counter-arguments to this view are that, despite inherent problems, the WTO trade regime offers both challenges and opportunities for developing countries to expand trade, access advanced production and communication technologies, participate in the knowledge- based revolution currently underway, and generally restructure their economies towards promoting faster economic development with a better quality of life for more people.

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(ii) The survival of the SME sector, which is seen as threatened in the changing economic environment: There is growing concern that unrestricted imports following the removal of QRs will lead to a situation where small industries will be unable to withstand international competition, especially from low-cost pro­ducers like China, which joined the WTO in November 2001.

The SSI Ministry has responded to this perception and asked for bound tariff rates at 40% of manufacturing products to be retained in order to provide continued protection to SSI units.

However, the fear that the small-scale industries would not be able to survive global competition is misplaced. The fact is that despite all the problems and constraints which the sector has had to deal with over the last forty years of its existence the sector has registered higher growth rates than the rest of the industrial sector since 1991 (AIMA).

On the export front, small enterprises have recorded a nine-fold increase over the decade 1986-96. Though the higher growth rates are the result of a combination of several factors, they point to the flexibility of the small-scale units whose smallness is their greatest advantage.

(iii) The role of the State in the economy and policy interventions in support of SMEs: On the present policy climate, the State’s role is ideally seen to be minimal, to correct market-distortions rather than to actively intervene in the economy.

This policy shift has led to a call for reducing subsidies and withdrawing all forms of protection to Small enterprises whether in the form of product reservation, fiscal concessions or other measures. However, government regulation of economic activity and intervention through various supportive measures are common even in free market economies around the world – the US, Germany and Japan being examples of such intervention.

The phenomenal export-driven growth of the East Asian economies in the 1 980s and 1 990s, often based on small and medium enterprises, was made possible through state intervention using a wide range of supportive policies – provision of education and skills for the workforce, and high quality infrastructure initially, and later through targeted industrial policies specifically aimed at promoting export-led economic growth. It is, therefore, certain that the role of the State in developing countries may not be reduced in future, though the focus and forms of intervention may change

The impact of the WTO Agreements on domestic industry has two aspects: (i) .the potential threat to domestic industry through rising imports of low-priced products as a result of lowered tariff barriers and (ii) the potential opportunity of global markets opening up as a result of systematic trade liberalization. How these two aspects will be balanced will ultimately depend on the competitiveness of each product manufactured in the country and exported.