India loses out in free trade agreement with Thailand?

Ravi Krishnan in Indian newspaper Financial Express claims that India loses out in free trade agreement with Thailand.

His evidence is that:

During January-December 2005, Thailand's exports of items under the Early Harvest Scheme (EHS) of the Indo-Thai FTA stood at Rs 664.3 crore — an increase of 71% over calendar year 2004. In contrast, India's exports to Thailand actually declined 33.8% to Rs 195.6 crore.

His point is that: India receives less monetary revenue from trading with Thailand and thus loses out from the deal.

Ravi forgots that trade is exchange of goods for goods, goods for money, or money for goods. In any voluntary exchange/trade, when you give away goods or money, you will receive goods or money of equivalent value as compensation. 

Certainly in this deal Indians send more money to Thailand than Indians receive, but doesn’t it also indicate that Indians receive more goods from Thailand?

No one loses out from trade. As a matter of fact, both sides gain because with the same amount of money, you can get more stuff from Thailand than from inefficient domestic manufacturing sector back in India.

If you are a worker, do you think your boss always loses out when he hands you the paycheck. No, because he gets your labor of equivalent market value as exchange. Then why do you think India loses out from trade simply because Thailand exports more and receive more money from India?

Comments

[Neo]

You say: both sides gain because with the same amount of money, you can get more stuff from Thailand than from inefficient domestic manufacturing sector back in India.

But then what is the root of the inefficiency of the Indian manufacturing sector? A inverted tariff structure means that it is costlier to buy raw material than final products.

So therefore the supposed competitive advantage of Thai manufacturers is not on a level playing field.

Trade diversion is taking place since the total quantum of trade hasn't increased much and is bad for the Indian industry since in the long term it could mean investments being diverted to Thailand too

[Freeman]

Thailand doesn't set the tariff for India though. India sets the import tariff for itself. Import tariffs are used protect Indian domestic manufacturers, which are very powerful and capture the legislative process. Thus if Indian domestic manufacturers feel that they cannot stay in business anymore without lowering costs of imported material, they will lobby the government to do so. By the way, the highest Indian tariffs are always imposed on finished manufacturing products, not on raw material, so it is hard to say that Indian manufacturers suffer from high cost imports. They are so powerful politically and how could they suffer?