A SERIES of recent actions by the US government directed at China may begin to unravel the multilateral trading system built over several decades. Washington has begun the process of re-imposing quotas on the import of some items of clothing and apparel from China to protect its own industry. The Americans have also told the Chinese that their currency was seriously undervalued and was causing unacceptable distortions in world trade. Beijing was warned to revalue its currency or it would be subjected to punitive actions.

“Current Chinese policies are highly distortionary and pose a risk to China’s economy, its trading partners and global economic growth,” said the US treasury department in a report sent to Congress. Coming closer than before to setting a deadline for Beijing to act, the treasury report warned that China’s current policy would meet its definition for currency manipulation unless a “substantial alteration” was made in its value with respect to the dollar. Washington was looking for a significant upward revaluation of the yuan, the Chinese currency, or at least for a signal that would indicate that Beijing was moving in that direction.

These actions come at an unfortunate time. Washington decided to move as the momentum picked up by the Doha round of negotiations had begun to dissipate and questions were being raised whether the major trading nations in the world were prepared to honour their commitment to produce a system that allowed the developing world to realize its economic potential. It was because of this commitment that the current series of negotiations was called the “development round” and the developing world had agreed to lend support to them after overcoming some serious misgivings.

The multilateral system was supposed to evolve in the direction suggested by economic theory. A series of trade talks launched after the conclusion of the Second World War concentrated on removing various forms of trade barriers erected over half a century in defiance of the belief that a free trading system was good for both exporting and importing countries. It was recognized that there may be some costs in the beginning to both sets of countries for moving towards free trade but adjustments would eventually produce greater welfare for all.

The Kennedy and Tokyo rounds launched under the auspices of the General Agreement on Trade and Tariffs concentrated on reducing tariffs on manufactured goods, the principal items of production in industrial countries. Considerable reductions in tariffs were achieved by the Kennedy round. By the time the Tokyo round was concluded the developed world had almost eliminated tariffs on industrial goods. However, manufactures of interest to the developing world as well as agricultural products were mostly excluded from tariff-free regime ushered in by the Tokyo round.

Instead of significant reductions in tariffs on textiles, clothing and apparel — the product lines in which many developing countries had a clear advantage — these rounds established a different trading regime for them. Initially called the Multifibre Arrangement (MFA), the agreement allowed developed countries to impose quotas for textiles in return for the promise that they would be removed on January 1, 2005, accompanied by reductions in tariffs.

The Uruguay round, the last series of trade discussions, concentrated on improving the regulatory part of the multilateral trading system. The negotiating parties agreed to set up a new multilateral trading organization, the World Trading Organization, in place of GATT. The main advance made this time around was to institute a process that allowed trading nations to appeal to the WTO against all those policies regarded as discriminatory. Once an appeal was filed, the WTO could set up a panel of experts to determine whether the system of rules agreed to in the Marrakesh treaty that concluded the Uruguay discussions and established the WTO had been violated. If it was decided that that had indeed happened, the offending country was required to take steps to remedy the situation.

This system had begun to work for the developing world even though it was expensive for them to enforce compliance. This was particularly the case for small nations that could not afford the legal costs associated with conducting panel reviews. Nonetheless, some successes were achieved by developing countries in levelling the playing field for themselves by forcing changes in policies by rich countries.

For instance, recently Brazil was able to get a WTO decision to have developed countries reduce subsidies on sugar. Working together, developing countries were able to get rich nations to agree that they would reduce, if not altogether remove, the subsidies given to their farmers for producing products in which many developing countries had a clear advantage. Sugar was one such product, cotton another.

China became a lightning rod for the US because of the distortions that had been created in the American macroeconomic situation. The United States trade deficit with China reached $124.9 billion in 2004, larger than with any other country or with the entire European Union. The sluggishness in the American labour market and the inability of the American industry to create new jobs for the less skilled members of the workforce are some of the developments being attributed to competition from China. While China is an easy target on which to focus, it is difficult to hit it without invoking a response that could cause great hurt to the American economy. As discussed below the US has to move carefully or else it could overturn the entire apple cart.

How could Washington move unilaterally against China when so many constraints were placed on such actions by the Marrakesh agreement and the WTO? Action being contemplated is under the provision that allowed special arrangements for the countries that were not already in the GATT at the time the WTO was established. All the countries represented in the GATT automatically became members of the WTO.

However, stringent rules were laid down for admitting new members, including China. Under this system, countries wishing to join had to negotiate separately with all major trading partners who could prescribe conditions for admitting new members into the organization. The bilateral agreement Beijing signed with Washington had the provision that the US could take protective measures if the value of exports from China for textile products exceeded 7.5 per cent a year.

The textile sector in the United States came under pressure once the quota system was removed on January 1, 2005, and free import of clothing was allowed into all countries, in particular those in the developed part of the world. That China would be the principal beneficiary of an unrestricted trading regime in textiles was recognized even before the quota-free system came into existence. But it was not fully appreciated that the shock China could deliver would be as severe as the one that is being felt at this time not only in the United States but all across the globe.

Since January 1, imports of Chinese trousers increased by 1,500 per cent while the arrival of knit shirts increased by 1,350 per cent. Unable to compete with this flood of Chinese imports, the American textile industry lost 16,000 jobs and 18 factories were closed, mostly in the politically important states of North and South Carolina. These states had the industries still producing mass-market clothing.

Troubled by this development and ever responsive to the demands of important political constituencies, the US Congress began contemplating various punitive measures against China. Several bills were tabled that would impose penalties on China for currency valuation and manipulation, violating of intellectual property rights and following other forbidden practices like giving low cost loans to manufacturers and exporters and rebates of export taxes. While initiating these actions the Bush administration wished to minimize their impact on economic relations with China. It wanted to adopt a course that would stop Congress from taking draconian measures which would invite some unwelcome response from Beijing.

The American textile industry had petitioned Washington to slow the surge of imports from China by invoking the clauses Beijing signed in order to gain admission to the WTO. Washington decided to act arguing that it had the right to impose quotas, or safeguards, because the imports were disrupting the American market. On May 13, Carlos M. Gutierrez, the US commerce secretary, announced the imposition of new quotas on cotton shirts, trousers, and underwear. This action “demonstrates this administration’s commitment to level the playing field for US industry by enforcing our trade agreements,” explained the trade official.

Four days later, on May 17, the U.S issued the above noted warning to Beijing on the value of its currency. The treasury report implicitly gave Beijing until October to make some adjustment in their foreign exchange regime. It was then that the treasury department would have to submit another report to Congress. Even before the US issued its report, the Chinese leaders said that currency policy was a “sovereign” matter and that they would not be pushed by other governments into taking action that was against their long-term interests.

The US could not afford to alienate Beijing since the Chinese held a number of aces in their hands. By far, the most important of these was the accumulation of large amounts of US treasury bills in the coffers of the Chinese government. It was estimated that in May 2005, the Chinese central bank held more than $600 billion in treasury securities and other dollar-denominated instruments as it seeks to keep its currency from rising in line with the trade surpluses. It was Beijing’s investment in US government bonds that made it possible for the Americans to continue to import far beyond their export earnings.

Not only will the Chinese unwillingness to buy US government securities limit the American capacity to import. A signal by Beijing that it was planning to switch some of its dollar reserves into other currencies could result in the further depreciation in the value of the American currency and a rise in domestic interest rates.

There is a question whether the promise of action by the US on textiles as well as the value of the Chinese currency would help resolve its macroeconomic problems. By protecting the low-end of the textile industry, Washington might help other textile exporters such as India and Pakistan and not save jobs in the US. Also, protective actions in a highly integrated global market could have some unintended consequences. For instance, quotas will create an incentive for the Chinese to move into fancier and high-value and higher-profit clothing, precisely the market niche that the remaining textile and clothing industries in the developed world still occupy.

This is precisely what happened when the United States imposed quotas on the import of Japanese cars. That led manufactures in Japan to move aggressively into the lines of products they were reluctant to invest in before. The American action resulted in the development of the Lexus line by Toyota and Infinity by Nissan. Could the action against the Chinese in textiles have similar unintended consequences? What would be the impact on the global trading system of these and other actions? I will take up these questions next week.

REGRETTABLY, despite strong appeals made to them by the Arab countries, the Sunni community in Iraq did not fully participate in the January 30 elections. As a result, they are under-represented in the National Assembly and have virtually been relegated to the margins of the power structure in the country.

They certainly erred in judgment by boycotting the election. This may have been an expression of their frustration, but after a long stint in power, they will now have to be content with being in minority.

However, instead of lamenting the loss of their privileged position, particularly during Saddam Hussein’s authoritarian rule, they should accept the fact that Iraq, with its diverse religious and ethnic communities, is a pluralistic society where the broad-based principles of democracy have to be adhered to scrupulously.

The Sunnis not only boycotted the elections but, according to press reports, they are also in the forefront of the resistance movement against the occupation forces. When Washington asked the new prime minister of Iraq, Ibrahim Al-Jaafri, to take strong military action against the insurgents he declined to do so on the plea that it could not only invigorate the insurgency but could also exacerbate the already tense relation between the Shias and the Sunnis in the country.

He has apparently decided to defuse the potentially explosive situation through peaceful means, which is a sign of mature political insight. One hopes that he will ultimately succeed in involving the Sunnis in the country’s governing process.

It is indeed laudable that Ibrahim Al-Jaafri, in the spirit of Islamic brotherhood, has offered to the Sunnis many important cabinets posts, notwithstanding their inadequate representation in the assembly. He has also pledged to give them more representation in drafting the Iraqi constitution, that would ensure an expanded role for them. These gestures of goodwill made by the Shia-led government in Iraq to their Sunni compatriots must have saddened Washington which has been engaged in creating a rift between the two main components of the Iraqi society, with ulterior motives.

A series of new US intelligence assessments on Iraq paints a grim picture of the events that are likely to follow after the January 30 elections. A new public report by the National Intelligence Council, purported to have been leaked out, if one had indeed existed, predicts a civil war between the Shia and Sunni communities before the end of the current year. This is, however, only a brainchild of the Americans and is being used by them as a pretext to prolong their stay in Iraq to meet their strategic interests there. If the two major sects in Iraq are seeking to protect their long-term political and other interests there cannot be strife between them.

The people of Iraq, after getting rid of a tyrannical dictatorship, are now looking forward to a democratic and cohesive future. The transitional government is committed to advancing the political process and meeting the August 15 deadline for drafting a new constitution for the country. However, the proposed constitution would be viable only if it protects the long-term interests of all the components of society and also welds them into a single coherent entity, ensuring the territorial integrity of the country.

Some elements in Iraq are lobbying, probably at the instance of the Americans, to make Iraq a federation by dividing it along ethnic and sectarian lines. They argue that the proposed federation would create harmony among all the components of Iraqi society and eliminate the chances of one group dominating others on the basis of numerical superiority.

These elements, however, tend to ignore the fact that the Shias and Sunnis constituting about eighty per cent of the total population of the country are Arabs and intertwined by the bonds of tribal affiliations and family, and as such a division of the country on sectarian lines is uncalled for. The growing forces of sectarianism that are threatening the unity of the Muslim community needs to be eradicated.

As for the Kurds, who form about 17 per cent of the Iraqi population, they are recognized as a separate nation under the 1970 constitution of Iraq and have already been granted autonomy. They are, however, pressing for more autonomy which would be tantamount to an independent status. They have, time and again, made it abundantly clear that they do not want to be a part of Iraq, which is essentially an Arab state. The proposed federation of Iraq is, therefore, not likely to bring about a change in their attitude.

It may be recalled that since its creation Israel’s thinking has been that all the Arab states, particularly in the Middle East, should be broken down into small units to enable it to attain its strategic goals in the region. The post-September 11 atmosphere has given a fresh impetus to this idea. No wonder that Israel played a crucial role in persuading Washington to invade Iraq, without any cogent reason, to fulfil its long-cherished desire.

A report entitled A strategy for Israel in 1980s, published in the World Zionist Organization’s periodical Kivunim in February 1982, disclosed a strategy to divide Iraq into provinces along ethnic and religious lines.

The feelers put out recently, to divide Iraq along ethnic and sectarian lines should, therefore, be seen in this context.The negative policies followed by Saddam Hussein, which have led Iraq to its present predicament, need to be reversed. This would, however, necessitate a fresh thinking on the part of the present elected Iraqi leaders, regardless of their political and other affiliations, and change their basic attitudes, in the larger interest of the country, in the light of the past experience and current needs, so that they meet the expectations of the people who have reposed confidence in them.

The writer is a former ambassador.

THE Indian voter has a simple formula for Indian democracy: he votes for himself. This may seem an obvious reality, but there are nuances. I do not mean that he votes for a party that claims it will serve his interests, for the simple reason that everyone claims the same thing. Every party promises to eliminate poverty, end corruption, provide water and ensure law and order.

No party’s manifesto declares that it will pollute the environment, take bribes in defence deals, institutionalize nepotism, incite violence between people for votes and leave you angry, frustrated and miserable after five years.

Since there is not much to choose from in manifestos, the voter needs a different measure to define the difference. It is pertinent to enter a caveat: we are talking about most voters, not every voter. However, since the majority trends determine the result, the qualification is probably irrelevant.

When I said that the voter votes for himself, I meant that he votes for the party or leader that comes closest to his image of himself. The Indian voter used to see himself as poor. As long as this was the case, the sway of the Congress was unassailable, culminating in the massive victory of 1971. By the 1977 election the self-image had switched. The voter now saw himself as a victim. The emergency of course was a significant reason for the switch, but it was also a sign of greater democratic assertion, and stress on the rights of an individual rather than the largesse of the government.

The stability of British rule depended on the concept of the government as mai-baap, both the mother who nourishes and the father who protects. The Congress, as the successor government, inherited that legacy, bolstered additionally by the fact that Mahatma Gandhi was the granddaddy of the national movement.

But after 1977, the voter refused to be patronized by the government, or indeed by mere slogans. Instead of the voter being a child of the government, the government, very properly, became the creature of the voter.

Good governance, a growing economy, law and order were no longer valued as “gifts” from the sarkar, but as the due right of a voter who had done the politicians a favour by putting them in office.

The emergency crystallized the shift in self-perception, and because the emergency was harsher in the north, the shift was more acute in the north. The south however soon caught up, provoked by incidents such as the one in which Andhra Pradesh chief minister T. Anjaiah was seemingly humiliated (I say seemingly, because Congress chief ministers were so obsequious that it was difficult to humiliate them).

However, it was when the southern voter also became demanding that N.T. Rama

Rao and Rama Krishna Hegde swept the Assembly elections in Andhra Pradesh and Karnataka.

There is no formula that can apply to every state in a nation as complex as India, but this is a broad rule of a broad thumb if not an absolute dictum. One exception comes to mind easily. In Bengal the Congress looks like a victim, talks like a victim and is a victim, but the left always wins. The reason is that while you are permitted to be a victim, you are not permitted to be a pathetic victim. The victim must possess the self-respect to assert himself and not sink into shallow depths of self-pity.

Mrs Indira Gandhi lost the elections in 1977 because the Janata Party (conceived in jail, and produced, with much labour, outside) was the ultimate victim. Mrs Gandhi won in the winter of 1980 because in just three years of hunt and misfire, the Janata turned her into a victim.

In the next elections, Mrs Gandhi’s assassination was something that the voter easily and powerfully identified with: who could be a greater victim than a martyr for Indian nationalism. In 1989, V.P. Singh donned the mask of a victim. It was a mask, but it worked.

In 1991 the assassination of Rajiv Gandhi midway through the elections shifted the balance of seats in favour of the Congress in the south, giving the party just enough ballast to form a minority government. Atal Behari Vajpayee won in 1999 because the one-vote defeat in the Lok Sabha turned him into a “bechara” and he soon added flow of Kargil to his political persona.

The BJP lost in 2004 because its spokespersons on television and its interlocutors were too well-fed and spoke in the rotund tones of a success they took for granted. The voter punished smugness by turning towards Mrs Sonia Gandhi, who represented the victim.

This is the difference between the Jayalalitha of 2004 and the Jayalalitha of 2005 in Tamil Nadu. Last year she was seen as the woman who had thrown the elderly Karunanidhi into jail, tried to impose her will on the free media, snubbed the bureaucracy and sniffed at a democratic culture.

This year — thanks both to the fact that the alliance of her foes is in power in Delhi and is complacently waiting to come to power in Chennai — she is the victim. This transformation was not easy. Ms Jayalalitha worked hard to refashion her image after her sweeping defeat in 2004. In order to change you first have to have the humility to recognize what is wrong, and then the perspicacity to realize what is right. The second is more difficult than the first. The electorate tells you in detail about the first; the second you have to figure out yourself.

In a carefully thought-through process Ms Jayalalitha re-positioned herself both politically and administratively. She struck at the DMK’s Dravida plank by taking on a symbol of Brahmins. And the competence and concern with which she handled the relief work following the tsunami, re-established her image among the victims of that tragedy (the resonance and connection reappear).

The swing that she achieved in two constituencies that she had lost last year is phenomenal. Moreover, she did it alone. She has distanced herself from the BJP in the last year. Her foes, on the other hand, stuck to their alliance.

As she put it, she had the coalition of the people behind in the battle against the coalition of the parties. And she did it while remaining in power. In opposition you have to do nothing to look like a victim.

How many apple carts, and whose, did Ms Jayalalithaa upset? The fruit on the DMK’s cart certainly has a scattered feel to it now. Coalition politics is an ever-changing game of multiple options. Will Mr Karunanidhi be tempted by the apples of Delhi if he begins to believe that he might not become chief minister of Tamil Nadu? Incidentally, reports that he is unwell are exaggerations, or wishful thinking: he is fit enough for a spell in office.

It is curious, but entirely understandable, that no one looks like a victim in the Delhi scenario. The Congress is flexing muscle that it does not possess, as the Bihar elections proved; and stretching its power lines beyond their tensile strength, as Jharkhand and Goa proved. The BJP is amazingly depressed by its defeat, a curious state for a party that never expected to be in power. It has not got its act together, or even selected the scenes that will make up the act. Dr Manmohan Singh’s government has found its feet, but not discovered a route map or a destination. It is there because it is there. A little more of this and it might get frozen in political cement.

The prime minister is an honest man. He commemorated the first anniversary of his government by giving himself six out of 10. It might have been seven were it not for the fact that the one area in which his personal expertise is unquestioned, the performance of the government is being questioned. The growth rate of the GDP has already been formally lowered to 7.5 per cent and could slip below that.

The victim-voter is not going to be terribly enthused since employment cannot be reduced unless growth rate is over 8 per cent, and with half of that growth coming from industrial production (the projected share of the service sector in the growth rate is 65 per cent). Industrial production is in fact sinking, and this year’s Budget offers no reason for hope that the curve will change direction. Curiously, Dr Singh’s one chance of dramatic success, and perhaps the rescue of his government, lies in an area where he has no expertise: Pakistan policy.

But to move forward on that dramatic front (the fortunes of peace with Pakistan incidentally are more dramatic than the fortunes of war) needs a prime minister who will rise above himself, and carry both his government and his nation towards a historic moment. Will that happen? That is a question that only Dr Singh can answer.

For the moment, the only victim in Indian politics is the voter. He is still awarding grace marks all around, but the day the victim feels that he is being deliberately victimized the silence on the streets will become a murmur, and the murmur will turn into a roar.

The writer is editor-in-chief of Asian Age, New Delhi.

AS the United States was struggling with the postwar reconstruction of Iraq, the historian Niall Ferguson published a book arguing that America needed the modern equivalent of the old British Colonial Office to build political stability in far-flung places. The US military was good at breaking things, he suggested in “Colossus,” but not so good at putting them back together. Nobody in the Bush administration would endorse the neo-imperial language of Ferguson’s argument. But behind the scenes, the administration is debating a range of major policy changes that would move in that direction — transforming the military services, the State Department and other agencies in ways that would help the United States do better what it botched so badly in Iraq. Don’t call it the “Colonial Office,” but in many ways, that’s a model for the kind of far-flung stabilization force that officials are discussing.

The driver for these changes, as with so much else in Washington, is the administration’s equivalent of the Energizer Bunny, Defence Secretary Donald Rumsfeld. The debate is mostly taking place out of view among a small group of defence and foreign policy experts. But it involves issues that are crucial for the future of the country. So here’s a primer, based on unclassified reports that are mostly available on the Internet.

The most creative analysis is a study that Rumsfeld requested last year from the elite Defence Science Board. Released in December and titled “Transition to and from Hostilities,” the study is a blueprint for changes across the government that would give the United States the nation-building capability it has too often lacked in Iraq.

The Pentagon study starts with the premise that Afghanistan and Iraq are not isolated problems. Since the end of the Cold War, the study notes, the United States has embarked on stabilization and reconstruction operations every 18 to 24 months. And these are hardly quick-hit deployments; in fact, they typically last five to eight years. The problem is that America has conducted these slow reconstruction efforts with military forces that are trained and equipped for rapid, devastating assault. That mismatch is at the heart of US problems in Iraq.

The first recommendation by the Defence Science Board was that the military apply its genius for logistics and management to peacemaking as well as war-fighting. The study urged a new contingency planning process to identify countries where US intervention might be necessary — and to make sure US forces have the necessary language skills, area knowledge and civil affairs expertise.

Again, these were precisely the reconstruction tools US forces lacked as they raced to Baghdad in March 2003. The study noted pointedly that in 2004 the Defence Department had 6,723 French speakers, 6,931 German speakers, 4,194 Russian speakers — and only 2,864 Arabic speakers.

In a recommendation that surely gave heartburn to Army generals who hold tight to their traditional war-fighting mission, the study stressed: “Stabilization and reconstruction missions must become a core competency of both the Departments of Defence and State. The military services need to reshape and rebalance their forces to provide a stabilization and reconstruction capability.”

The Defence Science Board study tracks arguments made by the most influential defence intellectual writing these days, Thomas P.M. Barnett. He argued last year in “The Pentagon’s New Map” that the US military should be divided into two forces that reflect its differing missions: a “Leviathan” force, centred around the Air Force and Navy, that could apply overwhelming power quickly anywhere in the world; and what he called a “System Administrator” force, based in the Army and Marines, that could win the decisive battle to stabilize and rebuild nations in the aftermath of conflict.

These radical post-Iraq ideas are beginning to take root. At the State Department, there’s a new Office of the Coordinator for Reconstruction and Stabilization under director Carlos Pascual. It has just 40 people at this stage, but it’s beginning to coordinate activities of the Pentagon, the State Department, the CIA and the Agency for International Development, so that the chaotic mismanagement of the initial Iraq reconstruction effort isn’t repeated. Meanwhile, Republican Sen. Richard Lugar and Democratic Sen. Joseph Biden have joined to sponsor a bill that would put many of the recommendations of the Defence Science Board study into law.

Ferguson wondered in “Colossus” whether the United States had the aptitude, patience or financial resources to operate what would amount to a 21st-century imperial system. That remains the crucial question. It would be a mistake for America to transform its military services for a mission the public doesn’t understand or support. Rumsfeld is asking the right questions about what America should learn from its setbacks in Iraq, but the country as a whole must join in the debate.—Dawn/Washington Post Service