The theory of free trade holds that each country should manufacture that which it can do best. If India can produce Darjeeling tea and Thailand can produce cameras, then India should export tea and import cameras. Indeed such a benefit will take place. The level of this benefit, however, will be proportional to the differences between the two countries. India and Sri Lanka both grow good quality tea. Free trade between the two will not be worth much. But free trade between India and Iraq may be highly beneficial. India would get cheap oil and Iraq would get cheap Indian movies. The differences in resource endowments would determine the gains that will accrue from free trade. The resource endowments of the Asian countries, barring Japan perhaps, are rather similar.

The gains from free trade even between dissimilar countries will be small in comparison to gains from monopolies or carels. The developing countries, most of whom have accepted free trade, have eighty percent of the world’s resources-labor, land, water and minerals-yet have only twenty percent of the world’s income. According to the theory of free trade the developing countries should have had about eighty percent of the world’s income since all were supposed to gain from this. The fact is that is not free trade and efficiency of production but monopoly that is determining the flow of world wealth. World trade may think of in terms of a monopoly sector. These companies are free to charge exorbitant prices for their products. These companies are now protected by the Patents act and are drawing the world’s wealth into the rich countries.

The other sector is the competitive sector. This would include the CAIRNS countries producing wheat and sugar, coffee producers like India, Brazil and Vietnam, car producers like Mexico and Thailand and so on. Free trade operates in this sector. These countries are fighting out a grand battle for supplying ever cheaper products to the rich countries. Indeed, the most efficient among these would win the day. India may beat Brazil in cozee and Brazil may do the same to India in sugar. But the gains from such competition for us would be nominal because the winner would be supplying his produce at the lowest prices to the rich countries. That gives explanation on why the share of the rich countries in the world income has been high and stable.  On the one hand, monopoly pricing of product is leading to higher incomes and on the other hand competition between the poor countries are   providing them cheap products. This becomes double advantage for the rich countries, India and China are more or less on the same terms. Instead of focusing on internal trade among ourselves, we would have to cooperate in making resource-based monopolies of our products as counterweight, to the technology-based monopolies of the rich countries.  A FTA between India and China will be beneficial only if we can first make such a block against the developed countries. Tibet issue is the latest strategy to create fissure between the two Asian giants. We must overcome this fear and set right the imbalance in distribution of world income.