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India & WTO: A rethink needed

By Rajiv Kumar
June 08, 2009 16:55 IST
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The future of the Doha Development Round (DDR) and strengthening the multilateral trading regime (MTR) in the context of rising protectionist sentiments globally should be the top priorities for the incoming commerce minister.

DDR has been in a state of suspended animation since December and it will be useful to resuscitate the Round before it goes beyond intensive care. The minister should ask for an evaluation of the costs of 'no deal', and for a precise definition of a 'bad deal' for India, given our national interests.

Before he gets bogged down in details, key in such negotiations, he would do well to formulate his broad view on whether a strong MTR is in India's national interests, specially in the context of the leadership role India sees for itself in the evolving global governance.

This, in my view, will most likely induce him to adopt a positive and more proactive stance for a successful conclusion of the DDR within a year of assuming office. Armed with this declared stance, he could put the onus on President
Obama to secure the fast-track negotiating authority from the US Congress and for the USTR to conclude his review of the present state as quickly as possible and return to the negotiating rooms.

I have noticed, ever since our 'great victory at Cancun', a degree of self-congratulation and satisfaction at thwarting a negotiated outcome. This was necessary then, seven years ago, but does this serve our interests today?

The disturbing feature has been that a section of our political leadership, academia and of course the sensation-seeking media, has engendered an environment in which any negotiated outcome in the WTO is made out to be a 'political defeat' of the emerging economies, represented by India and Brazil, at the hands of those rich countries which use the WTO to exploit us. Surely that is passé.

It is time that the perception that the WTO and the regime it oversees exclusively serves the rich countries' interests, is given up. The huge increase in WTO membership and the rising share of emerging economies in world trade shows this is not true.

The world is not about 'US and Them' any longer because globalisation has now firmly integrated our economies in the world trading and technology flows. It is clear that the credibility, legitimacy and ability of the WTO to enforce its decisions in dispute settlement cases will surely take a knock if DDR is abandoned.

As a member of the Quad, India has a responsibility to ensure that WTO does not suffer this fate. So we should either opt out of the Quad on the basis that saving the DDR or the WTO is not in our interests at this stage or be ready to make the acceptable compromises.

At least we have to make sure that we are successful in projecting the correct picture that it is not India but others who stand in the way of a negotiated deal.

Nobody argues that we are better off with a more robust and liberal MTR rather than having to negotiate a plethora of bilateral and regional free trade agreements.

That every bilateral negotiation has the danger of being captured by narrow sectional domestic interests and is excruciatingly slow make the trading regime exponentially murkier and difficult to manage. 

Let us briefly examine, given the space constraint, the likely impact on our sector interests, of a possible DDR deal as it was close to finalisation in July 2008.

For sectors covered under the NAMA, there would be a lowering of bound tariffs (and the US should simply drop its completely unreasonable demand of discussing only on the basis of applied rates) to about 15 per cent under the agreed Swiss formula with its coefficients.

Our average applied rates are already lower and sectors, like auto, where applied rates are higher, will be protected under the special products dispensation.

In return we will achieve the reduction in peak tariffs in advanced country markets for our important exports like the textiles and leather to below 7 per cent instead of the 30 per cent or so they face today. Clearly this serves our national interest.

In the services sector we have the comparative and competitive advantage and need to liberalise sectors like legal services, accountancy and media to exploit their full potential. In financial services, the situation is unclear, given the crisis, and surely advanced economies, busy nationalising their banks, will not be making heavy demands. So here too I cannot see our national interests being compromised.

Finally we come to the agriculture sector. Agriculture and farmers have a right to benefit from the gains from international trade and be freed from the heavy hand of government intervention. I give three brief arguments in support of concluding the agriculture negotiations.

First, reductions in export subsidies, domestic support and import tariffs in this Round can be seen as the first step to make agriculture more open and globally traded. This requires building of trust and assuring domestic groups that vital interests of food security are not being compromised. 

Second, our small and marginal farmers will not be deluged by subsidised imports because the great majority will be protected under the special safeguards mechanism that will allow about 7 per cent of agriculture tariff lines to be exempt from the agreed tariff cuts.

And in any case members are entitled to impose higher duties in case of import surges. There is then no question of our 'poor farmers' having to compete against the US treasury or the European bourses.

Third, the plight of our small and medium farmers, as Gulati and Hoda have brought out in their recent volume, has much more to do with our own domestic policy-generated constraints than the global trading regime.

By negotiating agriculture, Mr Sharma will push the agriculture ministry to implement the necessary reforms. Our farmers suffer more from lack of adequate electricity and new seeds, and poor access to bank credit and markets than from subsidised import surges.

Given the above, I suggest that India should ask for a ministerial meeting to be convened as quickly as possible and put the onus squarely on others for dragging their feet.

And for those who argue that DDR is past its 'use by date' and should be replaced by a more ambitious round of negotiations that includes climate change et al, I wish them a greater degree of realism so that they recognise the importance of following a sequential approach specially when we are in the midst of a transition in global governance.

The author is Director & Chief Executive, ICRIER.

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