Are India’s policies hurting WTO’s dictum?
WTO members have criticised measures like AatmaNirbhar Bharat to promote domestic manufacturing and import substitution. However, domestic support initiatives are being adopted by a number of other countries as well, and at times with a much higher quantum than India. Therefore, instead of singling out India, the forum must work towards a more comprehensive and solution-oriented approach.
- WTO members have raised concerns over the Indian government’s programmes, such as Atmanirbhar Bharat, to promote domestic manufacturing and import substitution, cautioning India about trade restrictions such programmes could attract.
- In US, there is a policy known as Pay check Protection Program (PPP), which is a financial support given to small business during pandemic period. So far more than US$ 2 trillion (CNBC, 2020) has been granted as small business bailout loans.
- Looking at the heat map of temporary export measures, it is clearly visible that 98 nations are implementing temporary protectionist measures including USA, China, Australia and EU. Henceforth, the claim of WTO members just targeting India seems a fallacy.
- For example, as a percentage of the VoP in the US, products such as sugar which received 66% domestic support, rice (82%), cotton (74%) and wool (215%) received support exceeding the de minimis limit (5%) over the years. This is not complying with the WTO norms and thus need to address at a priority basis.
Image credit: WTO, https://bit.ly/3qFgpKS
India’s new foreign trade policy is all set to roll from the new fiscal year, expecting new and eclectic policies like district export hubs initiative, compliance for food safety modernization act and standardization of non-tariff measures. The policy is expected to enhance quality of Indian exports and also aims to make India a new manufacturing hub, while dedicating identified locations for specific products under the One District One Product plan.
The Indian government is focusing on making India “Atmanirbhar” by bolstering manufacturing activities. Now, this move is being criticised by several World Trade Organization (WTO) members. They have raised concerns over the government’s programmes, such as AtmaNirbhar Bharat to promote domestic manufacturing and import substitution, cautioning India about trade restrictions such programmes could attract.
Now, the question that arises is, whether this move of Indian government is against WTO policies or not? Obviously, WTO promotes competitive exports with a limit on amber box subsidies and other government support. But this certainly does not mean that, there cannot be any aggressive policy support for domestic manufacturing activities.
What other nations have to reflect
Let’s have an overview of US approach towards supporting small businesses. In the US, there is a policy known as Pay check Protection Program (PPP), which is a financial support given to small business during the pandemic period. So far, more than US$ 2 trillion (CNBC, 2020) has been granted as small business bailout loans. This is definitely much higher than many nation’s GDP. So, we can cogently say that this PPP policy support by small business administration (SBA) is going to distort the competitiveness of many industries, as US native firms will be directly receiving support from government to sustain and produce. In fact, many developed nations have provided significantly higher fiscal stimulus than India. The graph provides a glimpse of a few of them.
Figure 1: Fiscal stimulus given as a % of GDP
Source: Statista, 2021 (data covered till October 2020).
From the figure, it is clear that developed nations like Japan, Canada, Australia and the US are way ahead in supporting their economic activities as compared to India. Certainly, these fiscal stimuli are again going to directly impact their price competitiveness. Thus, it should be understood that several countries across the globe are trying to buttress their economy, henceforth targeting one does not portrait a balanced approach.
Looking at the heat map of temporary export measures, it is clearly visible that 98 nations are implementing temporary protectionist measures including the US, China, Australia and the EU.
Figure 2: COVID-19 Temporary export measures
Source: ITC Trade Map Access, 2021
Exploring domestic support
We should not forget that currently there is a legal right to use peace clause of WTO, which provides the country full right to secure food security. So, the statement made by WTO members that India’s average tariff surged by roughly 1.3% points may sound trivial. This means, its most of countries, who are implementing some kind of protectionist policies in the wake of pandemic period.
Almost two decades have elapsed since the Doha Ministerial Declaration (DMD) in 2001, which mandated, among others, a substantial reduction in trade-distorting domestic support. A minimum amount of product and non-product specific support is permissible in the form of a de minimis limit (Article 6.4, WTO). Amber box has remained an extremely contentious issue in the agriculture negotiations. Due to the AMS entitlement, developed members are able to provide a high level of product-specific support well beyond their de minimis limit (WTO, 2017).
A developed member can provide at least 5% of the value of production (VoP) of a concerned product as product-specific, and 5% of the VoP of total agriculture as non-product specific during a relevant year. The permissible percentage for China and other developing members is 8.5% and 10% respectively. Off course, there has been a breach of this cap by developed nations by a significant margin. For example, as a percentage of the VoP in the US, products such as sugar, which received 66% domestic support, rice (82%), cotton (74%) and wool (215%) received support exceeding the de minimis limit (5%) over the years. This is not complying with the WTO norms and thus it needs to be addressed on a priority basis.
Specifically targeting India for its domestic support is not an apt solution. There is a need to explore the angle of domestic support provided by several economies to understand the real picture of non-complying WTO dictums.