India's Trade Overview

INDIA & THE WTO

FUTURE OF WTO

In the face of unilateral tendencies, the rise of tariff & non-tariff trade barriers and protectionism, the principles of free trade & liberalism envisioned in GATT are seriously being challenged and the future of WTO is under threat. Policies such as America first, the ensuing US-China trade war, the withdrawal of GSP status meted out to India & restrictions on labour mobility are seriously subverting the authority of WTO as an organization. Thus, rules are being flouted to weaken the authority of WTO by powerful nations like US.

A major ongoing crisis in the WTO is the blocking of appointments of judges to the Dispute Settlement Mechanism by the US. The DSM is an important arm of the trade body that rules on trade disputes, and blocking appointments of judges is an invitation of crisis. 

Since the last WTO Ministerial Conference in December 2017, trade officials have been struggling to take forward a number of unrelated, incremental initiatives. There is no apparent organising logic, nor any systemic perspective. During the short span between December 1, 2017 and April 15, 2018, the Chinese and American governments were responsible for a much larger percentage of G20 protectionism (42%). The proliferation of trade distortions implemented by G20 members since their leaders last met is broad-based and not exclusively a Sino-US affair.

Since 2008, countries topping the list of trade protectionism are the US (1,200 measures) followed by India (730), Russia (610) and Argentina (480). The number of anti-dumping initiations rose to a high of over 360 in 2018, nearly double the count seen in 2011. Conversely, the number of regional trade agreements, which saw a continuous rise post the Asian financial crisis in 1997-89 to reach a peak of 34 in 2008, declined sharply to a modest 8 in 2018. Importantly, the major chunk of protectionist measures does not comprise tariff measures. Approximately 70% of the G20 restrictive measures are in the form of export measures, mostly tax-based, followed by trade finance, import tariffs, subsidies (17%, including export subsidies) etc.

The expectations of developing countries from trade also get belied due to sizeable support by the developed nations to their farmers in a situation of market failure and other uncertainties. The support through subsidies tends to bring distortions in commodity prices. The Organisation for Economic Cooperation and Development estimates the quantum of subsidies by developed nations to vary from US$ 300-325 billion annually, which is much higher than that estimated for developing countries. This has become a bone of contention in trade talks as farm lobbies in the US, Europe and Japan have steadily exercised political clout to influence officials and lawmakers to continue giving subsidies to farmers.

Another point of concern is that developed countries design and implement stringent non-tariff measures (NTMs), which exacerbate the problems faced by poor countries that are willing to export. NTMs significantly add to the cost of trade. However, the costs of acquiescence with many NTMs are asymmetrical across exporters because compliance depends on production facilities, technical know-how and infrastructure — factors that are usually inadequate in developing economies. These countries are, therefore, unable to compete in international markets and hardly gain from sectors with comparative advantage such as agriculture, textiles and apparels.

Developing countries are willing to break the deadlock on these issues and are preparing a common ground to reshape the future of WTO. India, in particular, seeks amendment of laws on unilateral action by members on trade issues and a resolution of the WTO’s dispute settlement system. The expectation is that the meeting may lead to policy guidance on issues such as global norms to protect traditional knowledge from patenting by corporates, protection through subsidies, e-commerce, food security and continuation of special and differential treatment to poor economies. The US is persistent in its demand to remove countries like India, China, South Africa and Indonesia from the Special & Differential Treatment category in WTO. 

A meaningful reset to secure the future of WTO requires a new work programme that reverses the rise in discrimination against foreign commercial interests that has intensified since the global financial crisis began. The time is opportune for developing countries to voice their concerns and push for a stable and transparent environment for multilateral trade. India must do its homework to focus on the unresolved issues and address the newer ones, which are of interest to developed nations, mainly investment facilitation. The WTO needs to be sustained as countries need an international platform to formulate trade rules and bring convergence on divergent matters. 

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