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Monday, Oct 21, 2019

India must take a well considered position to ensure reform in the WTO

The proposed reforms lay considerable stress on transparency, proposing punitive measures if commitments under the WTO to notify subsidies and other trade related actions are violated. This, too, is mainly directed against China. There is no reason for us to oppose this since we are run a transparent and accountable domestic regime, obligated by our Constitution.

analysis Updated: Nov 14, 2018 11:18 IST
Shyam Saran
Shyam Saran
The efforts to bring about major reform of the World Trade Organisation (WTO) are gathering steam and India will have to take well-considered positions on key proposals that are likely to be put on the agenda of the next WTO ministerial meeting scheduled for June 2020 in Kazakhastan
The efforts to bring about major reform of the World Trade Organisation (WTO) are gathering steam and India will have to take well-considered positions on key proposals that are likely to be put on the agenda of the next WTO ministerial meeting scheduled for June 2020 in Kazakhastan(AFP)
         

The efforts to bring about major reform of the World Trade Organisation (WTO) are gathering steam and India will have to take well-considered positions on key proposals that are likely to be put on the agenda of the next WTO ministerial meeting scheduled for June 2020 in Kazakhstan. It is important to understand the nature and intent of these proposed reforms and their likely impact on India. Equally, it should be India’s effort to shape and modify these proposals so that they expand rather than restrict India’s trade opportunities. The country should also devise its own reform proposals on the reform agenda. A major and sustained diplomatic effort to mobilise a sizeable constituency of other developing and even some advanced countries must be launched expeditiously to resist changes damaging to our economic interests and to promote those which enhance them. What we must avoid is the sacrifice of our interests by default because of a lack of homework or persisting with a self-defeating defensive mindset. Instead of ad hoc responses, we need a coherent trade policy aligned to our overall development strategy and an awareness that, in the long run, India must transform itself into a globally competitive economy without props.

Our bargaining position in multilateral trade negotiations is weak because we remain a marginal player in the global economy. Our current share of global trade is a mere 2.1% and our target is 3.5% by 2020. Our strength lies in the size of our $2 trillion economy which is growing at 7.5% per annum. It is currently the fastest growing large economy. With the exception of China, no other country offers the market scale which India does. Moreover, it is in some of the new and rapidly expanding sectors, such as e-commerce, digital devices and services and high-end electronics that India offers opportunities. Our negotiating brief must leverage this advantage, linking market access reciprocally, to safeguarding our key interests .

While a rule-based order with decisions taken by consensus has been the hallmark of WTO, this has already given way to plurilateral arrangements among consenting members. These are not applicable to non-participating countries like India, but, over time, may become more generally applicable. In any event, it is not a good idea to stay out of these more restricted negotiations because this denies us the opportunity to influence the outcome or, at the very least, keep abreast of what may be brewing on some important trade issue. India should have participated in the negotiations on TISA (Trade in Services Agreement) and ITA-2 (Information Technology Agreement, phase 2) both of which concern sectors of significant importance to the country’s external trade. Our non-participation means having to conform to rules in the drafting of which we were absent. One of the reform measures being proposed is to allow plurilateral agreements under the WTO, effectively abandoning the Single Undertaking principle as an overarching one. We should acknowledge that this is likely to come about and consider instead how India could use it to its advantage.

The reforms being proposed by the US, EU and Japan target the market distorting effects of industrial subsidies and the unfair advantage bestowed on state owned enterprises through access to lower priced inputs, concessional bank loans and government support. These are clearly directed towards China but there may be some collateral damage to India because we do have some limited subsidies and incentives for industry. However, on balance, the removal of a whole range of State sponsored support which gives unfair competitive advantage to Chinese products, may be in India’s interest as well, improving our relative competitiveness. This needs to be carefully researched and a then a negotiating position arrived at. In an official statement in the beginning of November, India and China decided to carry out a joint study in order to arrive at a coordinated position at the WTO. This should be avoided as our economic profiles are now very different compared to a decade and more ago. Besides, China’s negotiating position at the WTO is stronger than ours, given its status as the world’s largest trading country. It may well reach a deal with other major trading powers and abandon positions it may have taken jointly with us. We should learn from the experience with climate change negotiations, when China went on to make a deal with the US on the eve of the Paris climate summit in 2015, leaving India and other emerging economies to fend for themselves.

The proposed reforms lay considerable stress on transparency, proposing punitive measures if commitments under the WTO to notify subsidies and other trade related actions are violated. This, too, is mainly directed against China. There is no reason for us to oppose this since we are a transparent and accountable domestic regime, obligated by our Constitution.

The one issue on which we may have to take a stand is related to the dilution of special and differentiated treatment of developing countries. At our current state of development, this provision is important and should be retained. Here again, there is no reason why we should oppose a revision of China’s status as a developing country since there is now a big gap between our two economies. After all, the Chinese never tire of reminding India that they now have five times the GDP of India’s and, therefore, we are not in the same league.

Shyam Saran is a former foreign secretary and is currently senior fellow, CPR.

The views expressed are personal

First Published: Nov 14, 2018 11:17 IST

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