Critical time for trade

India must have a balanced response to global pressures

According to the recent data, in March 2019 Indian trade in goods unrelated to petroleum or to gold snapped a five-year-long streak in the red to register a surplus. That was, as this newspaper has argued, a good sign that needs to be backed up with proper trade policy. A recovery in exports cannot be guaranteed on its own — a point that must be kept in mind by New Delhi’s trade negotiators as they prepare to welcome the trade ministers of 25 developing nations to a mini-ministerial summit. This is the second such summit, after one last year, and comes in the context of major pressures on the world trading system.

The biggest symptom of this pressure is the slow-motion trade war between the US and China. Patience has run out within the US political system for entities it sees as flouting the rules and norms of the international trading system. While India in principle shares many of these objections, there is nevertheless little doubt that the US’ response has been arbitrary, scatter-shot and short-sighted. The US’ initial fusillade of the trade war, a tariff on aluminium and steel, hurt producers in allied countries as much as those in China. More concerning are the direct moves on India taken by Washington: In particular, the announced withdrawal of benefits under the Generalised System of Preferences (GSP), which allows tariff-free access to the US market for producers exporting certain goods from developing countries. Indian officials have shrugged off the GSP benefits as minimal, but a fairly large swathe of exports, particularly in sectors that India would wish to see benefit, will find themselves rendered less competitive in one of their major overseas markets, thanks to the withdrawal of the GSP. Finally, there are moves afoot to make changes to the world trading system, which might also affect India. In particular, the European Union, the US and Japan have sought to begin a discussion on the preferences set aside for developing countries within the trading architecture.

It will not be surprising if these possible changes to the international trading system will be a major topic of discussion at the mini-ministerial. India, however, must carefully calibrate its response. It is not in India’s interests to be seen to be providing cover to exporters from China. There is a massive difference between the two countries’ relative economic status and trading power. India must defend special rules for developing countries, but it is not necessary to also make the claim that Beijing should continue to benefit from those rules. Second, it is important to note that while systems such as the GSP are WTO-compliant, India does not have a right to tariff-free access. So it must not close the door on negotiating with the US to ensure that such access is retained. The India-specific waiver on the US’ Iran sanctions is also discretionary, and New Delhi cannot afford to see this expire because it has alienated Washington. This is a critical time. India has so far been dragging its feet on firming up a position, but it cannot be allowed to delay — elections or no elections.