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Suman Bery: India still needs a WTO

The Doha Round has been left behind, but India's trade requires a solid institutional structure

Suman Bery 

The ministerial meeting of the World Trade Organisation (WTO) later this week is likely to acknowledge that, after ten long years of trying, negotiations under the Doha Development Mandate are unlikely to reach closure in their present form. Such meetings of trade and commerce ministers take place every two years, and represent important opportunities to provide political guidance to the WTO. Despite the generally low expectations from the upcoming ministerial meeting, it does provide a useful opportunity to reflect on India’s role and stake in the global trading system.

In a forthright message to ministers a month ago, which followed the meeting of G20 leaders in Cannes, WTO Director-General Pascal Lamy indicated that the deepest divide in completing the Doha round is over market access for industrial products. As he notes, underlying the current impasse are different views as to what constitutes a fair distribution of rights and obligations within the trading system. In the view of some, “emerging economies have attained a level of competitiveness and efficiency in key sectors that warrants treating reciprocity as parity in obligations,” while others emphasise that emerging economies still face formidable development challenges in many areas of their economies. He concludes: “It is clear that progress in multilateral trade negotiations, as is the case in climate change negotiations, will require a political response to this political question.” And while this concern is largely directed at China, now the world’s largest exporter of goods, other large emerging markets such as India and Brazil will face equivalent pressure.

Lamy also points out that negotiations are only a part (although no doubt the most visible part) of the work of the WTO. Other elements include implementation of agreements, dispute settlement, monitoring and surveillance, and capacity-building. This framework deserves at least part of the credit for the relatively low resort to protection in the present economic crisis. An important issue facing leading members of the WTO, including India, is whether these other roles will continue to retain their potency if the WTO ceases to be a principal venue for negotiating market access.

This is not by any means to argue that India, or emerging markets as a group, carry the principal responsibility for the progressive marginalisation of the WTO; far from it. Even as the WTO came into existence in 1995 to replace its highly successful predecessor, the General Agreement on Tariffs and Trade (GATT), the US had just signed the North American Free Trade Agreement (NAFTA), partly to counter the steady expansion of the European Union (EU). With the major exceptions of agriculture, textiles and automobiles, tariffs on other traded goods were already very low, shifting attention of the rich countries to behind-the-border measures inhibiting goods trade, and to intangibles such as trade in services and intellectual property.

For the moment, and for most countries, including India, the negotiating action has moved elsewhere — mainly to various forms of preferential trade arrangements (PTAs), either bilateral (for example India-Japan) or plurilateral (India-Asean; India-EU). In common with other Asian countries (including Japan), India was a confirmed multilateralist and has only entered into the PTA game seriously since the middle of the last decade. The impact of these PTAs on the multilateral system is a hotly-debated topic, with protagonists on both sides: those who argue that such agreements pave the way for broader and deeper liberalisation, and those who assert that they distort the pattern of global trade and are inherently discriminatory.

In its World Trade Report 2011 published earlier this year, the WTO reviewed the experience with such arrangements, and came to some surprising conclusions, at least to a non-specialist like me. It argued that border measures (such as tariffs) are in general so low that they are increasingly less relevant as the motivation for such PTAs. Rather, PTAs are increasingly being used to provide stability and comfort in such areas as regulation, or intellectual property protection, which are a prerequisite for deeper integration than just trade.

Since it has proved difficult to make progress on these issues on a multilateral, most-favoured nation basis, countries are resorting to agreements outside the WTO to achieve these goals. The most recent example of this is the US initiative to participate in the so-called Trans-Pacific Partnership, which is explicitly designed to address a more ambitious liberalisation agenda than is possible within the WTO. Initially a pact between relatively small members of the Asia-Pacific Economic Community – Singapore, Chile, Brunei and New Zealand – the negotiations have widened to include the United States, Malaysia, Peru, Vietnam, Australia and, most recently, Japan. It is too early to judge how successful these negotiations will prove to be, and indeed whether once concluded the agreement will be passed by the US Congress. But the signal being sent by the US is unmistakable: it is serious about establishing a template in Asia that will deepen market access and integration in both directions, and more reluctant powers, notably India and China, could be at a disadvantage as their economies evolve in more sophisticated directions.

India faces an equally daunting challenge with respect to China’s role in Asia. On the basis of multilateral, most-favoured-nation (MFN) disciplines, supported by excellent infrastructure and a favourable exchange rate, Asia’s production networks have been reshaped over the last decade to feed into final assembly in China. India’s manufacturing employment would be enormously boosted were it to become better integrated into such Asian networks; indeed this is one of the hopes of the national manufacturing policy that was recently approved. This process would stand a better chance if there were a solid institutional structure to underpin it, but for political reasons a bilateral accord seems unlikely any time soon. India may be better served in joining some Asean-linked accord (such as the proposed Comprehensive Economic Partnership for East Asia), despite being overshadowed by China in such a forum.

What then of the WTO? As a middle-ranking trading power that is likely to expand its footprint, India’s long-term interests are best served by a strong, empowered WTO. Our politicians had done little to prepare Indian public for the need for compromise and negotiation when a deal was on offer in 2008, so there was no domestic basis for accepting it. If such an opportunity recurs, we should seize it.


 

The writer is Country Director, India Central, International Growth Centre. Views are personal

First Published: Tue, December 13 2011. 00:30 IST
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