Walk the talk

Global trade architecture is changing, and India can't opt out

At the Shanghai Cooperation Organisation Summit, held in the Kyrgyz capital of Bishkek, Prime Minister Narendra Modi reiterated India’s position regarding the importance of open and frictionless trade and the vital nature of the World Trade Organization (WTO). New Delhi has traditionally supported multilateral over plurilateral trading arrangements as the former are in India’s best interests. Speaking at the summit on Friday, Mr Modi hit out at unilateralism and trade protectionism, and said there was a need for a rules-based, anti-discriminatory and all-inclusive WTO-centred multilateral trading system, amid the raging trade war between the US and China. Mr Modi’s stand is nothing new. At the World Economic Forum in Davos last year, he had warned countries against closing their economies by saying the forces of protectionism were raising their heads against globalisation.

But Mr Modi’s government has to walk his talk, as India has not been setting a good example when it comes to support for freer trade. The last few years have seen a rise in protectionist impulses in New Delhi and recent Union Budgets featured tariff increases with the goal of protecting domestic industry. Many aspects of India’s industrial policy have been poorly designed and may violate WTO rules. Japan has in fact just taken India to dispute settlement at the WTO because of measures designed to promote the domestic manufacturing of mobile handsets. This is an unfortunate failure of trade diplomacy on New Delhi’s part — and, what is worse, it is one of many.

Washington DC has also ended the privileges due to some Indian exports under the Generalised System of Preferences, which permitted duty-free access to the US market. India has allowed the US to turn it into a target, thanks to clumsy attempts to control the operation of multinational companies, including those in e-commerce and IT. A recent meeting in New Delhi of several trade ministers from developing countries revealed that there was little support for India’s desire to prevent discussion under the WTO framework of a multilateral framework that would regulate international e-commerce. India is once again isolated. 

This attitude of India towards global trade is unfortunate, given that the economy has a great deal to gain from integration with the world economy. It is only through being open to global supply chains that there are hopes of reviving ex­ports, and thus creating sustainable and well-paying jobs. The US-China trade war should not be seen in isolation. It is part of an attempt to create a fairer framework for international trade that restrains the hidden subsidies in the Chinese economy, which have distorted the world trading system. This is also a matter of concern for India, and it should seek to help shape the new trading architecture in­­stead of withdrawing from it. Efforts to promote domestic manufacture of el­e­ctronic goods and solar panels are welcome, but they should be WTO-compliant so that India does not lose trade disputes. After all, India has to be part of the global value chain and integrate itself with the global economy. Exports from India have already suffered a great deal, remaining broadly flat for the past five years — while peer countries like Bangladesh and Vietnam have snapped up the opportunities offered by the flux in global trade. Several moves by the government have raised questions about whether India is still pursuing market-friendly reforms, or would prefer to return to the failed import substitution mo­del of the past. Unless the new government and the commerce ministry now re-orient themselves towards a more open stance, India will miss the boat once again.