India’s invitation to the trade ministers of 40 WTO members to an informal gathering in New Delhi, on March 19-20, is without a pre-announced agenda.
India’s invitation to the trade ministers of 40 WTO members to an informal gathering in New Delhi, on March 19-20, is without a pre-announced agenda. Protectionism, the imminent crisis in the appellate body of the WTO, reviving comprehensive multilateral negotiations, among others, are likely to be taken up for discussion. It is difficult to avoid giving the centrestage in the deliberations to the US’s proposed action to impose an import tariff of 25% and 10% on steel and aluminium, respectively. The action has been prompted by the recommendation of the US International Commission, which states that the country must retain at least a minimum viable level of production in certain metals required for defence industries. There is a separate statement from president Donald Trump about his intention to bring a reciprocal tax programme, whereby if the trading partners are charging 25% on import of cars or 50% on the import of motorcycles, the US would do the same for imports of these products from those countries. The action and the statement have thrown world trade into a state of confusion: The conditions of world trade have become unpredictable. What is pernicious about the threatened imposition of tariffs is that the WTO conventions seem to allow members to define their own essential security interests, and the dispute settlement machinery will find it difficult to step into and resolve the problem. As a result, the affected trading partners are likely to resort to retaliatory action without authorisation, and there could be counter-retaliation. The EU has already listed out items, which would be covered by its retaliatory tariffs and the US has threatened counter-retaliation on automobiles. Discussions are needed to ward off the cycle of trade reprisals, which world trade is likely to be sucked into, choking international trade and causing worldwide recession. Another danger to world trade is that by the same logic, other nations would argue that imports of metals and other items threaten their security and seek to curb imports.
In the discussion on protectionism, it is inevitable that India too will receive some amount of attention. In the 2018-19 budget, the FM had raised customs duties on scores of products in areas like food processing, electronics, auto components and furniture, while acknowledging that the idea is to incentivise domestic value addition and ‘make in India’. In doing so, he has ignored the lesson that the import-substitution policies that prevailed in India in the decades preceding economic liberalisation had failed to foster India’s industrialisation. After liberalisation, exports of manufactures had picked up but the momentum was lost after a few years, as the competitiveness of Indian manufacturing industries was weighed down by serious long-standing handicaps. Absence of world-class transportation and other physical infrastructure; shortcomings in customs procedures; high logistics cost; rigidities in labour; problems relating to land; relatively high rates of corporate taxation, compounded by an uncertain taxation environment; and complexities in internal taxation are some of the main factors that disadvantage our manufactures. Undoubtedly, the central government has made progress on some of these matters but, so far, it is a case of the petty done and the undone vast. Purposive action to alleviate these problems will help much more than raising customs duties.
In raising the customs duties on imports, the Indian government has acted contrary to economic good sense, but, largely, has not acted inconsistently with its WTO obligations. Only mobile phones and its parts are a case apart, as the WTO Information Technology Agreement commits signatories to zero tariffs on all IT products. India, which had already raised the duty on mobile phones to 15% and has now raised it further to 20%, could face some heat on this. The pity is that India could have used the safeguard clause of the WTO agreement, as the US has done for washing machines and solar cells, and justified the action on the basis of a surge in imports of the product. Concerns have been deepening over the US veto on appointments to fill the vacancies in the Appellate Body. On February 28, 2018, it once again torpedoed a proposal of 63 members, including the Canada, China, EU and India, for initiating the procedures for making these appointments. The US seems to be intent to undermine the dispute settlement machinery, which has been the sole bright spot in the functioning of the WTO. Trump has been giving the impression that the dispute settlement body has constantly ruled against the US. Analysis of the completed disputes in the WTO reveals that this is far from the truth. Add to this the fact that the dispute settlement system of the WTO is primarily, as it is today, the handiwork of the US. Surely, the informal gathering can draw attention to the enormity of the US tirade against the dispute settlement machinery of the WTO.
The least that members should try to do is to persuade the US to indicate how it proposes the WTO dispute settlement procedures to be improved. The inability of WTO members to push forward for further multilateral liberalisation of trade needs to be brought up for discussion. The Doha Development Agenda stuttered into a pause after the mini-ministerial meeting of July 2008. Deeper differences have arisen since then. At the Nairobi ministerial meeting, in December 2015, a number of developed members were in favour of jettisoning the Doha mandate altogether, while many developing countries remained keen on pursuing it. Will any of the ministers take courage to raise the issue? It is more likely that ministers will bring up the new issues on which there has been considerable interest in the WTO for quite some time. At the Buenos Aires conference, various formations of members issued separate joint statements for initiating negotiations on electronic commerce and investment facilitation. Another group wanted to move forward creating an informal working group on MSMEs. Although China and several developed and emerging countries joined these initiatives, India stood aloof.
At the WTO, it has become increasingly difficult to find consensus among 164 members on any issue as there is considerable diversity in their economic situation and interests. When proposals are made to bring new areas within the remit of the multilateral system, a fear of the unknown also scares the representatives. To make progress, it has been suggested that the WTO members could undertake negotiations on a plurilateral basis in the areas in which a large number of them have a strong interest. The fact is that if a member keeps out of such negotiations, it denies itself the opportunity to secure that its interests are taken care of. For protecting the country’s interest, it is better to be in the negotiations than out of it. There is no basis for a fear that a member would be compelled to sign an agreement merely because it has participated in the negotiations. It is always open to individual members not to sign the final agreement, if it is not satisfactory from its perspective. While the substance of the proposed new agreements could also be discussed at the New Delhi gathering, it would be useful to have an exchange of views on these general considerations to make progress.