Adapting to new trade realities
It is time India deviates from the WTO-dominated consensus approach to trade negotiations, and adapts to the new landscape dominated by global value chains and mega-regional agreements
As the world discusses the next paradigm of trade defined by new technologies and new production patterns, India cannot afford to sit it out. If it does so, all the important decisions and institutions would be made without any of India’s concerns or interests being even put on the table. Being “at the table” is not a choice for an aspiring major global player in a global economy, but a necessity. Inactivity is not a strategy; it is just a disguise for institutions that do not know how to defend their interests in difficult negotiations. India and her institutions should be more than up to the challenge.
This will call for a much more proactive stance in trade negotiations than what we have been pursuing in recent years. We need to fully understand why the main arguments behind our past position are not relevant today in the evolving global trade landscape dominated by global value chains (GVCs) that integrate goods, services and technology. Developed countries stalling WTO talks The global economy is dynamic, as are the nature of global production networks. Today, IPR and technology account for a much larger share of the total value of a finished product. Thus, technical standards and IPR regimes are of critical importance as trade issues. The more advanced countries that control the GVCs figured out that the WTO, obsessed as it was with tariff protection, simply did not meet their needs. In other words, the Doha agenda stopped being relevant to most manufacturing countries.
What was of importance to GVCs was trade facilitation, and to that extent it became the only deliverable in the WTO in the last one and a half decades, following the Bali Agreement on Trade Facilitation. India’s high agriculture tariffs India has legitimate concerns about the nature of global agriculture trade and domestic protection and subsidy regimes. All prominent Indian trade economists have castigated the subsidy regimes and protection put in place by Japan, the US and the EU. They have also upheld India’s right to use policy tools to ensure effective protection to Indian agro interests. But there needs to be debate about what policies are used in terms of tariffs, standards and subsidies to ensure optimal benefits to those farmers who need it the most. Indian agricultural policies largely reward big and middle-scale farmers, including those producing cash crops, often at the expense of the consumer. Even middle-class consumers find it difficult to afford apples in India. Is this sustainable development or socio-economically fair? Even the agriculture sector has vested interests, and we need to be careful on whose behalf trade policies are being drafted. Health and technical standards Most standards are internationally agreed; the issue is conformity assessment and compliance, and that is a technical matter, not protectionism. No country, including India, would ever want to dilute their sovereign right to protect its consumers. The challenge Indian exporters face is access to low-cost solutions for complying with standards. The government has done precious little to develop this infrastructure. The Quality Council of India needs to be strengthened and empowered to find such solutions. In that context, India’s “comprehensive” bilateral agreements did great dis-service to Indian exporters by not integrating specific language on sectoral standards and conformity assessment agreements with deadlines in the ambit of these supposedly comprehensive agreements. Our negotiators were hampered not so much by the “deviousness” of our trading partners, but our own lack of institutional depth. Some of these issues are being belatedly addressed only now. Temporary relocation of labour Some Indian negotiators seem to think that movement of people, with all its security and sociological concerns, and issues related to migration, are somehow as simple as the movement of inanimate goods and services. If that were so, there would not have been any issues with the movement of economic migrants from Bangladesh to India. Has India ever made a commitment to a LDC like Bangladesh to “open up” Mode 4? Will politics allow it? Perhaps it is time to discuss a new paradigm for international movement of labour that includes in its ambit discussions on security and timely return (as opposed to permanent migration) of workers. However, in light of current refugee and migration-related problems in the EU and the US, this is not an agenda item on which any progress can be made. Instead we need to diversify our professional services beyond IT and IT-ES to benefit from GVCs. For that we need domestic reforms. Mega-regionals exclude developing countries Mega-regional agreements such as the TPP do not restrict developing countries if they are willing to conform to TPP standards. Vietnam is already a member. Some authors tend to think that developing countries that are excluded from the TPP are gaining an increasing share of global trade. True, economic growth and the emergence of a new middle-class in some developing countries have helped reduce the overall dominance of industrialised economies in global trade and consumption. But they tend to overestimate the importance of the developing countries’ trade figures for three reasons. First, those figures are dominated by China-specific trade. Second, a lot of the interdeveloping country trade (including that of China) is trade in intermediates to produce final goods that are eventually largely consumed in advanced economies, and thereby linked to consumption and trade with the G7. Finally, a large part of that trade is actually intermediated through MNC networks that are headquartered in G7 countries, and influenced by the production networks within which they operate.
With regard to the TPP getting stalled, it is just the presidential election, with opposition from Donald Trump, and hesitant misgivings expressed by Hillary Clinton on account of the fear of job losses expressed by Bernie Sanders. As soon as the election is over, the Republicans will support the TPP (Paul Ryan fully supports it), and Ms Clinton, if she wins, will work out a revised TPP agreement with fellow Democrats to protect US jobs and implement the TPP (her running mate Tim Kaine is a strong advocate of TPP). The US needs to be involved in Asia. It is just a slight delay in implementation. Incidentally, China, in sharp contrast to India, is already making full preparations to meet the gold standard of the TPP. We need to start our preparations for the TPP immediately.
It is time we reshaped our trade negotiations, deviating from the WTO-dominated consensus approach to bilateral, regional, and plurilateral trade negotiations, and adapt to the realities of the new trade landscape dominated by GVCs and mega-regionals.
India needs to understand why the main arguments behind its past position are no longer relevant in the evolving global trade scenario