India in the WTO

Greg Rushford of the rushford report has criticised India for “threatening” the Doha talks in an article in the Wall Street Journal today. He calls India the “Elephant in the Room” that “can least afford the collapse of the Doha Round”.

Last week, the Indians were back to the rhetoric that has marked their negotiating style throughout the Doha process. The latest spat was over a newly circulated draft negotiating text on “rules,” including possible reforms of protectionist antidumping laws. The measure is controversial, and even the Americans have voiced concerns on some issues. But whereas U.S. officials expressed willingness to negotiate, their Indian counterparts threatened to close the door. Ambassador Ujal Singh Bhatia, India’s top trade diplomat in Geneva, called the draft text effectively an insult. India has been committed to the Doha negotiations, the ambassador said, “but if, God forbid, a time comes when that price of engagement is unpayable by us, then we will have to stand up and say that.”

That’s a rich statement, given India’s negotiating tactics. Rather than express willingness to negotiate gradual, phased-in liberalizations — which is how the Doha process is supposed to work — Trade Minister Kamal Nath has a long list of sectors he has insisted are “non-negotiable” from the get-go, including a “negative list” of politically “sensitive” imports that are discouraged, if not actually prohibited, from fruits and vegetables to grains, edible oils, rubber, cotton and silk.

He suggests:

While the rich Europeans and Americans actually could afford to walk away from the Doha Round, India would pay a dear price for its failure. Consider the gains India has already reaped from earlier rounds of partial trade liberalization.

Is this really a fair assessment? Rushford argues that India needs more tariff and regulatory reforms and better infrastructure to continue to grow, and that without the Doha round, India will have no “pressure to fix those problems”. What he omits to mention is why the United States and Europe need a successful Doha round … Under present WTO rules, agricultural support in both the US and the EC will be open to legal challenge at the World Trade Organization’s dispute settlement body. Thus both the US and the EC want a Doha round outcome that will renegotiate these rules and allow them to continue their agricultural subsidies, albeit at a reduced level. And there are other reasons. All WTO members have a stake in a successful Doha outcome.

And as far as reform goes, India has engaged in unilateral reform before and will continue down that road. The dynamic within India has changed and now the reform agenda finds its strongest supporter within India itself, among Indian business. And bilateral and regional engagements will contribute to that impetus for reform. Almost everyone seems to want an FTA with India these days.

All this is not to say that a balanced Doha round will not bring benefits to India. It will and Indian negotiators and business certainly realise that. But it seems unfair to criticise India for “negotiating”. Its important to understand that domestic trade politics in India has evolved from its non-existent status in the Uruguay Round to a highly informed and contested democratic politics today. And no one would know better than the United States, that domestic trade politics is both important to negotiate a beneficial trade agreement and cannot be ignored. Domestic trade politics is essential for good trade policy making by the government.

Nonetheless, Mr Rushford makes a very valid point when he highlights how India loses out in international business:

The World Bank’s latest Doing Business survey estimates that the cost, including tariffs, poor roads, others customs duties and bureaucratic red tape, for India to export a carton of goods to the U.S. is $820; for China, it’s $390. It costs India $910 to import a carton from America, compared to $430 for China. Overall, the survey ranks India 120 out of 178 for ease of doing business. China ranks 83.

However, some of Mr. Rushford’s advice to India might be too simplistic. For instance he suggests:

Since the economic logic is so powerful, one would think that India’s trade negotiators would be eager to bargain away tariff walls that hurt the country’s competitiveness. Wrong. In the Doha talks, India wants to retain “policy space” — a code word for protectionism — to raise tariffs any time it might find it convenient to prop up this or that uncompetitive domestic industry, like Brazil has been doing. Somehow it doesn’t occur to the Indians that their models on tariffs, instead of Brazil, should be the likes of Singapore and Hong Kong, where tariffs are negligible and economic growth is rampant.

Surely, India’s size and development needs would require trade policy that differs from that of Singapore and Hong Kong?