India in the WTO

IPS in a report on the EU’s ambitions on FTAs with Asian partners writes about the FTA with India that the EU is currently negotiating. Some excerpts:

Mauro Petriccione, a director in the European Commission’s trade division, said on Oct. 6 that the lack of progress made in discussions with ASEAN has meant that the idea of negotiating a deal with just a few of its 10 member countries is being explored. ASEAN groups Singapore, Malaysia, Thailand, Burma, Vietnam, Laos, Cambodia, the Philippines, Brunei and Indonesia.
And while the European Parliament, the EU’s only directly-elected institution, called last month for an FTA with India to be finalised by the end of 2008, Petriccione acknowledged that attaining such a deal will be very difficult.
One of the problems is that the EU had started the negotiations on the tail of a reform movement in India, he told a seminar organised by the European Policy Centre, a think tank in Brussels. ‘’If it (the movement) is not stopping, it is at least slowing down.’’”
Petriccione was alluding to an economic liberalisation process initiated by Manmohan Singh, now India’s prime minister, when he held the finance portfolio in the 1990s. Under this process, the country’s investment rules were relaxed in order to entice multinational firms into the country.
In recent times, however, the Indian government has adopted a more cautious approach towards international commerce. India’s demand that it be allowed to restrict food imports in order to protect its farmers was blamed by the United States for the failure of efforts to revive the Doha round of world trade talks in July.
India has also taken a tough line in its bilateral dealings with the EU. It has, for example, been urging that the liberalisation of trade in services should enable its skilled professionals to work freely in the EU, despite efforts by the Union to curb immigration.
A paper published by the European Commission last year predicted that securing trade deals with Asia would bring major benefits to both continents. The combined effect of agreements with India, South Korea and ASEAN should be worth an extra 40 billion euros (54 billion dollars) to EU exporters per annum, the paper predicted. The Asian economies, meanwhile, should see their exports to the Union grow by between 18 and 36 percent, according to the Commission.
But a new analysis by ‘Traidcraft’, a British organisation promoting fair trade, contends that a free trade deal with India could have harmful consequences for the country’s poor. Losses in government revenue due to a lowering in tariffs on imports could lead to cutbacks in spending on health and education, says the report, while the opening up of the economy to large retail chains could jeopardise up to 40 million small shopkeepers or hawkers.
Sophie Powell, a Traidcraft campaigner and author of the report, said that the EU is wrong to depict India as its economic equal. Even though it has more than double the EU’s population size, India’s gross domestic product is only about six percent of the Union’s. Powell noted, too, that the EU’s own assessments of the likely implications of a free trade deal forecast that millions of Indians will lose their jobs in sectors ranging from paper to car-making.
The EC’s gung-ho approach to trade negotiations with India present clear risks to millions of India’s most marginalised people, she said. A fundamental rethink of EU trade policy is needed.”
Razeen Sally, an academic working in the University of Hong Kong, said it was probably a mistake to launch free trade negotiations between the EU and India.
India is not serious about FTAs, he claimed. Its unilateral reforms have stalled under the present government since 2004. India has been very defensive in the WTO (World Trade Organisation) and its track record on existing FTAs, except for one with Singapore, has been very bad, he added. ”

The Traidcraft report can be found here.

Announcement

ICRIER’s WTO seminar for the month of October will be delivered by Dr. Harsha Vardhana Singh, Deputy Director-General, WTO on 23 October 2008 (Thursday) at 3.30 PM on ‘Relevance of the Multilateral Trading System and Doha Negotiations in today’s world’.

The monthly WTO seminar series has been launched as part of ICRIER’s ongoing research and dissemination on WTO related issues. The objective of the seminar series is to identify and discuss critical WTO issues relevant for India in the ongoing Doha round and for future. This would include deliberations on the current impasse and also on the possible changing contours of the WTO in future.

This seminar series aims at providing a platform for facilitating dialogue and interaction between policy makers, academicians, industry and other stakeholders with a view to develop a shared understanding on India’s interests in the WTO. The seminar would be held at ICRIER on the third week of every month from 3.30 to 5.30 pm.

Please find below the details of the October Seminar;

Speaker: Dr Harsha Vardhana Singh, Deputy Director-General, WTO

Discussants:  Professor Manoj Pant, CITD/SIS, JNU

                        Professor Arpita Mukherjee, ICRIER

Chair:           Mr. Anwarul Hoda, Member, Planning Commission

Title: Relevance of the Multilateral Trading System and Doha Negotiations in today’s world.

Date: 3.30 PM, October 23, 2008

Venue: ICRIER Conference Room, Core 6A, 4th Floor, India Habitat Centre, Lodhi Road, New Delhi – 110003

Speaker’s Profile:

Dr. Harsha Vardhana Singh is Deputy Director-General, WTO, since October 2005.  His responsibilities include, inter alia, areas of Agriculture, Services, Trade and Environment, Sanitary and Phytosanitary Measures, and Technical Barriers to Trade.  Earlier, from June 1985 to June 1997, Dr. Singh had worked in the GATT/WTO Secretariat in different parts of the Organization. Prior to joining the WTO Secretariat in October 2005, Dr. Singh was Secretary, Telecom Regulatory Authority of India (TRAI).  Dr. Singh has also been a consultant with the Bureau of Industrial Costs and Prices, ILO, UNCTAD, and the World Bank.  He has been a member of several High Level Committees, and served as Chair of dispute settlement panels of the WTO. Dr Singh has been an Honorary Professor at the Indian Council for Research on International Economic Relations (ICRIER), and visiting faculty at The Energy and Resources Institute School of Advanced Studies for their Masters Programme on Regulation. Dr. Singh completed his Masters in Economics from Delhi in 1979 and went to the University of Oxford (U.K.) as a Rhodes Scholar from India to obtain his M.Phil. and D.Phil. in Economics.

For more details, see here

Continuing on the topic of the previous post, an American Professor of Strategy and Organization, School of Business, University of Maryland, (Ralph J Tyler) had an interesting opinion piece in the Economic Times earlier this year in January. He writes that by 2050, the bilateral trade relationship between India and China will be the most important economic relationship in the world. Tyler argues that India should grant China market economy status because:

While government subsidies do remain an issue in some industries in China, there is no evidence that this problem is endemic throughout large sectors of the Chinese economy. Also, other countries (such as Russia) which suffer from similar problems already enjoy a Market Economy Status.
Whether or not a country grants MES to China has minimal impact on trade balance with China. Take the US as an example. Even though the US has not granted MES to China, its trade deficit with China was $162 billion in 2004, $202 billion in 2005, and $232 billion in 2006. Thus, from China’s point of view, whether or not a country grants MES to it has little substantive value. The value is entirely “symbolic” and, as we know well, symbolism is a hugely valued commodity in China.
In any case, China will automatically get the Market Economy Status around 2015-16. Thus, for China, the symbolic value of getting MES goes down with each passing year. If India were to grant MES to China now (rather than after Japan, the US, or the EU have done so), the symbolic value to China will be much greater than if India were to be a mere follower.
Granting MES to China will not take away India’s rights to file legitimate anti-dumping cases. Even after China is granted MES, it has to provide verifiable information to the country filing an anti-dumping complaint. If such information is not provided, the latter retains the right to use the best information available, including third-country (surrogate) information. As it is, the current anti-dumping cases filed by India against China total less than 5% of China’s annual exports to India. In short, the substantive value of granting or not granting MES to China is insignificant not just for China but also for India. Yes, India will have a $9-10 billion trade deficit with China in 2007; however, MES has little if anything to do with the trade deficit.
Substance aside, if India were to grant MES to China before Japan, the US, and the EU do so, the symbolic value to China will be very high. If India is smart, it should exploit this opportunity to the maximum by getting quid-pro-quo concessions from China on issues that matter enormously to India (e.g., a settlement of the border disputes). In essence, India should look at MES for China as an issue whose salience rests almost totally in non-economic rather than economic domains.
We agree that, at the margins, granting MES to China will put greater pressure on Indian manufacturers to become more efficient (and on the Indian government to accelerate the elimination of India’s disadvantage in infrastructure).
However, this pressure is likely to be a net plus. India’s political and business leaders have always responded with vigour to external economic pressures and competition. Look at the country’s response in 1991. Or, look at the accelerated pace with which India’s IT giants are globalising their footprint and moving up the value chain in response to an appreciation of the rupee and growing competition from other countries.

On the growing importance of India China trade he writes:

Each country’s aggregate international trade is expanding by 23-24% annually. In comparison, India-China trade grew at a 50% rate during 2002-2006 and will increase by a further 54% during 2007 to reach $37 billion.
Second, after adjusting for partner GDP (i.e., bilateral trade divided by the trading partner’s GDP), India’s trade with China is greater than that with Japan, the US, or the entire world. After similar adjustments, China’s trade with India is only slightly below that with Japan, the US, or the entire world.
Third, China already is (or will shortly become) India’s number one trading partner. From China’s side, India already is one of its top ten trading partners. Also, China’s trade with India is growing much faster than with any of the other nine. Thus, India is rapidly becoming an increasingly important trading partner for China.
Fourth, India’s overall international trade is significantly below that of China’s, in terms of both absolute figures (for 2006, $306 billion vs $1,760 billion) as well as relative to GDP (34% of GDP vs. 65% of GDP).
Fifth, even if the growth rate in India-China trade slows down to 25% annually (a conservative projection) from the current rate of over 50%, bilateral trade between them will be almost $75 billion in 2010 and $225 billion in 2015, i.e., as large as China-US trade just three years ago. These are very large numbers. Political and business leaders need to start getting ready now for this radically different world.
Trade theory tells us that, in an increasingly flat world, trade between two countries should be a multiplicative function of their GDPs. Since it is almost certain that, by 2050, China and India will be the two largest economies in the world, it is inevitable that bilateral trade between them will become the most important economic relationship in the world.

Tyler offers an interesting stance on investment ties between India and China:

At present, investment links between the two countries are relatively modest. Haier and Huawei have significant presence in India. Similarly, Bharat Forge, TCS, and Infosys are building a noteworthy presence in China.
These types of greenfield investments will continue to grow. However, the quantum leap will come as some of the bigger companies from India and China acquire third-country companies that already have a significant presence in the other country (e.g., if an Indian auto company were to acquire a western auto company with significant presence in China). It is certain that, over just the next five years, we will see a growing number of foreign acquisitions by Indian and Chinese companies. As these acquisitions materialise, it is inevitable that investment linkages between India and China will grow rapidly.

According to CCTV.com, India China trade was 39 billion US dollars in 2007 (a 50% increase over 2006). Both countries want to raise this to 60 billion US dollars by 2010. A high level business delegation is visiting India and a number of deals have been signed to help achieve this. CCTV.com writes:

The deals signed covered different sectors including textile machinery, garments, steel, agriculture, and electronics. The total value was about 370 million US dollars.

Besides bolstering two way trade, the deals are also considered a way to escape the deadlock that scuppered ministerial talks at the World Trade Organization in July.

G. K. Pillai Indian, Commerce Secretary, said, “India and China have had a very close cooperation in the WTO as we have supported each other in ensuing a development dimension to the Doha round of talks and we hope to take this cooperation further in our bilateral relationship to increase trade between our two countries.”

The Chinese delegation says the documents signed can help reduce the trade deficit, by at least nine billion dollars, if not more. India has accused China of dumping at WTO conferences, and the Chinese side said increased negotiation and cooperation is important to resolve the problem.

The Financial Express has more:

Opening a new chapter in the India-China business relations, the two countries are expected to sign at least 36 memorandum of understandings (MoU) in different sectors that would be worth $370 million during the maiden Chinese business delegation’s visit to India scheduled for next week.

Talking to FE, sources in Ficci said that the 60-member delegation coming from China will be inking MoUs in various sectors including: Textile machinery, garments, steel, agriculture, science and technology and electronics.

Business delegation from China, comprising all the major Chinese companies, is arriving here next week on the first-ever ‘government procurement’ mission to India that Beijing hopes will reduce the nine-billion dollar plus trade gap that exists between the countries. Chinese vice minister of commerce Gao Hucheng is leading the impressive delegation that will have senior executives of China Chemicals, China Petrol, China Machinery, China Grid and Sino Steel, Sinochem Corporation—all leading state-owned enterprises—as well as other representatives of key Chinese companies.

Representatives from some of the Indian companies which will be signing the MoUs include Reliance Industries Ltd, Allianz India, Bharat Mining Co, Ranbaxy Laboratories Ltd and Kotak Ginning and Pressing Ind Ltd.

The EU is at present India’s largest business partner with trade worth 56 billion Euro. Indian trade with both China and the EU is targetting 100 billion $/Euro by 2013. It is also being reported that a feasibility study for an India China FTA is now complete.

The Economic Times had a few weeks ago, reported on how Indian buyers were increasingly sourcing from low-cost China to beat inflation.

India importers are looking to China manufacturers more and more to fight rising costs, according to dual surveys released by trade publisher and trade show organizer Global Sources.
The surveys, conducted in July and August, tracked the views of thousands of volume importers and purchasing managers who supply India’s retail distribution channels. The surveys focused on consumer electronics and hardware and building materials – two of India’s fastest growing segments.

…

“Supply-chain management is becoming more efficient in India. And these buyers are looking to China manufacturers to supply this ever-changing need for products.” Around 90 percent of survey respondents said they felt China suppliers offered end-consumer a wider selection of products at reasonable prices. Over 95 percent of respondents to both surveys indicated they would increase their purchases of products from China in the coming year.

This report also has some more statistics on India China trade:

Last year, China became India’s largest trading partner – overtaking the United States. While Indo-US aggregate international trade is expanding by 23-24 per cent annually, India-China trade grew at 50 per cent during 2002-2006 and increased by 54 per cent during 2007 to reach 37 billion dollar.

And here the Economic Times writes about how China and India need to understand each other better:

Two “distant” neighbours. Decades of communication gap. Lack of connectivity. Inadequate understanding of each other’s cultures, systems and orientation. This is the India-China relationship, or lack thereof, since the early 60s.

In the late 90s, Indian Industry was running scared of competition from China, partly out of ignorance and partly because of lack of competitiveness.
Much of this is past — trade and investment have taken quantum leaps. From $40 bn bilateral trade in 2007 its heading towards $60 bn now. But the basic problem remains. There is still lack of understanding of the Chinese — and China — in India, among Indians.

The role of the Indian parliament in trade policy making has mostly been marginal. While many countries (both developed and developing) struggle with ensuring democratic control over trade policy making through parliamentary supervision, the issue in the Indian context, needs to be considered in the light of the low quality of parliamentary governance in India in policy making overall. While some (perhaps rightly) argue that more parliamentary supervision in India of trade policy making will make any policy reform impossible and create efficiency concerns, the need for democratic control over trade policy making – a component of governance that affects every citizen, is also an issue that cannot be ignored in the long term.

This call from one of India’s leftist political parties for the India-EU FTA to be debated in Parliament is therefore important. According to the Hindu newspaper:

Ahead of the ninth India-European Union Summit in Marseille, the Communist Party of India (Marxist) on Saturday asked the United Progressive Alliance Government not to make any commitment on the Free Trade Agreement without a debate in Parliament.

As Prime Minster Manmohan Singh leads the Indian delegation for the summit on Monday, the Polit Bureau, in a statement, said it was a matter of concern that while the European Parliament had already discussed the issues related to the proposed FTA, the Indiangovernment was yet to share details of the negotiations with Parliament and people.

…

The draft proposals, existing negotiating positions and studies conducted by the Indian government on the India-EU FTA should be placed and debated in Parliament before it initiated any further step, the statement said.