India and the WTO
India has been a member of the WTO since its inception in 1995. WTO is sometimes referred to as the ‘free trade’ institution seeking to promote multilateralism and a rule based system in the conduct of global trade amongst countries.
What ails the WTO?
Simply put, there is not just one but many issues which plague the WTO. The World Trade Organization (WTO) as an institution has perhaps never come under as much of a siege as now. Increasing protectionism, inadequate judges in the Appellate Tribunal for dispute resolution, increasing number of Regional Trade Agreements (RTAs) and Free Trade Agreements (FTAs) etc. have resulted in member countries questioning the efficacy of WTO as an institution meant to ensure free trade and promote multilateralism. Apart from the ongoing trade war like situation between USA and China, there have been trade skirmishes across the globe.
President Trump recently referred to India as ‘the tariff King’ that imposes ‘tremendously high’ tariffs on American products like Harley Davidson motorcycles. President Trump also signalled his intention to end the Preferential Trade Status (wherein certain countries are given special or preferential access on certain specified products of export) given to India and Turkey on the grounds that countries such as India have not reciprocated by providing the US with ‘reasonable and equitable market access’.
India has denied this and has stated that duties imposed are as per the WTO Agreements. Very recently, President Trump has threatened to impose tariffs worth US$11 billion on EU over ‘unfair’ subsidies to Airbus. The EU on its part has stated that the amount of subsidies claimed to have been accorded to companies like Airbus were ‘greatly exaggerated’. The Director General of the WTO, Azevêdo himself admits that the WTO as an institution would need to evolve if it is to have a bright future. Multilateralism, he recently noted, will not survive ‘if it becomes a symbol of paralysis’.
India’s stance on trade facilitation, agriculture, e-commerce etc.
India (along with a few other developing countries) has and continues to have objections (raised and ventilated through WTO Forums) on issues like agriculture especially subsidies in the context of food security etc. and trade facilitation.
The Agricultural ‘conundrum’ at the WTO and India’s position
India has been pushing agricultural issues at the WTO. Public stock holding (which includes purchasing, stockpiling and distributing food by Governments in times of necessity) is very important for India’s food security. While stockpiling and distributing are as per WTO guidelines, the purchasing of food by governments at a price higher than the market price is considered by the WTO as a trade distorting subsidy. The 11th Ministerial Conference held at Buenos Aires in 2017 did not result in any permanent solution to the issue of public stock holding. India has been a votary of a permanent solution to the issue of stock holding. The sticking point in this issue, as far as India is concerned, has been the way in which the Minimum Support Price (MSP) (MSP is the guaranteed price fixed by the Government of India and paid to the farmers for their produce. It is essentially a support mechanism extended by the Government to the farmers so as to ensure that the farmers get a minimum profit for their produce especially when prices in the open market are less than the costs incurred)is fixed.
According to theWTO’s Agreement on Agriculture, the Minimum Support Price (MSP) would have to be calculated on the basis of price of foodgrains in 1986-88 and the total subsidy would have to be below 10 per cent of the total value of production. India has strongly disputed this formula because the current prices are much higher and hence the total MSP given as subsidy would also be higher. Countries like India and China have opposed the huge production related price distorting subsidies given by the developed countries like the US and the EU to their farmers. The US alone gives around USD 150 billion in direct subsidies to farmers.
Regarding investment/trade facilitation, India has its own model investment code which does not allow multinational companies to take the government to international courts before it has sought recourse through the domestic dispute settlement bodies for a period of at least five years. This is because, in the past, the Government of India has been taken to international arbitration courts on multiple occasions.
One of the areas identified for further discussion at the 11th Ministerial Conference of the WTO held in Buenos Aires was e-commerce. India has objected to freeing of e-commerce as it feels that the country’s digital penetration is not yet adequate. India also feels that Micro, Small and Medium Enterprises (MSMEs) will not be able to compete with countries with deeper internet penetration who can gain better access to international markets. As far as talks on framing of rules and regulations to govern e-commerce is concerned, India wants the 1998 agenda to be the basis of any conversation about this subject.
India and the WTO: Present Position, Suggested Reforms and the way ahead:
India has objected to the WTO Secretariat’s participation in the recent report ‘Reinvigorating Trade and Inclusive Growth’ brought out by the World Bank and IMF casting doubts on the efficacy of trade talks involving ALL nations. The report’s suggestion of having plurilateral instead of multilateral trade talks has not found favour with countries such as India. India’s contention has been that institutional reforms of the WTO are best left to the members rather than the WTO Secretariat. India has further highlighted the increasing trade frictions and the dwindled size of the Appellate tribunal, which among other things, is affecting dispute resolution. It may be mentioned that the WTO which normally has 7 judges, presently has only three, of which two again are scheduled to retire in December this year.
What does India want?
India has been pitching for a reformed WTO. India has maintained that it is committed to work along with other countries to reform the World Trade Organisation (WTO) in order to ensure that it continues to be an engine for global trade. India also believes that while an institution like the WTO is required and should remain intact, it needs to change. However New Delhi is against changing the consensus-driven character of the multilateral trade body.
India’s recent initiative for reforming the WTO
India recently drew up a proposal aimed at reforming the dispute settlement mechanism, rule-making and transparency requirements. India’s move assumes significance in the backdrop of growing protectionism. The proposals were to be floated at the informal ministerial gathering at the recently held World Economic Forum meeting in Davos in January, 2019. India’s reform paper comes in the wake of the continuing US blockage of the appointment of judges at the WTO for more than two years. India has been asking for a resolution of the appellate body issue because it feels that this is central to the very essence of WTO and unless addressed, the WTO might well turn into a ‘discussion body’. The DG WTO while referring to the impasse in the WTO Apellate body at a meeting of the full membership of the organisation on February 27th, 2019 has stated that the matter is of ‘utmost concern and urgency’.
India recently co-sponsored a proposal with the European Union and other members on reform of the dispute settlement mechanism. The proposal addresses issues of timelines, the appointment process of the appellate body members, their tenure and other conditions, so that the body and the mechanism work more efficiently.
On the issue of notifications and transparency, India is opposed to the idea of linking notification requirements with punitive action. India and 40 other members had opposed the US proposal in November 2018 seeking to prohibit defaulters from presiding over WTO bodies and allowing other countries to not answer questions posed by them.
India’s position on US proposals to reform the WTO
The United States recently proposed a reform of the World Trade Organization that would slash the number of countries that are eligible for “special and differential treatment” (S&D), a plan likely to be resisted by China, India and other countries. S&D entitles developing countries to longer time periods for implementing agreed commitments, measures to increase trading opportunities, and twice the amount of agricultural subsidies available to developed countries. India, insists that a promise to reform the trade rules to boost developing nations, made by WTO ministers in Doha in 2001, must be kept before the WTO can move on to negotiate new rules in other areas.
Disentangling the web around WTO and moving ahead
Changing the WTO will take time. But clear strategic direction for change is needed to help alleviate some of the tensions between the world’s two largest economies, the US & China, and help the WTO address areas in which there are obvious inadequacies. Change will require commitment on the part of the major economies, represented by the G20, and deep engagement with China and the United States. The WEF Meeting in Davos in January 2019 was held under rather trying times for the WTO and global trade. ‘Today’s WTO crisis might well be the last ditch battle to retain control over a Western-centric organisation. The time has come for the emerging economies and the developing world to have a greater say in how to shape multilateralism and its institutions’.
As far as India is concerned, there is a requirement to take a well-considered position, based on India’s national interests (and not necessarily linking it to countries like China), on all trade related issues. India is now fully compliant with the WTO’s Agreement on Trade Related Aspects of Intellectual Property Rights(TRIPS) standards. However India is not a party to either the plurilateral Trade in Services Agreement (TiSA) or the Information Technology Agreement (ITA-2) being negotiated at the WTO. India should revisit both these agreements and see how it can leverage its huge strength in the Services sector. ‘Instead of ad hoc responses, we need a coherent trade policy aligned to our overall development strategy and an awareness that, in the long run, India must transform itself into a globally competitive economy without props’. India is much better positioned today to streamline and fine-tune its global trade priorities. This is because India’s growth over the last few years has been impressive and the IMF has recently stated that it expects India to remain the fastest growing economy for the next two years. India needs to look not at boycotting talks regarding framing of rules for example relating to e–commerce but joining and opposing if and where required. With an unremarkable percentage of global trade (only 2.1%), India would be better off with WTO’s ‘one nation one vote’ system than not participating in talks at all.
Conclusion: If the WTO as an institution and all the principles that it stands for is to survive and move ahead, there is no scope for rigidity on the part of any country or group of countries. Negotiations even if cumbersome, painstaking and incremental would be the only solution. A trading system with an institution like the WTO is surely better than one without it! A referee is a must and an institution like WTO should strive to become an even better and more effective referee although not necessarily only that. While WTO may not have achieved much by way of forward movement in today’s world surcharged with competition, one-upmanship, calls for protectionism and the same finding resonance among the local masses etc., its mere presence as a referee has been comforting. The focus should be to arrive at a broad consensus on as many issues as possible, even if they be modest in terms of ambitions, before the next WTO Ministerial Conference in June 2020. There never has been a better time than now for a fast-growing economy like India to tweak its trade policies and practices in order to leverage the benefits of decisions and agreements arrived at in institutions like the WTO.
This is a guest post by Shri S. K. Ashok Warrier, former Ambassador of India to the Democratic Republic of Congo. Watch for more posts from Ambassador Warrier in the coming months.