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Review of US economy dampens export optimism

G. Srinivasan

NEW DELHI, Sept. 17

EVEN as the Indian authorities are sanguine about the likely reversal of the export decline during the first four months of the current fiscal, the optimism over the latter half seems to be misplaced if the assessment of the World Trade Organisation (WTO ) on the US economy is any pointer.

Given the relatively high single-country share of the US in the Indian exports, the `Trade Policy Review' of the WTO on the US, which was concluded in Geneva on Monday, has come as a dampener to the export optimism nursed by mandarins in Udyog Bhavan her e.

While not making any direct reference to the September 11 terrorist attack on the US, the WTO report points out that in the current cyclical slowdown, ``the United States is less of a growth engine for the rest of the world.''

After a protracted spell of strong expansion, the US economic growth has slowed significantly and imports have fallen. ``The changed economic environment may impinge on US trade policy implementation, with a slowing economy likely to increase pressures f or greater border protection and government support,'' the report cautions.

While the US maintains one of the world's most open trade and investment regimes, in a few important areas, ``significant barriers'' to market access persist, the report said, adding that ``reducing these barriers would lessen distortions in global mark ets, frictions with trading partners and strengthen the multilateral trading system.''

Since the previous `Review of the US' in July 1999, the US has made proposals for further liberalisation in agriculture and services in the WTO mandated negotiations. The US has also committed support for a new multilateral round of negotiations. Besides , the US trade agenda included negotiations for a Free Trade Area of Americas Agreement and for bilateral free trade pacts.

Even as most imports enter the US either duty-free or subject to low tariffs with the average MFN (most favoured nation) tariff hovering at 5.4 per cent for all goods, the report said the highest tariffs were applied mainly to agricultural products, as w ell as clothing, textiles and footwear.

For these products, tariffs tend to escalate with the degree of processing. Tariff quotas apply to imports of beef, dairy products, sugar and some sugar products, peanuts, tobacco and cotton. The WTO bluntly states that out-of-quota tariffs, ranging up t o 350 per cent, might act as ``import prohibition.''

Another disturbing observation made by the WTO about the US is that it continues to make ``active use of anti-dumping and countervailing measures.'' The initiation of investigations increased between 1998 and 2000 which might have ``a chilling effect on trade, with preliminary duties applied in most cases,'' the WTO said. A large percentage of probes in the past two years entailed steel products.

While under duress from the US, India had to unceremoniously end its import curbs phaseout schedule by 2001 against the original schedule of 2003. The US still imposes quantitative import curbs mainly under the Agreement on Textiles and Clothing (ATC). Q uotas apply to over half of clothing imports and 32 per cent of textile imports. Over 1,000 quotas are applied to 45 countries, including 37 WTO members.

While lauding the US for decline in federal export subsidies with government export financing being relied upon for a comparatively low share of exports, the report singles out the high agricultural support the Government doles out.

``Given the size of the US economy, domestic support can also appreciably impact world markets,'' the report said. Those subsidies nearly tripled between 1997 and 2000, exceeding the decline in the value of agricultural output. Last year, nearly $30 bill ion was made available in direct payments to farmers and ranchers.