WTO at the door step

AFTER LONG years of control, India now has an open door import policy. The obligations under the World Trade Organisation have made the country remove almost all import barriers; the few remaining are mainly for security and health reasons. Foreign goods are gradually replacing domestic ones on the shop shelves. Industry is concerned that some segments may lose business and face closure. The labour is alarmed at the prospect of large scale layoff. Investors are hesitant to put in their money in the manufacturing sector with an uncertain future.

It is possible that the entrepreneurs take up the challenge with courage, and the situation may improve over a period. But, as of now, a sense of fear and frustration prevails. The new situation has awakened the people to the impact of the WTO on the economy and life. It is no more a distant arena where diplomats pit their wits against one another. The WTO is right here with its impact. Of course, there are some benefits too; but its demand of quick withdrawal of import controls has given a jolt to Indian industry. People are naturally anxious to know what more is in store.

Doha meet

The next big event is the WTO Ministerial Meeting at Doha in November. The major developed countries will be strongly pushing for a "new round" of negotiations in the WTO and including in it some new areas such as investment, competition policy, government procurement, environment and labour standards. The negotiations and agreements in these areas will benefit them while being extremely damaging to developing countries such as India. Naturally, the developing countries are opposing these moves.

It is heartening that the Union Commerce Minister has written to trade ministers of other developing countries expressing India's concern and suggesting a coordinated approach. He has said that the priority attention in the WTO should be on problems of implementation of the current agreements rather than starting a "new round" of negotiations in new areas.

New round of negotiations

The task of the Minister is difficult. The U.S. and the European Union have made a joint declaration during the recent visit of the U.S. President, Mr. George Bush, to Europe in which they have decided to work towards starting a "new round" of negotiations in the WTO. Hence, the pressure on developing countries will be intense.

Why are the major developed countries keen on launching a "new round" in the WTO? Encouraged by gains in the earlier Uruguay Round, they now want more. The proposed negotiations and agreements on investment, competition and government procurement will give further opportunity to their manufacturers, traders and investors. Those on environment and labour standards will enable them to restrict imports. Negotiations of such comprehensive and ambitious nature are generally possible only through a broad- based "new round".

Why are the developing countries opposing it? Based on the pronouncements of the major developed countries, there is reasonable fear among the developing countries that the agreements in the new areas will harm their development. Some of the implications are mentioned here.

Implications

An agreement on investment is likely to put constraints on India to channel foreign investments into useful sectors that may result in excessive burden of foreign exchange repayment (because all investments involve repayment within a few years). An agreement on competition is likely to enhance the freedom of operation of foreign trading firms in the country, which will expose domestic firms to severe competition.

Though the consideration in the area of government procurement is limited to transparency at present, the U.S. and European Union have indicated that their aim is to expand the market access. An agreement on market access in government procurement is likely to curtail current rights to choose from the foreign sources of supply and give preference to domestic firms. In many developing countries, including India, such purchases are large, and the domestic industry benefits from them immensely.

The agreements in the areas of environment and labour standards may be used by the developed countries to restrain exports of developing countries.

As against these adverse implications, there is hardly any benefit for India. Indian firms do not possess the capacity to invest, to have trading operations and to supply for government procurement in the developed countries.

Clearly these proposals are totally one sided; and, if agreed to, they will further aggravate the deficiency, imbalance and inequity, which already exist in great measure in the current WTO agreements. Besides, adding to the load of the General Agreement on Tariffs and Trade/WTO is also harmful for the system. Its main role is to facilitate international trade and create an environment for its expansion, leading to growth in member countries. The attention to new areas distracts it from its primary function as has been the experience in the last few years. If its domain is expanded to include yet more new subjects such as investment, its efficacy in its principal role will get further reduced.

As the proposal for launching a "new round" in the WTO is primarily aimed at ensuring the entry of new subjects, it is necessary to resist it the Doha meet. There are, however, some people in India and abroad who support it mainly for four reasons. One, a "new round" will make it possible to get major concessions from the developed countries in the areas of agriculture and textiles. Two, it will help reduce pressures in the major developed countries for import restrictions in a period of impending recession in their economies. Three, it will stem the wave of regional trading arrangements (RTA) and will also reduce India's handicap of being out of the major RTAs. Four, it will give India an opportunity to negotiate for enhancing its market access in other countries.

These are fallacious arguments. Negotiations in agriculture have already started as mandated by the Agreement on Agriculture. In textiles, the developed countries have already are fully commited to remove all restrictions on imports by the end of 2004. A "new round" is not likely to give additional benefits in these areas. The domestic policies of the major developed countries are driven by their domestic compulsions, particularly during a recession. If they decide to impose import controls because of the recession in their economies, the launch of a "new round" will not stop them. India should not forget that the restrictions on its textiles and jute in the U.S. and European countries were imposed and intensified while a big "round", namely, the Tokyo Round, was in progress.

Similarly the formation of the RTAs has its own dynamics; it will not get discouraged by the launch of a "new round". After all, the European Economic Community got strengthened and consolidated while the Tokyo Round was in progress and the North American Free Trade Area got established during the period of the Uruguay Round.

And reducing India's handicap due to the low mutual tariffs among the countries of the RTAs (because of its not being a member) as well as expanding market access is possible only if it agrees to a reciprocal reduction of its own industrial tariffs. This has its own adverse implications, as it may harm Indian industry at least in the short run, particularly because of the recent removal of the protection of import control. In any case, if an exercise of general tariff reduction is to be started, it can be done with the approval of the General Council in the WTO, without launching a new comprehensive "round".

The above discussion will show that India does not benefit from a "new round", and it has much to lose if it gets started and if it includes the new subjects. Therefore, it is necessary to resist it and build up coalition among the developing countries to resist the proposal that is likely to come up at Doha. The initiative of the Commerce Minister is a good beginning in this direction..

Bhagirath Lal Das

(The author is a former Ambassador of the Government of India to the GATT/WTO).

Send this article to Friends by E-Mail

Section  : Business
Previous : Free Software: Nothing is more appropriate for
           India
Next     : Honda Accord - matching the best for the best