trade negotiations in wto, an india perspective

7/27/2019 Trade Negotiations in WTO, An India Perspective

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Trade Negotiations in

World Trade Organization:The Indian perspective

Written By: Saket Ambarkhane

Dated: January 12, 2008


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Contents

1.Introduction2.Trade profile of India

3.Policy position in Doha round

4.Singapore Issues

5.International Economic Diplomacy theory

6.Conclusion

7.Bibliography


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Introduction

The Uruguay round of General Agreement on Tariffs and Trade (GATT) negotiations whichculminated in the establishment of World Trade Organization (WTO) brought about

fundamental changes in the multilateral trading system. Many countries made significantcompromises to create the new system, India being one of them. From its inception, Indiahas been an active member in WTO negotiations. The rapid growth in its economy since the1990s and subsequent growth in its clout at regional level has given it the extra impetus toward off any agreement or policy position from the developed world that will lead to adownward spiral in its overall growth pattern. Moreover, it has now acquired leadershiprole to negotiate pressing concerns of the developing world. India is a part of various smallworking groups of WTO such as G20, G4, G6, and G110 amongst others. In each of thesegroupings, India has been at the forefront of policy position formation and consolidated astrong attack against the protectionist advances of the developed world. The followingessay analyses the trade profile of India and lists out its key concerns on the trade

negotiations in WTO.

Trade profile of India

1. GeneralAccording to the World Bank (June 2007), India is classified as a developing economyand low income country. As per WTO (2007), Indias population, till 2006, was 1109.8million with an area of 5.1 million square kilometers. It has been a GATT and WTOmember since inception in 1948 and 1995 respectively.

2. EconomyIndia's economic performance has been impressive (WTO, 2007), averaging over 7%between 2001/02 and 2006/07. Growth has been particularly rapid since 2003/04,averaging over 8.5%, with over nine % expected for 2006/07. Indias Gross NationalIncome (GNI) per capita is $ 820 whereas its trade per capita is $ 321. It is categorizedas the fourth largest economy after the US, China and Japan by Gross Domestic Product(GDP) in terms of purchasing power parity (PPP) (2007). Indias share in world G DP(PPP) has increased from 4.3% in 1991 to almost 6 % in 2005. With a trade value of$120.3 billion (WTO, 2007) and a trade share of 1.43 % (World Bank, 2007), India israted as the 28th largest trader in the world for merchandised goods and services. Its

current GDP is $906.3 million and its current account balance, as of 2003, was $ 6853million (2007).

3. Key SectorsAgriculture sector in India employs around 60% of the working population, but itscontribution to GDP continues to decline from 23 % in 2000/01 to 18% 2005/06,


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suggesting that labour productivity is only around one-sixth of its level in the rest ofthe economy (WTO, 2007). Services have been the main engine of growth in recentyears. Average annual growth over the last four years has been 9.8%, largely due togreater progress in reform, especially for certain services. Between 2002/03 and2006/07, it contributed 68.6% of the overall average growth in GDP. In 2005/06,

manufacturing accounted for 16% of GDP as growth in the sector has been rapid, onaverage almost seven % per year since 2000/01. This can be attributed, in part, tocontinued structural reforms and a relaxation in licensing and FDI restrictions (2007).The textile and clothing sector contributes about 14% to the industrial production ofthe country. The sector is the second largest provider of employment after agriculture,employing close to 85 million people; 35 million directly in textiles and 50 million inallied activities. It also contributes substantially to Indias export earnings, accountingfor nearly 17% of the countrys total exports.

4. TariffsTariff is India's main trade instrument as well as an important source of tax revenues.

They are expected to account for over 23% of net tax revenue in 2006/07 (30% in2001/02) (WTO, 2007). India has been moving towards a market-oriented traderegime since the early 1990s (World Bank, 2007). However, its trade regime is stillcomparatively restrictive, as compared to others from low income category. Moreover,in agriculture India retains one of the most restrictive regimes in the world. Indialevied an average 49.2% (2006) final bound tariff which includes an average 114.2%tariff on agricultural products. But import barriers and Most Favoured Nation (MFN)applied tariffs have continued to fall at 15.8% (WTO, 2007).

5. Imports and ExportsThe Ministry of Commerce and Industry in India (2007) claims that countrys exports

crossed US $ 100 billion in 2005-06, but according to the World Bank (2007), Indiasreal growth in total trade of goods and services has declined from a per annum averageof 13.3% in 1995-99 to 9.2% in 2005-06 (Figure 1). The ministry argues that exportshave grown more than twice the GDP since last few years at a rate of 20% and hencebuoyant by this growth, the country has set an export target of $ 150 billion by 2009.Its trade share in GDP climbed from 23.6% to 39.7% over the same period, aremarkably high ratio for a large country, although it remains below the groupaverages of South Asia (48.6%) in 2005-06 and low income countries (79.7%). As perthe Ministry (2007), for the year 2006-07 (April-October), the export growth wasmainly driven by petroleum and chemical products, engineering goods and textiles(Figure 2). The import growth was mainly driven by petroleum crude along with

fertilizers, wheat, newsprint, non-ferrous metals, metaliferrous ores and products.Machinery and project goods import was also significant(Figure 3).


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Figure 1: Trade figures from 2002 to 2006 as per Ministry of Commerce and Industry, India

Figure 2: India's exports according to Ministry of Commerce and Industry report


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Figure 3: India's imports as per the Ministry of Commerce and Industry report

During the first seven months of 2007, the share of South Asia, North-East Asia andAssociation of South East Asian Nations (ASEAN) region accounted for nearly 49.87%of India's total exports (Commerce Ministry, 2007). The share of Europe and Americain India's export stood at 22.28% and 19.83% respectively of which EU (25) comprises20.74 % (Figure 4). During the period, USA was the largest export destination (15.47%) followed by United Arab Emirates (10.06%), Singapore (5.45%), China (5.66%),Hong Kong (3.71%), UK (4.46%) and Germany (3.15%). During the same period, Asiaand ASEAN accounted for 61.56% of India's total import during the period followed by

Europe (19.91%) and America (9.4%). Among individual countries the share of Chinastood highest at (9.1%) followed by USA (5.7%), and Germany (3.99%) (Figure 5).


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Figure 4: India's exports according to Ministry of Commerce and Industry report

Figure 5: Indias imports according to Ministry of Commerce and Industry report


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6. Regional groupingIndia is a part of six Regional Trade Agreements (RTAs) in the goods category and hasnotified one Economic Integration Agreement to WTO (2007). India is a member ofSouth Asian Preferential Trade Arrangement (SAPTA) with Bangladesh, Nepal, Bhutan,

Sri Lanka, Maldives and Pakistan, the Bangkok Agreement with Laos, Republic ofKorea, Philippines, Sri Lanka and Thailand and a Free Trade Agreement (FTA) with SriLanka (2007). India also has several bilateral agreements in force with the EuropeanUnion, including an agreement on Sugar Cane, the Co-operation Agreement, theScience and Technology Agreement and the Customs Co-operation Agreement. It alsohas bilateral preferential trade with Mauritius, Tonga, Seychelles, Nepal and Singapore.India is also seeking to develop ties with other regional groupings, such as ASEAN andMERCOSUR (WTO, 2007).

Policy position in Doha round

India has effectively used the international forum provided by WTO to raise its concerns ontrade issues affecting the developing countries. Given its trade profile, India has maintaineda consistency in reiterating concerns over specific trade issues which have not beenresolved through the six rounds of negotiations at the WTO. After the failure of the Seattleround of negotiations (1999) followed by the walk out of developing countries, there was agrowing realisation amongst developed countries to address major trade concerns of thedeveloping countries. Hence the Doha round of negotiations called for the DohaDevelopment Agenda (DDA), which was a time-lined approach to multilateral free and fairtrading system. It saw the formation of many new agreements and working groups torealise greater market access for all. Some of the issues DDA looked at were:

1.AgricultureAgriculture as a sector has been the bone of contention at WTO negotiations andIndia, along with other developing countries, has argued against the protectionistpolicies of developed countries in this sector. It believes that international tradestructure is most distorted in the agriculture sector (WTO, 2005) as is the primaryreason for the stalled negotiations. DDA paved the way for trade negotiations inagriculture in specific areas (2002). They are:

A) Export Subsidies: India, through various rounds of WTO negotiations hasargued in favour of elimination of export subsidies by developed countries

(2003). Since the livelihood of 650 million people in India depends onagriculture (2003), it is particularly dismayed at imbalances related to exportsubsidies. In the Geneva round, it was argued that while developing countriesare restricted to subsidise exports, most developed countries which areresponsible for distorting the market are allowed to do so provided it is withinthe reduction commitments agreed in UR AoA(1998). It contends that most


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developing countries have a comparative advantage in agricultural products andhence elimination of export subsidies by developed countries is essential forfurthering of global trade (2005). Pascal Lamy, Director of WTO, expects thatwith the elimination of export subsidies by 2013 and a significant partfrontloaded by 2010, distortion to Indian food exports will be eliminated (2006).

B) Domestic Support: India believes that developed countries should reducedomestic support which distorts international trade. It says that agriculturalsubsidies in developed countries are not targeted at keeping small strugglingfamily farms in business but to provide hefty rents to large farmers andcorporate houses (2003). It also contends that Organization of Economic Co-operation and Development (OECD) countries, including the US, the UK, France,Japan, Australia and Germany, support sugar producers at the rate of US $ 6.4annually an amount nearly equal to all developing country exports (2003).Through various rounds of negotiations at WTO, India has maintained that aspecial safeguard mechanism needs to be in place for securing and ensuring

livelihood and food to people dependent on agriculture. It has stressed the needfor a multilateral trade system to ensure food security in developing countries(2003).

C) Market Access: India has been fighting for increased market access withreduction in tariffs for agricultural products in the developed markets. In return,it also agrees to provide reasonable market access to her agriculturalcommodities market. India has committed to 100% bound tariff on primaryagricultural products, 150% bound tariff on processed foods and 300% tariff onedible oil (2002). In the Cancn round, India argued that over past few years,agricultural exports from developing countries to developed countries has

grown at just half the rate they did with other developing countries (2003). Thisargument is valid since Indias share in world agricultural exports has increasedmarginally from 1.77% in 1995 to 1.87% in 2003 (ICRIER, 2005). In fact thegraph shows that for the UR AoA implementation period (1995- 2001), Indiasshare in total agricultural exports was on a decline (Figure 6). Indias farmexports have marginally recovered in the last two years.


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(2005)

Figure 6: India's Agricultural Exports as per a working paper of Indian Council for

Research on International Economic Relations (ICRIER)

2. Implementation issues of Uruguay roundFrom the Singapore round of WTO negotiations, India has conceded implementationissues related to this round of negotiations (1996). Apart from procedural problemsof innumerable notifications and inadequate financial as well as human resource,India has faced problems in building political consensus to implement certainsegments of the agreement (1996). India was specifically concerned about theimplementation of agreement on textiles and clothing, as it is a key industrial sectorof its economy employing many people. As per the agreement, action could beinitiated under the exceptional transitional safeguard mechanism to restrict exportof a countrys textiles. India has repeatedly accused certain countries ofindiscriminate use of this action. It has hence been stressing the significance of this

agreement being multilateral so that individual trading partners do not target asingle country (1996). India has been particularly dismayed at the fact that inspiteof negotiating commercial phasing out of the restrictions on its textile exports,restrictions continued for long (1998).


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3. Intellectual propertyIn every round of trade negotiations, India has referred to imbalances in the Trade

Related Aspects of Intellectual Property Rights (TRIPS) agreement signed during theUruguay round of negotiations. Indias Commerce minister in his speech at the

Singapore round ofnegotiations said, There is a feeling that developing countriesmay have to incur heavy costs in implementing this agreement by way of highroyalty payments, increased administrative costs and possible transnationalmonopolistic controls in some sectors (1996). There are two major concerns here:

A) Generic drugs and public health: India has held that the TRIPS agreement wasan initiative taken by the developed world and has the potential of adverse effecton prices of pharmaceutical and agro chemicals in developing countries (1996).It also argued that the 10 year transition period for implementation of the

agreement was ineffective as it mandates developing countries to grantexclusive marketing rights for patents to pharmaceutical companies at any timeafter their entry into the developing market (1998). Also, India believed thatavailability and affordability of essential medicines was a universal human rightand TRIPS agreement should look at measures to protect public health. Hence inDDA, a separate agreement on TRIPS and public health was conceded whichlooked at interpretation and implementation of TRIPS agreement in such a waythat it will support the right to public health and ensure access to generic drugsfor all (2001).

B) Geographical indications: Geographical indications are place names (in somecountries also words associated with a place) used to identify products withparticular characteristics because they come from specific places. Since theGeneva round of negotiations, India has been critical of the developed world forprotecting their products such as wine and spirits while reluctance to extend thesame protection to products from developing countries. India has beenparticularly concerned over patenting of Basmati rice, an indigenous cultivation,by foreign companies without obtaining prior consent or any agreement onbenefit sharing to those who have been traditionally involved in the production(1998). It has time and again sought amendment to TRIPS agreement to protectthe knowledge of these indigenous communities, which are in large number indeveloping countries, calling such activities of developed countries asiniquitous. It also argues that such a practice where the right of a patent holderis on a higher pedestal than that of the indigenous communities whose bio-resources or traditional knowledge are used, is in direct misalignment with theUnited Nations Convention on Bio-diversity (UNCBD) (1999). The DDA says thatTRIPS council will look at bridging gaps between TRIPS agreement and UNCBD.


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4. ServicesServices is the most productive sector of Indian economy and hence India isparticularly interested in greater market access on the movement of naturalpersons. Successive commerce ministers in India have raised the issue at WTO

negotiations. During the Singapore round of trade negotiations, Indian Commerceminister said, It is no exaggeration to say that in some cases access to skilledpersons from India have been made more restrictive during the last two years.India has time and again argued that developed countries put pressure ondeveloping countries to open market to goods and capital where the former hasdecisive advantage and no attention is paid to providing market access toprofessionals from developing countries, where the latter is in a better position.According to Commerce and Industry minister, Kamal Nath, Less than 1% of globaltrade in services is in the movement of natural persons whereas about 57% ofglobal trade is in commercial presence. Countries which are strong in terms ofcapital and technology, have an overwhelming interest in services trade in

commercial presence but are unwilling to take on board the concerns of developingworld, which are heavily dependent upon liberalisation in movement of naturalpersons. The developed countries are also unwilling to agree to any disciplines intheir domestic regulations such as economic tests, which restrict access tomovement of natural persons severely (2007). India has staunchly defended itsposition against inclusion of labour related issues in WTO, arguing thatInternational Labour Organization (ILO) was best suited to deal with it.

5.Anti-DumpingDumping is defined as sale of products by a country in another country at arelatively lower price or lower than the cost of production. India has come downheavily upon developed world for initiating frequent and unwarranted anti-dumping investigations and countervailing duty actions against exports ofdeveloping countries. It argues that most of the times the charges are not proven butit caused significant loss to those businesses in terms of litigation costs and risk ofuncertainty (1996). India has also presented a case for bilateral consultations orprior warning systems before such investigations are launched. India has beenparticularly unhappy with the initiation of anti-dumping measures on textile andclothing exports, as the sector accounts for 20% of industrial output of the countryand provides livelihood to 30 million people (1999). Against total initiation of 115

cases since 1995, 62 definitive measures have been imposed by various membercountries of WTO against Indian exports accounting for 3.6% of all anti-dumpingmeasures in force in the world (2006). Out of 53 new measures imposed by themembers of WTO during the first half of 2005 one (1) measure is against the Indianexports imposed by the USA. The European Union (16), South Africa (10), and theUSA (10) continue to be the countries with maximum number of anti-dumpingmeasures in force against Indian exports (Figure 7). Product wise analysis of AD


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measures against Indian exports indicates that highest number of anti-dumpingcases continue to be on the base metals including steel products and Engineeringproducts, which account for 32% of the total cases, followed by chemicals and alliedproducts including drugs and pharmaceuticals, which account for about 25 % of allanti-dumping measures against India (Figure 8).

Figure 7: Anti-dumping measures against India


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Figure 8: Sector wise distribution of Anti-dumping cases against India as per Ministry of Commerce

6. Non-Agricultural Market Access (NAMA)NAMA deals with reduction or elimination of tariff peaks, high tariffs, and tariffescalation, as well as non-tariff barriers, in particular on products of export interestto developing countries. India was in favour of NAMA negotiations but in the initialrounds of WTO talks had held that agreeing on any text on this issue depended onprogress in other areas (2007). However, in DDA, ministers agreed to negotiationskeeping into account the special needs and interests of developing and least-developed countries, and recognize that these countries do not need to match or

reciprocate in full tariff-reduction commitments by other participants. A simpleSwiss formula created by developing countries to calculate tariffs was rejected byIndia saying it did not take into consideration the development needs of developingcountries (2005). Further, India, Brazil and Argentina proposed a new flexibleformula which would use the average bound tariff of every country to calculateindustrial tariff reduction. At the Hong Kong ministerial conference, Indian minister


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argued that, Elimination of tariff peaks and escalations are needed to supportlivelihood of many industrial workers in developing countries. Industries such astextiles, clothing, leather products, and footwear have long faced barriers. It is of nouse having zero duty levels on airplanes while maintaining 30% duty on leatherhandbags! But a NAMA proposal translated into 75% cut for developing countries as

against a 25% cut for developed countries.(2005).

Singapore Issues

The Singapore round of WTO talks saw developed countries introducing more areas fortrade negotiations where developing countries were struggling with the implementation ofthe Uruguay round of negotiations. These areas were trade and investment, competitionpolicy, transparency in government procurement and trade facilitation. Since Singaporetalks kicked off work on these areas, they are called Singapore issues. These four areas

were originally included on DDA. The carefully-negotiated mandate was for negotiations tostart after the 2003 Cancn Ministerial Conference, on the basis of a decision to be taken,by explicit consensus, at that session on modalities of negotiations. There was no

consensus, and the members agreed on 1 August 2004 to proceed with negotiations in onlytrade facilitation. The other three were dropped from the Doha agenda (2007). India hadargued against the inclusion of new areas of trade from the beginning of the WTOnegotiations. It has been against a multilateral framework on investment policy as it wouldleave no choice with developing countries to carve out independent Foreign DirectInvestment (FDI) policy. It also demanded a review of the competition policy under UnitedNations Conference on Trade and Development (UNCTAD) in the Singapore round of talks(1999). It is also opposed to multilateral rules with respect to trade facilitation and

transparency in government procurements (2003).

International Economic Diplomacy Theory

Indias stance in WTO can be analyzed by John Odells theory of negotiations (Woolcock,2003). Odell argues that in trade negotiations, there are resistance points, which can bedefined as the point where no agreement is better than a bad agreement. This is also calledbest alternative to a negotiated agreement (BATNA). This is a situation where noagreement has happened but there is something to salvage the deal and prove as abreakage point for furthering the negotiations. Similarly, the frequent missing of deadlines

and fast-tracking of Doha round of negotiations had generated frustration among those thathad assumed the role of prime movers: the ministers of Australia, Brazil, Japan, India andthe US, and EU which formed G6 to resolve major issues amongst themselves.

Odell also argues that a negotiator will less likely go for value creation when opposition isexpected from negotiating partners. The stand of developing countries regarding


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negotiations on NAMA and Singapore issues has been relative of progress on other areaswhich are of interest to developing countries (2007). The hardliner approach taken by G4bloc( including India, China, Brazil and South Africa) against the protectionist approachesof the developed countries just goes on to prove that. Value claiming can also be explainedby the decision of G6 countries suspending joint deliberations (TWN, 2006) when

negotiations were stalled and countries reiterated same positions. Also, Poor countries arenot being given enough time or space to negotiate a deal that will help them to develop.Many of them are being excluded from the process, as small groups of influential countriesmeet in an effort to make progress (for example the G6 group of Australia, Japan, the EU,USA, Brazil, and India)(Oxfam, 2006).

Conclusion

Although the WTO negotiations have missed many deadlines, trade as a whole has grown

significantly. In 2006, the volume of world merchandise trade grew by 8% while world GDPrecorded a 3.5% increase. This confirms the trend of world merchandise trade growing bytwice the annual growth rate of output since 2000. Similarly, global tariffs havesignificantly reduced since 1948 after the formation of GATT. India has made considerableprogress in WTO trade talks to ensure a hard bargain for its goods and services in theglobal market. But the growing clout of economies such as India, China and Brazil in tradenegotiations coupled with their hardliner approach towards negotiations has led toincreasing frustration in the developed world. Countries such as the US is looking atalternative ways of getting its way through the stalled WTO negotiations by signing largenumber of bilateral agreements. These countries are also seriously looking at engagingcountries such as India outside the ambit of WTO, which are at the forefront of thedeveloping world delegation. It then might agree to give special benefits which would denygreater market access to the rest of the world. These fears are best cited by the Indiancommerce and industry minister Kamal Nath. He says, There are aplenty opportunities forthe developing countries to benefit from successful conclusion of the Doha round of talksthrough increased access for their products and services by providing a level playing field.But there are looming threats to divide the developing countries by creating a category ofadvanced developing countries which would be totally unacceptable to India and otherdeveloping countries. Any such attempts would lead to collapse of the talks.


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