India and the changing world of trade

When the World Trade Organisation (WTO) was established in 1995, it was hailed as the start of a new era in economic growth based on multilateral trade and globalisation. And yet, 23 years after it was established, the future of the WTO is itself in question. Increasing protectionism across both developed and developing countries, that has been evident since the financial crisis of 2008, came to a head with the US administration imposing a series of tariff measures since January this year, raising the spectre of ‘trade wars’.

The current crisis has been in the making for several years since the financial crisis of 2008. The WTO, as well as several independent surveys, have been warning about the increase in protectionist measures across countries. It may therefore not be accurate to attribute the threat of trade wars to the US administration under President Donald Trump alone.

As things stand today in the world of trade, the US has imposed tariffs and quotas on a variety of imports from China, and steel and aluminium tariffs for a wider set of countries, including India. Several countries (including India, European Union (EU), Canada, Mexico, Russia, Norway, Switzerland and China) have initiated WTO disputes against US measures. Of these, countries including China, the EU, Canada, Mexico, Turkey and Russia, have imposed retaliatory tariffs in response to President Trump’s actions on trade in aluminum and steel.

In response, the US has launched separate disputes at the WTO, challenging the tariffs that each of these WTO members has imposed. In the tit-for-tat world of trade, the future of a key component of the WTO’s dispute settlement system- the appellate body, is uncertain owing to an impasse that has resulted from US’ actions in blocking the reappointment of appellate body members.

These events, coupled with the sluggish pace of multilateral trade negotiations over the past few years, has led to a growing clamour to revive the system through ‘reform’. Systemic reform in relation to the dispute settlement role of the WTO is clearly needed to restore the credibility of the system. Another aspect of getting increasing support is to have the WTO engage in what is often referred to as the “21^st century issues,” including ‘electronic commerce’ and ‘investment facilitation’.

India has so far been sceptical about engaging with such issues, the concern being that when there is unfinished business under the WTO’s Doha Development Agenda (which commenced in 2001), on issues ranging from services to agriculture, members cannot divert attention to new issues without a clear mandate.

A related concern is that in an area such as digital trade where national regulatory frameworks are still evolving, it is perhaps premature to agree on multilateral rules.

These concerns notwithstanding, there is gradual build up of momentum, beginning with the formation of “joint informal” groups of countries at the WTO at the 11^th Ministerial Conference in December 2017, which issued joint statements to advance talks at the WTO on the issues including electronic commerce, investment facilitation and micro, small and medium size enterprises (MSMEs).

There is now increasing focus on new approaches to achieving outcomes which are not necessarily based on the traditional WTO norm of “consensus” based decisions, since not all WTO members are part of the ‘joint groups’. These include a recent World Bank-IMF-WTO paper referred to above on “Reinvigorating Trade,” a “Joint Communiqué of the Ottawa Ministerial on WTO Reform” issued by a group of 13 countries comprising of Australia, Brazil, Canada, Chile, EU, Japan, Kenya, Korea, Mexico, New Zealand, Norway, Singapore and Switzerland, and the Report of a High Level Board of Experts comprising of trade experts from several jurisdictions, titled “Revitalising Multilateral Governance at the WTO”.

The EU and Canada have separately released their discussion papers on WTO reform. A common theme running across these documents in the need for flexible and open negotiating approaches to address the new issues.

Interestingly, the Ottawa Communique also emphasised that “tackling pending and unfinished business is key to ensuring the relevance of the WTO”. Taking cue from this, there is a need to give a renewed push for pursuing the unfinished Doha business relating to agriculture and services; but it would not be prudent to insist that unfinished business should be completed before discussions on new areas can proceed.

Constructive engagement on issues such as ecommerce and investment facilitation at the WTO is important; not doing so runs the risk of fragmented plurilateral outcomes. The discussions on these issues, and the approaches taken to address them, will have a crucial role to play in whatever shape or form world trade rules survive and evolve. To watch as bystanders would be a mistake and a missed opportunity.

The willingness to listen, discuss and contribute will also provide a significant opportunity to shape the nature of discourse and its outcome to ensure policy flexibility in fledgling areas such as e-commerce. India should not lose this opportunity.

At the same time, it is important to recognise that ‘new issues’ and rules around these issues cannot be the magic potion that can reinvigorate multilateral trade. For achieving that, addressing the underlying causes for increasing protectionism is necessary.

For ultimately, if we separate the grain from the chaff, and leave aside the drama of President Trump’s actions, there appears to be a strange convergence of views across countries- that perhaps the WTO has not really achieved the objective of trade as an engine of growth; and that income and resource inequalities have only exacerbated across countries.

As UNCTAD (United Nations Conference on Trade and Development) notes in its recent Trade and Development Report, with its ominously worded title: “Power, Platforms and the Free Trade Delusion”, “(T)he paradox of twenty-first century globalisation is that – despite an endless stream of talk about its flexibility, efficiency and competitiveness – advanced and developing economies are becoming increasingly brittle, sluggish and fractured.”

A patchwork of new issues cannot fix this problem, but neither will staying out of the negotiations on the same. It is clear that free trade by itself cannot guarantee growth and prosperity. Deeper introspection and innovative approaches are needed to address this both at the national and the multilateral level.