The recent contraction of exports and key capital goods imports confirms the industrial slowdown in the country, which is compounding the overall trade weakness in a recessionary global economy. In response, the government has announced a slew of export promotion measures in addition to continuing its negotiations of free trade agreements (FTAs) with multiple partners. The approach appears logical, given the impossibility in breaking the deadlock in the multilateral trade talks. After being in a formal limbo since 2006, the Doha Round of multilateral trade negotiations seems to have been unofficially buried in November 2011, after 10 years of talks. Though the WTO is yet to officially abandon the talks, its officials, reportedly, began considering an alternative to the Doha agreement since April 2011. It is now commonly accepted that the most complex round of global trade negotiations since the days of the General Agreement on Tariffs and Trade (GATT) collapsed under the heavy weight of expectations and limited ability of member states to make the necessary concessions to move the Round forward in a climate of weak economic performances and bleaker growth prospects worldwide.
The failure of the WTO to successfully broker the Doha deal has further alienated an already disenchanted global business community from the global trade negotiations processes, a feeling that started becoming apparent in the aftermath of the failed Seattle Ministerial meeting. Since then, many other stakeholders have joined the “apathy club” against the WTO. At home, the traditional anti-WTO voices seem to have found new supporters in the government and business community, and it is widely accepted today that India will be able to negotiate market access better in a regional and bilateral context.
Irrespective of the merits of the argument, albeit limited, it would, however, be masochistic to argue for the WTO’s irrelevance in the years to come. In particular, we argue that developing countries like India would do well to train their focus on multilateral trade negotiations much more than bilaterals, and not only because of the poor record of India’s FTAs in garnering meaningful market access in partner countries.
For one, developments since 2008 indicate that the WTO is yet to lose its relevance as the multilateral referee of global trade relations; in fact, it is being credited for containing extreme protectionism in the past five years, with the Dispute Settlement Body (DSB) proving to be an effective deterrent. The sharp collapse in international trade between the second quarter of 2008 and the third quarter of 2009 was the steepest decline ever recorded, even sharper than during the Great Depression of the 1930s. But unlike then, the 2008 global economic crisis and its recessionary aftermath has not recorded any overt resort to protectionism (despite the reversal in recent months and the spike in 2009) by countries seeking to shield their industries at the expense of their neighbours, since successive GATT Rounds chipped away the ability of nation states to resort to tariff protection as a means of insulating domestic economies. The trend of gradual tariff liberalisation observed since the mid-1990s has also not been reversed.
However, the evolution of protectionism (towards measures less well-disciplined by international trade rules) is a cause for major concern, especially in contrast to the more transparent tariff-dominated accounts of 1930s protectionism. The deteriorating macro-economic climate and prognosis of even tougher times to come in 2013 has the potential to lead to greater protectionism of the non-tariff kind. The 11th Global Trade Alert Report notes that since July 2011, the vast majority of new protectionist measures have been initiatives that are not traditional trade defence measures or tariff increases, but new forms of protectionism such as discriminatory measures targeting foreign commercial interests or investment, export subsidies, discriminatory bail-outs, wage subsidies, new climate-related environmental regulations on imports, and so on; in 2011, non-tariff measures such as restrictive import licensing and local content requirements and new regulatory requirements accounted for the most new discriminatory state measures that the Global Trade Alert uncovered.
The report also found that developed countries (especially Japan, the European Union and the US) have been the most active in devising measures that are “almost certainly discriminatory”, with more than 70 per cent of the new measures falling under this category. As pressures on governments to save jobs and protect local industries grow, so has the number of protectionist measures that have been reincarnated in different forms that circumvent established rules. Given the considerable diversity in contemporary protectionism, a weakening or a demise of the WTO will rob the international trading community of the ability to devise multilateral trade rules to regulate and counter the increasing non-tariff protectionist measures that world’s major economies have been adopting; this will impact developing countries the most.
As recently argued by Professor Bhagwati, the WTO’s failure to conclude the Doha Round may over time also undercut its authority in the other critical area, namely its dispute-settlement powers. If preferential trade arrangements (PTAs) become the only game in town, and PTA-based dispute settlement mechanisms are established, adjudication of disputes will eventually reflect asymmetries of power and supersede WTO rules. That again is unlikely to auger well for developing countries like India.
India’s future interests should be motivation enough to push for a conclusion of the Doha Development Round since the Doha Round’s prospects are inalienably linked with the WTO’s continued supremacy as the global trade rule-making and dispute-settlement forum.
The writer is a trade economist