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Evolution of India's Trade Negotiations

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  • Published
    2nd Nov, 2020
  • The General Agreement on Tariffs and Trade (GATT) of 1948 was the first multilateral agreement under UN aimed at boosting economic recovery by reducing barriers to trade.
  • Even though India was one of the 28 founding members of GATT, it was not a serious stakeholder in multilateral trade negotiations.
  • The newly-born independent countries known as ‘Third World Countries’ had their priorities firmly rooted in development issues such as providing basic necessities to its people—food, clothing and shelter as also building institutions for preserving the hard-earned freedom.
  • India, along with 76 countries, was a founder member of the World Trade Organization (WTO) in 1995 which subsumed the Uruguay Round GATT negotiations from 1986-1994.
  • India believes that a fair, equitable, justiciable and predictable rules-based multilateral trading system embodied in WTO is in the best interest of developing and Least Developed Countries (LDCs).
  • The Dispute Settlement Body, a lynch-pin of WTO, makes trade rules enforceable and effective.
  • India sought correction in the highly imbalanced trade negotiations under the Agreement on Agriculture (AoA), reasoning that since developing countries were unfamiliar of the long-term implications of the negotiated formula on agriculture under AoA during the Uruguay Round of negotiations, correction was necessary.
  • Presently, talk on reform of the WTO has gathered momentum in the wake of unilateral measures and counter-measures imposed by mostly USA and China.
  • Developed countries are seeking to graduate few emerging countries like India, China, Brazil, South Africa etc. from the status of ‘developing countries’ by withdrawing Special and Differential Treatment.
  • The principles of Special and Differential Treatment enshrined in GATT and adopted into the WTO system, was based on the premise that developing countries and LDCs, faced with developmental challenges, require certain buffer to cope with external competition.
  • India strongly opposed this distorted view arguing that development parameters of developing countries are not even remotely close to those of developed countries and putting them in the same basket as developed countries is unfair.
  • Another challenge in WTO for developing countries is effort by plurilateral groups to push for new issues on the WTO Agenda for rulemaking such as e-commerce, investment facilitation, MSME and gender.
  • Understanding how tariffs and non-tariffs impact trade is crucial for trade negotiations. The rationale for high tariffs is to protect domestic industry from external competition and enhance revenue collection for the State.
  • WTO member countries had bound their tariff rates for each line of product; developed countries bound 99% of their tariff lines to below 5% rates and developing countries bound their rates to 98% but with varying peak rates, within which they can maintain flexible applied rates.
  • India’s share in the world merchandise exports at the time of our independence in 1947 was 2.2%; it dropped to 0.5% in 1983 and marginally rose to 0.7% in 2000. Currently, India’s share in global exports is 1.7%.
  • Experts attribute India’s low share to its decades of insular economic policies but with 1991 economic reforms, leading to integration into the world economy, India’s share has picked up.
  • In contrast, countries such as Japan, Korea, China and even ASEAN enjoy much greater share in global trade as a consequence of their open economic policies with significant thrust on exports.
  • Free Trade Agreements (FTAs) create conducive environment for GVCs to operate efficiently. Partner countries take advantage of liberalised investment climate under FTAs to set up production units as part of Supply Chain networks (GVC) to feed into finished products.
  • India’s trade negotiating approach would need to take a broader long-term view of things to come in future. Increasing volume of trade is more important than trade deficit because trade need not be a zero-sum game.
  • Technology will impact trade in big way in near future and staying in niche technologies such as machine learning, 3D printing, robotic engineering, internet-based production; e-commerce, etc. will all impact global trade in a big way.

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