WTO: Whose truth?

This past week, my staple diet has been various books on WTO issues -- one edited by CII's T K Bhaumik, another by T N Srinivasan and Suresh Tendulkar, and yet another by think-tank Research and Information System (RIS) -- so, believe me, I've been as sleepless as any trade minister at Cancun.

And as confused. On almost any significant issue, one gets completely divergent facts, not just views.

• Srinivasan and Tendulkar state that global trade grew 15 times between 1950-94 while total output rose only 6 times, implying the GATT/WTO had a major role to play -- a point reiterated by Arvind Subramanian and Shang-Jin Wei of the IMF in an article in The Economic Times a few days ago.

Also Read Cancun 2003: Complete Coverage India and the WTO: Complete Coverage

Yet, the RIS book quotes Professor Andrew Rose of the University of California at Berkeley as saying the WTO has had no impact on either promoting trade or trade liberalisation (Clearly the huge dichotomy is the subject of a research project in itself!)

• RIS says developed countries charge the highest import duties on products sold by developing countries -- in 2001, the US collected $152 mn in duties from Cambodia's $0.96 billion worth of exports, but just $96 million from Singapore's $14.9 billion exports.

Yet, Mary Irace of the National Foreign Trade Council of the US points out, in Bhaumik's book, that 70 per cent of the tariffs paid by developing countries are to other developing countries.

The only thing all authors agree on is the extent and deviousness of the OECD farm subsidies!

The question then is: if the WTO process is so loaded against the developing world, what's the road ahead?

Before attempting to answer that, it is worth examining the RIS arguments in some detail.

While bemoaning the higher tariff levels in the US/EU on textiles and other products made by developing countries, RIS says the plunge in OECD employment is the highest in the protected industries.

Naturally, RIS doesn't come to the same conclusion for countries like India that have amongst the highest tariff levels in the world!

RIS, similarly, makes chilling reading when it details how, despite getting countries like India to remove all local-content stipulations on foreign investors, the US and the EU practice similar policies in their free trade arrangements.

For instance, NAFTA rules of origin, RIS says, require that at least the motherboard of a computer be made in North America -- similar stipulations exist for telecom and colour TVs. But has this resulted in huge investments shifting away from Asia to the NAFTA area?

Not really, say several experts I spoke to, because the low-cost advantages of producing in South Asia and China generally outweigh the benefits of tariff concessions in NAFTA on items where the import duties are in any case near zero.

(By the way, it's worth keeping in mind that when India had local content rules for foreign investment in automobiles, very little foreign investment came in. Once the rule was relaxed, a lot more came in, and the ancillary base strengthened dramatically -- auto exports is an area in which India is now becoming a player.)

To get back to the earlier question, does the failure at Cancun help India?

Clearly, if India wants to increase its exports (exports of just two items, textiles and software, are expected to rise from 5 per cent of India's GDP today to 11 per cent by 2008), WTO-style multilateral negotiations are better than bilateral agreements which are dictated by the whims of the stronger partners -- roughly half of world trade is already conducted through preferential trade agreements (PTA) like NAFTA, and these increase whenever multilateralism fails.

Interestingly, one of the seven major disputes India won at the WTO (of the 14 cases initiated by it) concerns the PTA of the EU with Turkey -- while not blocking the PTA, India established some important points about 'rules of origin' which will make it easier to trade with countries like the US through their PTAs.

In fact, India's victories at the WTO have been impressive -- it's won against the EU's anti-dumping duty on bed-linen imports and against the US proposal to ban Indian shrimp exports on the grounds its fishermen didn't use turtle-extruder devices. In other words, the WTO's not quite the exclusive rich-man's club it's made out to be.

And, yes, while India's textile exports to the US/EU do attract a high 10-25 per cent import duty, the fact is that its software exports attract nothing.

Ditto for automobiles/components. While being aware of the present facts is important, India's WTO stance needs to focus on the future.

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