India and its institutions should be more than up to the challenge.
Greater Indian engagement will call for a much more proactive stance in trade negotiations than what the country has been pursuing in recent years. The India government also needs to understand that its past position on trade is not relevant in today’s evolving trade landscape dominated by global value chains (GVCs).
The global economy is dynamic and so too are global production networks. Now intellectual property and technology account for a much larger share of the total value of a finished product. Advanced countries that control GVCs now rely less on a World Trade Organization (WTO) obsessed with tariff protection and more on pursuing trade facilitation.
India also has legitimate concerns about the trend of global agriculture trade and domestic protection and subsidy regimes. Prominent Indian trade economists have castigated the subsidy regimes and protection put in place by Japan, the United States and the EU. They have also upheld India’s right to use policy tools to ensure effective protection of Indian agricultural interests. But there needs to be debate about what tariffs, standards and subsidies policies are used to ensure optimal benefits to those farmers who need it the most.
Indian agricultural policies largely reward medium- and large-scale farmers, including those producing cash crops, often at the expense of the consumer. Given the vested interests within the agriculture sector, the Indian government needs to be mindful of who benefits the most from trade policies.
Health and technical standards present another challenge. While most standards are internationally agreed upon, the technical conformity and compliance is open to interpretation. Indian exporters are forced to navigate a fine line between protecting domestic customers and accessing low-cost solutions for compliance. The government has done precious little to address this issue. The Quality Council of India needs to be strengthened and empowered to find such solutions.
On top of these concerns, India’s ‘comprehensive’ bilateral agreements have done very little to help exporters. For instance, they do not integrate specific languages on sectoral standards or conformity assessment agreements. Indian negotiators are hampered not so much by the ‘deviousness’ of trading partners, but by their own lack of institutional depth. Some of these issues are being belatedly addressed now.
Some Indian negotiators also seem to think that the movement of people is as simple as the movement of inanimate goods and services. If that were the case there would not have been any issues with the movement of economic migrants from Bangladesh to India. India should instead be engaging in discussing a new paradigm for international labour movement that includes addressing issues such as security and the timely return (as opposed to permanent migration) of workers.
But in light of current refugee and migration-related problems in the EU and the United States it will take a long time to make any progress on this agenda item. India should instead focus on diversifying its professional services beyond information technology to benefit from GVCs. This requires domestic reform.
At the international level, mega-regional agreements such as the Trans-Pacific Partnership (TTP) do not restrict developing countries so long as they are willing to conform to TPP standards. Some wrongly assume that developing countries that are excluded from the TPP are gaining an increased share of global trade. But this is wrong for three reasons.
First, trade with China dominates developing countries’ trade figures. Second, a lot of inter-developing country trade (including China) is trade in intermediate goods that are used to produce final goods, which are in turn consumed in advanced economies. Thirdly, a large part of that trade is actually intermediated through multinational corporations that are headquartered in developed countries and influenced by the production networks within which they operate.
As soon as the US presidential election is over, Clinton, if she wins, will need to bring an end to the current stalling on the TPP and implement a revised agreement that protects US jobs. China, in sharp contrast to India, is already making full preparations to meet the gold standard of the TPP. India needs to start preparing for the TPP immediately.
It is time India started to reshape its trade negotiations, deviate from the WTO-dominated consensus approach to trade and adapt to the realities of the new trade landscape dominated by GVCs and mega-regionals.
Jayanta Roy is a regular columnist for Business Standard and a Senior Economic Advisor to Deloitte.
This article first appeared here in Business Standard.