Home / Opinion / Online-views /  Ratifying trade facilitation agreement could prove costly for India

On Friday, India submitted the instrument of ratification of the trade facilitation agreement (TFA) to the World Trade Organization. The TFA was concluded at the WTO’s ninth ministerial meeting in Bali in December 2013. It will take effect after two-thirds of the WTO membership—108 members—approve the agreement.

India is the 76th member to ratify this intangible agreement with wildly varying estimates of trade benefits. The Economist, for example, in its leader ‘The Indian Problem’ on 23 November 2013, said “the trade facilitation measures in the Bali package would add an estimated $68 billion a year to global output, with much of the gain concentrated in poor countries". But the same publication in its ‘Doha Delivers’ comment in December 2013 said “trade facilitation could cut global trade costs by more than 10%, by one estimate, raising annual global output by $400 billion, with benefits flowing disproportionately to developing economies".

In a policy brief of Global Development and Environment Institute, Tufts University, issued at the Bali ministerial meeting when the TFA was concluded, economist Jeronim Capaldo wrote that the figure prepared by the International Chamber of Commerce that trade facilitation would add $1 trillion to the world’s income and 18 million jobs in developing countries “depend on too many unjustifiable assumptions to be relied on". Further, “it is hard to see how uncertain gains and unequal distribution of costs can justify diverting resources to trade facilitation from badly needed policies such as the strengthening of the social safety nets", Capaldo argued.

But the WTO turned a deaf ear to these wildly fluctuating estimates of TFA gains ranging from $68 billion to $1 trillion. In its press release issued after India handed over the instrument of TFA ratification, the WTO claimed that the TFA “has the potential to increase global merchandise exports by up to $1 trillion per annum". WTO director-general Roberto Azevedo, who claimed success for concluding the TFA, said “implementing the WTO’s trade facilitation agreement will cut global trade costs by up to 15%... This is a bigger impact than eliminating every remaining tariff around the world, and it could deliver a trillion-dollar boost for global trade".

It is a different issue that Azevedo raised serious questions about the TFA when he was the ambassador of Brazil until 2012. He suggested that it is an agreement for market access at one of the trade negotiations committee meetings.

Indeed, if the TFA is so beneficial for developing countries, why did they oppose it tooth and nail since 1996 when it was first introduced as part of the four Singapore issues (investment, competition policy, government procurement and trade facilitation) at the WTO’s first ministerial meeting held in the city-state? Who demanded the TFA and why was it dropped at the WTO’s fifth ministerial meeting in Cancun, Mexico, in 2003? Why did the then commerce minister, Arun Jaitley—who is now the finance minister—lead a coalition of countries to oppose the Singapore issues at Cancun?

Clearly, these issues need to be addressed at a time when “the global trade regime", including neither the WTO nor the multitude of regional trade deals such as the North American Free Trade Agreement (Nafta) and the Trans-Pacific Partnership (TPP), carry much support among the public. Otherwise, there is the danger that those who cannot remember the past are condemned to repeat it.

Credit goes to the late Murasoli Maran, who helmed the commerce ministry in the Atal Bihari Vajpayee government, for repeatedly saying “no" to the four Singapore “new" issues when they were brought up before the Doha ministerial meeting in 2001. Former US trade representative Robert B. Zoellick and European trade commissioner Pascal Lamy launched an effort on a war footing at Doha to bring these four issues, which India could not prevent. But Maran managed to insert a caveat in the Doha work programme that the four controversial issues will be negotiated only after there is an “explicit" consensus among members at the Doha meeting.

Indeed, Jaitley’s leadership at the WTO’s fifth ministerial meeting in Cancun ensured that the four Singapore issues were dropped, a development that was a huge blow to the EU and the US. Effectively, the Singapore issues, including TFA, were torpedoed at Cancun. But the US and the EU brought back TFA to the Doha Development Agenda in July 2004 on the promise that developing countries will be provided enhanced special and differential treatment flexibilities and would have to make less than full reciprocity commitments.

Trade facilitation, which aims to harmonize customs procedures and administration in the developing and least-developed countries with current practices of the developed countries, was a priority area for the US along with other industrialized and some developing countries (Singapore, Hong Kong, Mexico, Chile, Colombia) of what was called the Colorado Group.

Consequently, trade facilitation became primus inter pares for a substantive outcome while other core areas of the Doha work programme such as fundamental reform of global agriculture disciplines, improvements in special and differential flexibilities, a special safeguard mechanism to protect farmers in the developing world, and a permanent solution for public stockholding programmes were pushed to the back-burner.

Thus, a comprehensive binding TFA was concluded at the WTO’s ninth ministerial conference in Bali, while all other major issues of interest for developing countries were effectively pushed under the carpet at the 10th ministerial meeting in Nairobi.

Mercantilist logic, according to Dani Rodrik, an academic at Harvard University, is premised on “you lower your barriers in return for me lowering mine". But for India under the leadership of Prime Minister Narendra Modi, that logic seems irrelevant. Otherwise, it is difficult to explain why it failed to secure concessions in the global trade negotiations for taking on board costly commitments like the TFA.

Ironically, New Delhi has accepted the TFA without securing cast-iron guarantees for a permanent solution for public stockholding programmes or special safeguard mechanism for its farmers.

Increasingly, India is treated as a nation full of “fluffy" pronouncements and glib postures in global trade negotiations.

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