Post bonhomie, an India-US face-off
A week after PM Modi and US President Obama unveiled a manifesto on cooperation, the two nations face each other in a trade dispute at the WTO
A week after Prime Minister Narendra Modi and US President Barack Obama unveiled a new manifesto on “India-US Delhi Declaration of Friendship”, the two nations are facing each other in a trade dispute at the World Trade Organization (WTO). That dispute is about Washington’s challenge against India’s solar policy which allegedly violates global trade rules. Just at a time when India and the US are coasting towards “reinvigoration of strategic ties”, the dispute over solar cells and solar modules stands out like an eyesore.
Of course, this is not the first time that the two are battling it out at WTO. So far, India has taken the US to task in eight trade disputes over the last two decades. The US has resorted to six disputes against India, which includes high-profile cases such as patent provisions for pharmaceuticals and removal of quantitative restrictions. While India has complied with the Dispute Settlement Body’s (DSB’s) recommendations, the US is increasingly seen as a poor performer in implementing WTO rulings. Every month, the US is severely criticized at the DSB meeting for failing to implement DSB rulings and recommendations, and for causing lawlessness in the multilateral trading regime.
Coming back to the watershed joint statement issued by Prime Minister Modi and President Obama on 25 January, it must be said that the two countries broke new ground in several areas. There are 28 bullet points highlighting the expanding cooperation between the US and India across all areas under the sun. From space to defence and homeland security, trade to health, and the nuclear deal to energy and climate change, there is nearly no stone that is left unturned. Indeed, it is difficult to explain a 5,737-word joint statement— “Shared Effort; Progress for All”—in a single column.
But in one area, the two are constantly seen at each other’s throats. And, that is trade, where there is never a moment when the two are not firing salvos against each other. Of course, all this will change if the Modi-Obama understanding becomes a reality. India and the US have now agreed to work together at WTO and in other forums. “The breakthrough between India and the United States on issues relating to the implementation of the Bali Ministerial Declaration regarding public stockholding for food security purposes, the WTO Trade Facilitation Agreement, and the post-Bali work” point towards a new bonhomie.
The Trade Policy Forum will pave the way towards resolving commercial impediments in both markets. This will enable them to realize the potential for bilateral trade in goods, and to promote investment and manufacturing. Further, India and the US will not only work closely on controversial issues such as labour standards, but also pursue a bilateral investment treaty. Effectively, a new foundation is laid for cementing India-US trade relations in which bilateral trade is expected to touch $500 billion in the medium term from the current level of $100 billion.
Notwithstanding these grand pronouncements in the Mobama manifesto, there are lingering doubts whether the recent history of trade negotiations between the US and India could act as a dampener. Like the British in India who extracted special privileges not enjoyed by other European traders during the 18th century, the US also insists on an “Open Door” policy, a euphemism for special concessions that are not granted to other foreign companies.
“As President Obama has made clear, the United States believes that sustainable development is ultimately grounded in trade and investment,” says ambassador Michael Froman, the US trade representative, in an article published by Reuters two days before PM Modi and President Obama unveiled the bilateral agreement. Although “not everyone agrees that trade and investment are central to development”, he says, “some of the most successful developing economies are pursuing a range of market opening initiatives, including reducing or eliminating their tariffs”.
Countries that succeeded with aggressive trade liberalization policies have had a long history of protectionist policies that were adopted at every stage of their development. The industrialized nations, including the US, continue to adopt protectionist policies in agriculture. “None of the other countries among today’s wealthy nations were ever as protectionist as Britain or the US,” says Cambridge economist Ha-Joon Chang in his book Bad Samaritans—The Guilty Secrets of Rich Nations and the Threat to Global Prosperity
It is small wonder, then, why the US continues to oppose any country, including India, at WTO for pursuing an independent development strategy based on its specific socio-economic needs. For example, there is fierce opposition against developing countries who seek exemptions for public stockholding programmes for food security needs from the existing Uruguay Round disciplines in agriculture, which accommodates decades of trade-distorting policies by the US and other rich countries. (The Uruguay Round disciplines were negotiated during 1986-93 and implemented from 1995.) Procuring the public stocks at market prices and providing them at reasonable and reduced prices to the disadvantaged sections of the society is bound to involve a subsidy.
Last week, the US and Pakistan took potshots at India for framing rules for public stockholding programmes at the Doha negotiating body on agriculture. The US wants to identify policies that promote trade liberalization and food security as broadly as possible for all members. It is easier to see a linkage between empty stomachs and food security, but not trade liberalization and food security.
Similarly, heavens won’t fall if developing countries pursue developmental strategies for promoting the solar sector for renewable energy. Every country has to climb up the ladder at one point or other, instead of remaining dependent on foreign technologies that come with numerous strings attached. Clearly, there is a clash of developmental agendas between the US and other countries. What is development for one country might look like protectionism to the US. This is a much uglier clash than the phony clash of civilizations in which some governments invest all their political and military capital. Perhaps, it is important for the government to recognize that with less than half of its population mired in absolute poverty, harmonizing investment and trade policies as per Uncle Sam’s blueprint might prove costly in the coming years.
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