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Is the World Trade Organization to Blame for Rising Protectionism???

It is crystal clear today that the global economy is facing tumultuous times for which no short cut solution is ready. Problems are not created overnight and as such solutions cannot be there in the shortest span. Some of the nations still think protectionist solutions as means of addressing the concerns - sharply rising prices for food and energy, ever decelerating economic growth and instability in international markets. Some also forecast dooms day for the WTO virtually ignoring the basic facts and reasons behind its formation in 1995 as an Institution [and not as an agreement]. The members of the WTO have already made a number of significant contributions in the last 18 years and still more contributions are waited which cannot be there in case the wind up comments are counted at all!!

The fact is undeniable. Round and round….And what has become a routine happening now in the WTO negotiating process - deadline, deadline and so on…. went a begging - gone 2012 too!! Is the arbitrator of rules of trade between nations- the WTO losing its shining glory globally?

With the member countries sticking to their respective stance on the major issues [including agriculture] doubts are fast appearing as to its dispute resolution powers---ultimately the UN way!

As of now, the problem lies in no new offers from the developed world. In fact the WTO success awaits offers to be tabled by US and EU.  Actually the ongoing negotiations could not make much headway unless developed countries mainly the US and EU, show an entirely new mindset and put new offers on the table. Till now there has been no new offer from that part of the world and that is where virtually the problems lie. It is crystal clear that the gulf of difference between the developed and developing world has not narrowed down at all. That is to say, if new offers come from the developed wing, a breakthrough could only be possible and the year end dead line meant for the conclusion of the current round of negotiations, titled the DOHA development round, could be reasonably met. The crucial requirement is thus there to break the ice as soon as possible. Simultaneously, it is also very clear that any unrealistic offer-just in order to save the round- could not break the stalemate in the practical sense.

So far India is concerned it has been scrupulously meeting all of the commitments made -obligations in reducing tariffs on industrial and luxury goods. Actually, we have really done which we have committed to. Side by side, it is also to be seen that any further cuts in tariff is possible provided the same does not  disturb sensitivities of our own luxury goods industry which is virtually still in its infancy .

Similarly, for countries like ours, on the agriculture front, any negotiation on tariffs and market access is hardly possible -especially considering the very question of subsistence of farmers. The question is not subsidy but clearly subsistence; the latter cannot be put on the table for negotiations. The then Commerce Minister Mr. Kamal Nath was very correct in describing the matter: 'subsidies should be discussed and negotiated and even phased out, but only when it involves the basic survival of the farming community'.      

The actual question which surfaces now is: do we stand to lose? In the aggregate sense NO. The latest results are not discouraging after all. Of late India even overtook China as exporter of textiles to the US and Europe markets due to the cap imposed on Chinese textiles in those countries. The quota regime was abolished in January, 2005 under the WTO agreement. What is more is the 10 per cent cap on Chinese textiles exports. If it continues - would be providing ample opportunities to India to establish itself in the exports markets and compete with China when the cap on its textiles exports would be lifted. It is good that we planned to create textiles parks in the country out of which approval has already been given for nine. Efforts should be on to reap the maximum benefits instantly when it arises.   

A related question on this score is: whether RTAs [Regional Trade Agreements] are overtaking the tedious multi-lateral negotiations under the WTO?

In the last ten years the number of RTAs signed is many times more than those signed since the GATT came into being several decades ago . Are these going to slow down the progress at the WTO? The fact remains that the larger focus must be on the WTO, provided the role played serves the very purpose of its formation. It could also be a reality that RTAs done in a calibrated way could act as building blocks for the multilateral framework.

Still there is a lot of anxiety in the developed world that Asia might be emerging as a big free trade bloc by itself. The CECA [comprehensive Economic Cooperation Agreement] has been signed by India and Singapore - with Singapore Banks now having a greater access to the Indian market than the European Banks-the fear is expressed by EU already. Does the EU expect all of these for itself then? No doubt CECA encompasses trade   in goods and services besides giving pre-investment guarantee to Singapore firms. But the very question arises as to whether EU could provide India what Singapore has accorded - the bold offers to be very specific.

The offer is already there from India that it could fully open the services sector -financial, retail, telecom-provided US and EU allow greater scope for skilled Indians to provide temporary service on their lands. Definitely the answer is a great NO -- if current trends are of any indication. The larger success of the multilateral framework mainly depends on this plank. So where is the harm if CECA with other countries forge ahead? The question of development -at a quicker pace--comes up first before anything else.  China has already overtaken US as India's trading partner. Asian Economic Community if formed would have the ability to foster the growth process in this part of the world without affecting the process of the WTO working.The importance cannot be lowered in spite of the fact that Doha Round still hangs in balance. Modalities on agriculture and industrial goods trade would definitely be a powerful injection of momentum to the Doha negotiations, clearing the way for a final deal in the near future.

It should be noted well that the WTO deals with the global rules of trade between nations and its main function is to ensure that trade flows as smoothly, predictably and freely as possible. The importance has been there and in the future it can contribute more and more, benefitting the entire globe in a free and fair way.

The world trade environment is turning to be more and more complex - complex and dynamic in nature of trade and the WTO's trade rules simultaneously. It highlights benefits of the trading system, but of course it doesn't claim that everything is perfect. To have a perfect system, there would be a need for further negotiations and for the system to evolve and reform continually. The very fact that the disputes are based on the WTO agreements means that there is a clear basis for judging impartially who is right or wrong and once the judgement is there, the agreements provide the focus for any further actions that need to be taken. It is something to note that by now well over 400 disputes have been brought to the WTO since it was set up in 1995. Clearly speaking, without a means of tackling these constructively and harmoniously, some of these could have spiralled into more serious political conflict among nations. Let us keep the light glowing in the days to come and hope that the Doha Round ultimately comes to an end - closer economic ties throughout the world, the WTO's expanding membership and the fact that those countries would be having faith in the system to solve their differences amicably. Let the WTO trading system play a vital role in creating and reinforcing that confidence, especially the negotiations that could lead to agreement by consensus and a focus on abiding by the rules without fear or favour. International trade tension would reduce considerably in as much as countries could turn to organizations, the WTO in particular, to settle their trade disputes within the framework.

It has rightly been viewed that trade helps to sustain growth and trade rules stabilize the world economy by discouraging sharp backward steps in policy and by making policy more predictable, deterring protectionism and increasing certainty being effectively confidence-builders. A stronger trading system would instill greater confidence in the global economy and would be a potent insurance policy against the retreat into protectionism that we all know leads only to conflict and geopolitical instability.

As global problems demand global solutions, striking a mutually acceptable deal in the coming days would reconfirm the proposition that working together, member nations can address the burning issues facing the world.

The very recent WTO trade report has rightly pointed out that if the WTO is responsible for ensuring a level playing field for global traders, and if the global trading system is broken because the playing field is not level, and if global traders respond to an imbalanced field and ineffective referee with domestic protectionism, then the World Trade Organization is theoretically responsible for protectionism. "In the end," suggests the WTO trade report, "it will depend on an effective mutually beneficial multilateral trade system and on the will of policymakers to make change happen."

Dr BK Mukhopadhyay

(The Writer, a noted Management Economist, can be reached at m.bibhas@gmail.com)

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