Why India must rethink the global trade regime

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Trade, WTO, globalizationThe nineties saw the grand march of globalization. The World Trade Organization (WTO) was established in 1995. Two major changes were made.

Till that time we were free to impose any level of import duty on goods imported into the country. We gave up that freedom and agreed not to impose import duties in excess of certain agreed rates.

The large-scale imports of goods from China taking place at present is a consequence of this provision of the WTO which we willingly accepted.

The second major change was in the patents system. Till 1995 our companies were free to copy and make goods invented by any person as long as they did not use the same process of manufacture as used by the inventor.

Our pharmaceutical companies grew by using this provision. They manufactured the drugs invented by multinational drug companies using alternate processes and made available those drugs in the international market at a fraction of the price charged by the Multinational Corporations who invented them.

This freedom was taken away from us. The WTO provided that we could not manufacture a patented item using alternate processes. The benefits from WTO have been few, if at all. The major benefit from WTO was expected to accrue to our farmers.

It was hoped that our farmers will be able to export their produce to the developed countries and get much higher prices for their produce. However, the developed countries managed to fudge the rules of the WTO and continued to provide subsidies to their farmers.

Our farmers could not export their goods. In the result WTO, and the globalization ushered by it, has become largely a loss proposition for us; as it has for a large number of other countries.

It has even become a loss proposition for the people of the developed countries like the United States of America. They find that their jobs are disappearing. Thus US President Donald Trump has taken a “stand aloof” attitude towards the WTO.

The recently concluded Ministerial Conference of the WTO which is the highest policymaking body of the WTO, and is attended by the Ministers of the member countries, has ended with nothing to show.

There were many new initiatives that could be taken if the member countries had benefitted from the WTO and wanted to deepen globalization.

Only the trade in physical goods such as wheat, cars, and computers is regulated by the WTO at present. However, the global economy is increasingly being dominated by the services—software, movies, health tourism, online tutorials and the like.

Had globalization in goods been profitable for the people, the governments would have been willing to expand the scope of the WTO to include free trade in services. Another possible area of expansion would be e-commerce.

Today a customer in India can buy goods on an e-portal located in the United States or China. It is difficult enough to manage e-commerce within the country.

It is almost impossible to manage it across the borders. The WTO Ministerial could have taken some steps towards bringing e-commerce within its ambit.

The failure of WTO to move ahead in framing rules for global trade in these areas means that globalization is retreating. People are not liking that multilateral agencies determine their domestic policies.

The present retreat is not unique though. It has happened many times before. Our Mughal rulers thought that by allowing the British to trade in India, they would be securing their own sea trade, which will be beneficial for the country.

Similarly, we have agreed signed the WTO treaty because we thought that the benefits to us from WTO would be more than the costs. We would get foreign investments and access to foreign markets for our exports.

The globalization under the Mughal rulers and the WTO are fundamentally similar. In both cases, we ceded our sovereign rights willingly in the belief that the benefits will be more than the costs.

In the former case, we found in course of time that the benefits to us from the British entry into India were less than the costs. Thus arose Mahatma Gandhi and we retracted from that globalization.

Very much the same is happening with the WTO today as seen in the Ministerial not being able to make any advances. Large numbers of countries have found that the benefits of WTO are less.

Thus they are making regional blocks such as North Atlantic Free Trade Association (NAFTA) between Canada, USA and Mexico; the European Union between 20-odd European countries; and our own efforts to forge a South Asia freed trade area.

The United States has refused to recognize the authority of the International Court of Justice and walked out of the Paris Climate Change Agreement.

The bottom line is that globalization succeeds only as long as it can provide more benefits than costs to the member countries. We can, for example, today walk out of the WTO if we find it is not beneficial.

Retreat from globalization takes place even if it is forced upon a people. British globalized India by opening our imports to British goods, allowing British companies to invest in India and the free movement of British natural persons to India.

There took place a movement of capital, natural persons and technology—which are the markers of globalization. Similarly, Indian rulers of the Princely States, for example, ceded their authority to the British under duress.

But the Indian people did not accept that ceding under the leadership of Mahatma Gandhi and the same was reversed. People are the ultimate sovereign and no power on earth than take their sovereignty away.

The people will rise no matter how strong the forces of globalization are just as they rose against the British. Thus there is no fear of globalization. The true challenge is to inform the people of the benefits and costs of globalization so that they can make an informed choice and withdraw if so warranted.

The worry is that our intellectuals will get co-opted and misinform the people of the true costs of present globalization.

The recently concluded Ministerial indicates that the intellectuals have succeeded in exposing the fallacy of globalization and the clock has started ticking backward.

The Indian Government should wake up and start supporting domestic businesses instead of running after Multinational Corporations under the “Make in India” scheme which is doomed to failure in these conditions.


Bharat Jhunjhunwala

Dr. Bharat Jhunjhunwala was formerly Professor of Economics at IIM Bengaluru. Views expressed are personal. .Author’s phone: 85278-29777

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