India needs the WTO

Mention of the World trade Organisation (WTO) bores most people stiff, as I discovered on returning after reporting on the ministerial meeting of WTO at Singapore. It excites only a few politically minded souls, who view WTO as a forum where rich countries hammer poor ones of the head. In fact, WTO symbolises the new trade order of the second half of the 20th century, which has sparked an economic miracle unprecedented in history.

Through most of history, living standards were stagnant. Prof. Colin Clark estimates that living standards in the Roman empire in the third century were comparable with those in England in 1850, France and Germany in 1870, and Japan in 1950. But subsequently incomes skyrocketed. In 16 developed countries in the century after 1870, per capita income rose by 700 per cent and labour productivity by 1,200 per cent. There were many reasons for this, of which one stands out-their exports increased by 96,500 per cent. That mind-boggling figure underlines how trade revolutionised living standards, how interdependence provided infinitely more prosperity than the earlier self-sufficiency.

However, the process was not smooth. Between the world wars came the Great Depression. Several countries sought to escape its misery by going protectionist and erecting huge trade barriers. They are not that one country’s imports are another’s exports, and if all countries try to cut their imports, they will end up cutting each other’s exports too. World trade plummeted as tariffs rose. Misery deepened, and many intellectuals thought that capitalism was in its death throes.

So it is doubly remarkable that a reformed capitalism then sparked and economic miracle after World War II. Since then, living standards have tripled in Europe and America. Even more remarkably, they have risen 30-fold or more in some Asian countries. Some countries (like India) saw international trade as a neo-imperialist trap and aimed for self-sufficiency instead, and these fared relatively badly. But those who used trade as an engine of growth broke world records in prosperity. Singapore and Hong Kong now have a higher per capita income than their former colonial master, Britain. Taiwan and Korea are richer than ex-colonial powers like Spain and Portugal. Africa and Latin America have fared poorly since 1980. But two-thirds of the population of developing countries lies in Asia, where incomes have grown faster than ever before.

There are many reasons for the post-war miracle-better education, technological progress, and the rise of the welfare state. But growing globalisation and inter-dependence have been vital too. Since 1950, world trade has grown by 1,300 per cent, outstripping the 500 per cent growth in the world GNP. This was made possible by the global push for freer trade, presided over first by GATT and now by WTO.

After World War II, the developed countries were determined not to repeat the protectionist mistakes of the Great Depression. Instead, they steadily reduced trade and capital controls. They recognised that this would have to be a gradual process, and so the developed countries mutually cut tariffs several rounds of negotiations under GATT. Initially they focussed only on manufactures, leaving out textiles, agriculture and services. But in the Uruguay Round, they extended liberalisation to all three new areas.

In the initial GATT rounds, developing countries were given a free ride-they were allowed to maintain or raise their tariffs while rich countries lowered theirs. But this could not last, and now developing countries are being asked to do their share of liberalisation too. This has drawn much flak from Indian intellectuals soused to a free ride on the global trading system that they believe it is a birthright. Sorry, all ticket less travellers are now being asked to pay at least a confessional fare. This may seem inconvenient, but it is better to pay for your ride than be thrown off the bus. This is why all developing countries agreed, after a struggle, to liberalise not only trade, but foreign investment, patents and services during the Uruguay Round of GATT. Some outraged LEFTISTS IN India wanted to quit GATT instead. But you just have to look at the desperate attempts China is making to get into WTO to realise that it is imperative to stay inside the world trading system, and fight your battles form within. Opting out of the system will make you a pariah, every WTO country will be free to raise tariffs against your exports, and you will have no forum for redress.

Despite some liberalisation in India since 1991, we remain fundamentally protectionist. The thinking process of most politicians and intellectuals remains mired in Nehruvian notions of self-sufficiency. There is little acknowledgement of how protectionism has prevented us from becoming an Asian miracle economy. Even those who want to change often argue that we must progress in stages, and protect infant industries till they grow up. The claim would be sustainable if it had any basis in practice. In fact, we have never planned to phase out protection after a limited nurturing period. We protect anything backed by a strong lobby: All other explanations are pure rationalisation.

The items made by small-scale industry have been around for decades. Have we planned to phase out their protection? Not on your life. The list of reservations has actually expanded. We will not permit competition with even domestic medium-scale industries, leave alone global ones.

Consider textiles. Our first modern textile mill was built in 1854, well before the Meiji restoration in Japan. The industry is not an infant, but a gerontocrat. Yet we protect it to the hilt.

Worst of all, look at the handloom industry. This must be the oldest industry in human history, maybe 10,000 years old. Yet we protect it not just against imports, but domestic textile production. Gandhians claim this protects the poor, blissfully ignorant that other developing countries without such protection have fared infinitely better.

Despite some liberalisation, we remain out of synch with the fundamental philosophy of WTO. We are in it under false pretences, and do not really believe in its open market philosophy. We seek merely to get crumbs from the tables of the rich.

At Singapore ,34 countries (including many developing ones ) agreed on reducing duties on information technology to zero by 2000. India opted out, saying it had to protect its infant industry. Somebody needs to ask why Malaysia, Indonesia and Thailand do not seem similarly troubled; than us; why Korea, Taiwan, Malaysia, and Singapore have a huge trade surplus in information technology. They did not get there through protectionism parading as the nurturing of infant industry.

What do you think?