India must join US in seeking reforms to WTO

Donald Trump has punctured the notion that the US will support India’s rise as the only Asian nation that can credibly check China’s hegemony in the 21st century. Instead, he declared last week that both China and India are unfair traders hurting the US economy and must stop. He has long blasted India as a “tariff king” because of its high import duties, which keep rising every budget.

Trump says China, India and others have been taking unfair advantage of the “special and differential” status given to developing countries by the World Trade Organisation. While India and China may have once been poor countries meriting trade concessions, they are now strong enough to hurt US jobs and economic prospects. Trump seeks to challenge the entire WTO structure on non-reciprocal concessions for developing countries.

His argument may be inconvenient for India, but is reasonable. The distance between advanced and developing countries has been changing fast, and global rules need to adjust accordingly. Special treatment for all poor countries need not be abolished. But countries can be asked to graduate from the lowest to highest levels of development, getting fewer and fewer concessions as they rise up the development ladder. China must be graduated to fully advanced country status immediately. India should join the USA on this.

In the WTO, rich countries have slashed their tariff and non-tariff barriers over several rounds of tariff cutting since World War II. However, developing countries have been allowed to keep higher tariff and non-tariff barriers, higher subsidies and longer time frames for imposing safeguard duties.

Developing countries were once objects of charity. In 1995, when the WTO was created as a successor to GATT, China’s per capita income was just $592 per year, and India’s just $350 per year. They were called the biggest beggars for foreign aid.

Things are very different today. Globalisation has seen manufacturing industries close down in the US and migrate to developing countries. China’s per capita income is now almost $9,000 per year and India’s almost $2,000. The US is much higher at $62,000. India and China have large populations of over 1.3 billion each, making them massive markets in which all top multinationals feel they have to invest. In purchasing power parity terms (which adjust for low prices in poorer countries), China now has the largest GDP in the world, beating the US. India comes a distant third.

China is way ahead of India. It is now the world technology leader in areas like 5G telecom, solar panels, mass storage batteries and cybersecurity. That is why western nations see it as a security threat.

Trump threatens to exit the WTO if the rules are not changed. That will wreck WTO, which the world as a whole needs badly to oversee trade disputes. No doubt, Trump is a big bully. However, his argument on WTO rules is strong enough to be adopted by presidents who follow him. To persuade the US to stay, fresh thinking is needed on WTO rules.

Rather than oppose Trump tooth and nail, India and other developing countries should acknowledge the need for WTO reform. This does not mean abolishing all special and differential treatment, but means reducing and finetuning it.

Perhaps the WTO should specify four levels of development meriting separate levels of concessions. Low-income countries with a per capita income below $1,000 could continue to get all the benefits available today. Countries with a per capita income of between $1,000 and $5,000 could graduate to a reduced set of concessions. Those between $5,000 and $8,000 could graduate to still fewer concessions. And those above $8,000 could be graduated fully and treated as advanced countries.

These are no more than first thoughts. The WTO works on consensus, and that makes reforms very difficult. Even a single dissenter can stall reform. Maybe the voting rules should change. Developing countries have long prized the unanimity rule in WTO as protection from changes imposed by the rich countries. In fact, the rich countries have simply side-stepped WTO and entered into bilateral trade agreements giving far fewer concessions than WTO allows. The unanimity rule in WTO has turned out to be of illusory benefit and needs to change.

Trump is obviously right in saying China does not merit concessions as a developing country. But India and other poorer countries do merit concessions that are phased out as they get richer. Some such new thinking is badly needed to save WTO. That will remain true whether Trump is re-elected or not.

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