Service on WTO and Trade Issues (Jan21/02)
Geneva, 11 Jan (D. Ravi Kanth) – Many developing countries strongly endorsed India’s pursuit of trade policy initiatives based on “strategic globalization” and a “development-oriented agenda” during India’s seventh trade policy review at the World Trade Organization that concluded on 8 January, trade envoys told the SUNS.
However, developed countries led by the United States, the European Union, Canada, and Australia among others expressed serious concerns about a range of issues concerning India’s trade policy measures, and called on India to join the controversial plurilateral Joint Statement Initiatives (JSIs) on electronic commerce, disciplines for micro, small and medium enterprises (MSMEs), and investment facilitation among others.
Surprisingly, the concluding remarks issued by the chair of the Trade Policy Review Body (TPRB), Ambassador Harald Aspelund from Iceland, on 8 January largely reflected the concerns of the developed countries while playing down the support lent by the African Group, South Africa and many other developing countries to the positive initiatives launched by India during the last six years, said trade envoys, who asked not to be identified.
During the virtual meeting of India’s seventh trade policy review held on 6 and 8 January, India’s commerce secretary Mr Anup Wadhawan, in his opening statement, spoke about the “far-reaching efforts made by India to effectively address the health and economic challenges posed by the COVID-19 pandemic, including the Aatma Nirbhar Bharat (self-reliance) initiative.”
India, which received more than 1,000 written questions as well as a volley of oral questions on its overall trade policy measures during the last six years, reaffirmed its “commitment to ensuring equitable and affordable access to vaccines and COVID-19 treatments for all, and underlined the critical role that multilateral trading system can play in this regard.”
In a press release issued on 6 January, Mr Wadhawan drew attention to a short-term package of “effective measures launched at the WTO to fight the COVID-19 pandemic.”
The effective measures launched by India at the WTO include:
1. A temporary waiver of certain TRIPS provisions to increase manufacturing capacity and ensure timely and affordable availability of new diagnostics, therapeutics and vaccines for COVID-19;
2. A permanent solution for Public Stockholding (PSH) for food security purposes to address food security concerns; and
3. A multilateral initiative that provides for easier access to medical services under mode 4 (of the GATS) to facilitate easier cross-border movement of health-care professionals.
Mr Wadhawan said in the last five years since India’s sixth trade policy review in 2015, New Delhi “has worked diligently to reform and transform the entire economic eco-system to meet the socio-economic aspirations of a billion plus Indians.”
He said that initiatives such as “the introduction of the Goods and Services Tax, the Insolvency and Bankruptcy Code, path-breaking reforms in the labour sector, an enabling and investor friendly FDI Policy, and various national programmes like Make in India, Digital India, Startup India and Skill India to bring about rapid transformation across sectors in our manufacturing environment, were emphasized in this regard.”
Mr Wadhawan said India’s position in the World Bank’s Doing Business report has increased from 142 in 2015 to 63 in 2019 due to the measures put in place by the government.
He added that the improvements in the trade and investment policy measures have been “endorsed by investors who continue to view India as a desirable investment destination even during the testing time of the pandemic, with FDI inflow rising by more than 10 per cent year-on-year to reach USD 40 billion in the first six months of 2020-21”. He said that in 2019-20, India received the highest ever FDI inflow of USD 74.39 billion.
In his six-page introductory remarks, Mr Wadhawan said that “notwithstanding these significant efforts, the country still faces several challenges.”
He said “while the share of agriculture in our GDP has declined to 16%, about 40% of the country’s population still depends on agriculture for their livelihood.”
Mr Wadhawan highlighted that India is confronting “the challenge of ensuring food security, particularly for the large number of poor and vulnerable in the country.”
“This challenge (of ensuring food security) accentuated during the COVID-19 pandemic, reinforcing the criticality of public stockholding programmes to meet the food security challenge,” Mr Wadhawan said.
Noting that India is striving towards “a USD 5 trillion economy by 2024-25,” he said that “success in boosting investment and improving trade performance would substantially contribute towards the success of this endeavour.”
The Indian commerce secretary emphasized that “the fundamentals of the Indian economy, based on macro-economic stability, are strong,” adding that “this (macro-economic stability) has improved the confidence of investors in our economy.”
“With the favourable monsoon and growth in direct investment along with a gradual increase in private consumption, the outlook for India holds out a promise of strong and steady growth, aided by a very supportive counter-cyclical monetary policy, and positive news on the vaccine front,” Mr Wadhawan said.
In his concluding introductory remarks, Mr Wadhawan said that “I would like to say that twenty years ago India occupied a small space on the global trade canvas.”
“Today, foreign trade is a significant part of the Indian economy and its foreign trade framework is closely and inextricably embedded as a priority area in the overall economic policy framework,” Mr Wadhawan argued, adding that India is “striving to further catalyze trade as an engine of growth, to overcome the challenge of poverty, unemployment and income inequality.”
The Indian commerce secretary emphasized that “India will play an increasingly important role in global trade in the years to come” and that “India will also continue to play an important role here at the WTO, to protect, preserve and strengthen the multilateral trading system.”
Referring to the WTO Secretariat’s report which chronicled all major trade and economic initiatives that India took over the last five years, he said “the report acknowledged India’s strong economic growth at 7.4% during the period under review and made a positive note of India’s reform efforts during this period.”
“The (Secretariat) Report noted that strong economic growth led to an improvement in socio-economic indicators, such as per-capita income and life expectancy in India,” Mr Wadhawan said, adding that it also “commended India for liberalizing its FDI policy, ratifying the Trade Facilitation Agreement and implementing several trade-facilitation measures during the period under review.”
The discussant for the India trade policy review (TPR) meeting, Ambassador (Ms.) Sunanta Kangvalkulkij of Thailand, noted that “this TPR is of one of the most important Members who is also a key and invaluable contributor to the WTO,” according to the Indian press release.
According to India, the discussant has “commended India for its robust economic growth and wide-ranging economic and structural reforms taken during the period under review.”
“She stated that these reforms have increased the efficiency and inclusiveness of the Indian economy and India has emerged as 5th largest economy in 2019,” India said.
Ambassador Sunanta “also lauded India for liberalizing its FDI regime and undertaking significant reforms in the agriculture sector.”
INTERVENTIONS BY THE US AND EU
In a somewhat critical statement, the US said that “while we are encouraged by the Indian government’s efforts to attract additional foreign investment and its pursuit of a number of economic reforms, it is disappointing to see recent actions taken by India that appear to chart a different course and actually restrict trade.”
The US complained that India’s average most-favored-nation applied tariff rate increased from 13.5% to 17.6% , saying that “this trend will not facilitate India’s further integration into global supply chains.”
The US urged “India to take additional steps to open the country’s trading regime to help India harness the benefits of trade to create jobs,” suggesting that “this would include significant reductions in tariffs as well as the removal of unjustifiable SPS (sanitary and phytosanitary measures) and TBT (technical barriers to trade) impediments on imports.”
The US also complained about the enforcement of IPRs (intellectual property rights), saying that “India remains one of the world’s most challenging major economies with respect to protection and enforcement of IP. Indian industries could realize the benefits of receiving strong brand and product protection through trademarks, copyrights, patents and trade secrets, but India’s current IPR policies do not facilitate this development.”
The US criticized India’s prohibitions and limitations on foreign participants in services sectors like retail, e-commerce, insurance and other services sectors.
Lastly, the US also expressed disappointment over India’s performance in “WTO notifications and limited notice and comment procedures for domestic and foreign stakeholders. This lack of transparency results in policy uncertainty, which creates difficulties for firms trying to invest in and trade with India.”
In its intervention, the EU expressed sharp concern over the continued trend of new barriers to trade being imposed by India, suggesting that these measures have been further increased in the wake of the Covid-19 pandemic.
The EU also drew attention to high customs duties, unpredictable trade procedures, cumbersome product standards, gaps in intellectual property rights protection, and narrowing access to government procurement.
China expressed its “deep concern” over India’s recent foreign direct investment policies which aim to curb takeovers and acquisitions of Indian companies. It noted the high number and prolonged application of trade remedy measures by India, which it warned, could disrupt normal trade.
INTERVENTION BY THE AFRICAN GROUP
In its intervention, Mauritius, on behalf of the African Group, said India’s introductory statement has highlighted “the numerous trade policy measures taken by India during the period under review and has clearly highlighted the leadership role of the country at the WTO.”
The African Group commended India for the significant jump in its ranking on the “World Bank’s Ease of Doing Business Index” and also that “various reforms and improvements in the trading environment brought about during the past few years, including the introduction of the GST, the implementation of the India Customs Single Window and the fast-tracking incorporation of companies, amongst others, are yielding positive results.”
Noting the significant progress made by India in the services sector, the African Group said that “India has significantly diversified its market for trade in goods and we note that this has helped it to address the sluggish global demand.”
“Unfortunately,” said Mauritius on behalf of the African Group, “trade exchanges between India and Africa has decreased in recent times, despite the fact that India and Africa remain strongly connected.”
Mauritius said the African Continental Free Trade Area (CFTA), which has become operational from 1 January, “offers a huge market of 1.3 billion people and an economic space of high value for trade and investment.”
“Africa stands ready to engage in higher levels of trade with India as the Government of India pursues its plans to become a USD 5 trillion economy by 2024-2025,” Mauritius said, suggesting that “various new initiatives taken by India, including the “Make in India 2.0” Initiative, the “Digital India” Programme and the Startup India Initiative seem to be very relevant for Africa.”
“We look forward to benefiting from these experiences as we gear up to make of the African CFTA an instrument of sustainable economic growth that will help integrate Africa in the global value chain,” the African Group said.
The African Group said while “the recent approval by the WHO and some national agencies of certain vaccines has brought fresh hope that we will soon overcome the health aspect of the pandemic if we are able to ensure timely, affordable and equitable access to the vaccines and therapeutics, the challenges of economic recovery would remain and there are high expectations from the WTO as the main pillar of the multilateral trading system to deliver both on the health and economic recovery fronts.”
The African Group commended “the efforts of India and its contribution in our common task of ensuring a fair, transparent and predictable multilateral trading system.”
“In particular, the African Group wishes to highlight India’s constructive role in seeking to unlock the Appellate Body impasse; in the discussions on WTO reforms; in the services negotiations; on Special & Differential Treatment and the Fisheries Subsidies negotiations, and more recently on the proposal for a TRIPS waiver to support the global response to the COVID-19 pandemic,” Mauritius said.
The African Group said that it “looks forward to working closely with the Delegation of India over the course of this year as MC12 shapes up with the overall objective of achieving a development-centred, fair and balanced outcome at the Ministerial Conference.”
In its intervention, South Africa commended India for its commitment to the WTO, emphasizing that India’s contribution “aimed at strengthening the WTO to ensure a fair and equitable multilateral trading system has been notable.”
“Most importantly, India consistently pursues a development-oriented agenda that emphasizes core issues of interest not only to developing countries but ensures that trade delivers for all,” said South Africa’s trade envoy Ambassador Xolelwa Mlumbi-Peter in her intervention.
Ambassador Xolelwa said India’s contributions include “a food security agenda through a permanent solution on PSH in agriculture and broadly the need for the WTO to deliver on agriculture reform as entailed in Article 20 of the Agreement on Agriculture.”
She said that “India’s initiatives in TRIPS and public health, especially in the context of the pandemic through the proposal on the TRIPS Waiver and a commitment to WTO reform agenda that promotes development and inclusivity” are commendable.
Referring to the growing bilateral trade and investment relations between India and South Africa, Ambassador Xolelwa said “India was South Africa`s 4th largest trading partner in 2019 with total trade which stood at $8.4 bn.”
She said while “trade is relatively balanced, more effort is required to improve the composition and structure of trade as the biggest proportion of South Africa’s exports remain primary products.”
Ambassador Xolelwa emphasized that “India is an important market for South Africa and we are looking forward to work with India to increase our exports of manufactured products.”
Referring to the WTO Secretariat’s report during the period between 2015 and 2021, she said that “a number of reforms were implemented by India, including the introduction of the Goods and Services Tax (GST) to harmonize the indirect tax system which has been a concern for our traders.”
“The complexity of the tariff schedule also remains an issue of concern for our traders,” South Africa said, welcoming “the enactment of legislation to improve marketing of agriculture products and to reduce their regulation.”
“Importantly, the trade policy remained broadly unchanged thus promoting predictability in trade,” Ambassador Xolelwa argued.
Despite the COVID-19 pandemic, which is having a devastating impact on many economies, she said that “it is laudable that India is expected to experience positive growth albeit smaller than originally projected.”
“This points to a need for the WTO to have a comprehensive and growth-oriented response to COVID-19 that takes into account the unprecedented impact of the crisis,” South Africa argued.
More importantly, “in view of rising inequality both between and within countries, we find the economic inclusion policies which were enacted to ensure less rural distress, promote food security and support farmers” are notable developments, Ambassador Xolelwa argued.
Given the impact of COVID-19 on food security, Ambassador Xolelwa said that “it is important to reflect on a WTO food security oriented agenda as part of agriculture reform.”
“Sharing of experiences on national policies is something worth considering as it may result in an enriching debate on mechanisms that promote inclusive growth and development which should be the focus of the WTO given the differences in levels of development and diversity of its membership,” she argued.
Reflecting on the drop in the share of the manufacturing sector in India’s GDP, which decreased from 16.3% in 2014/2015 to 15.1% in 2019/2020, she said “India has run a deficit in its balance of trade in manufactured goods during the review period, with growth in imports outstripping that of exports.”
This development underscores “the need for a focused strategy aimed at increasing the share of manufacturing,” Ambassador Xolelwa said.
Commenting on “the decline in imports from Africa from 8.7% in 2014/15 to 8% in 2018/19,” she said it is a cause for concern.
She said that “as India implements the National Manufacturing Policy (NMP), it will consider building strategic and mutually beneficial value chains with African countries that contribute to sustainable growth and development and that encourage both parties to move up the value-chain.”
South Africa said that it “is especially important given that trading under the AfCFTA (African Continental Free Trade Agreement) started from 1 January 2021.”
“As such, tariffs on various commodities with agreed rules of origin will be drastically reduced or removed giving access to a larger market of over 1 billion people,” she said, adding that “NTBs (non-tariff barriers) will also be addressed with a specific mechanism established for traders to report NTBs.”
In short, “the implementation of the AfCFTA therefore presents opportunities to unlock growth for both sides,” she said.
Ambassador Xolelwa argued that, “in relation to investment,” the role of tariffs in sustaining the attraction of FDI in the auto sector, which as the Secretariat report states is in part due to the large domestic market and relatively high tariffs, highlights “the importance of a strategic trade policy that selectively uses tariffs as an important policy tool to attract investment in key sectors of the economy.”
CHAIR’S CONCLUDING COMMENTS
The chair of the WTO’s Trade Policy Review Body (TPRB), Ambassador Harald Aspelund from Iceland, said that “members commended India on its strong economic growth during the review period, particularly in the services sector, allowing India to become one of the world’s largest economies.”
In his concluding remarks, the chair said “members believed that the continuous economic reforms focused on increasing efficiency and inclusiveness contributed to these positive developments and led to an improvement in socio-economic indicators, such as per-capita income and life expectancy.”
The chair said while “members noted that India had adopted a comprehensive stabilization and stimulus package to deal with the impact of the pandemic,” they “encouraged India to ensure that these measures are designed and implemented in a transparent manner and meet legitimate policy goals without unduly restricting trade.”
Ambassador Aspelund said “members reminded India of the importance of providing sufficient information to guarantee transparency on the implementation of its regulations in order to avoid an unnecessary burden on economic operators.”
Reflecting on the statements made by the US and the EU among others, the chair said “members also urged India to submit notifications on a regular basis to the WTO, especially those related to export subsidies for agricultural products.”
Based on the comments made by the JSI participants, the chair said “members invited India to participate in the new Informal Working Group on Trade and Women’s Economic Empowerment” and “likewise, members encouraged India to join initiatives such as the Informal Working Group on Micro, Small and Medium-sized Enterprises as well as the three Joint Statement Initiatives on e-commerce, services domestic regulation, and investment facilitation.”
Although the Joint Statement Initiatives are not mandated by WTO members, the chair’s emphasis on these initiatives causes concern, said a trade envoy, who asked not to be quoted.
Commenting on the regional trade agreements (RTAs), the chair said “members noted that during the review period, India did not conclude any broad-based trade agreement and that it had withdrawn from the RCEP (Regional Comprehensive Economic Partnership),” adding that “some Members urged India to finalize ongoing RTA negotiations and encouraged India to consider simplifying its rules of origin requirements.”
The chair noted that “Members thanked India for providing duty free and quota free access for LDC exports,” which is yet to be provided by the US and several other developed countries.
While welcoming various trade and manufacturing initiatives launched by India “such as Make in India, Digital India, Start-up India, Skill India and Self-Reliant India,” the chair said members raised “concerns about the possible trade restrictions they could introduce, urging India to be mindful of any trade implications.”
Referring to the implementation of the Trade Facilitation Agreement (TFA), the chair said “Members noted that India’s trade policy had remained largely unchanged since the previous Review, with continued heavy reliance on instruments such as the tariff, export taxes, minimum import prices, import and export restrictions, and licensing.”
On tariffs, the chair said that “concerns were expressed with respect to its complexity and uncertainty, the increase in tariff rates, tariff preferences, and tariff concessions.”
Ambassador Aspelund said “Members asked India to take a more cautious approach in applying anti-dumping and safeguard measures and emphasized that all relevant investigations should be conducted in conformity with WTO provisions.”
Without naming the US, the chair said that “some Members raised concerns about India’s use of technical regulations and SPS measures, including compliance with international standards.”
The chair said members expressed concerns “regarding preferences granted to local suppliers,” adding that “Members also noted the role of the state in several sectors, including the existence of state trading enterprises.”
While welcoming the adoption of the National IPR Policy for improving India’s IPR regime, the chair said some members suggested for better protection and enforcement of IPRs.
Without naming the US, Canada, and Australia among others, the chair said that “concerns were expressed about the high level of government intervention in the agriculture sector.”
Ambassador Aspelund said while “Members recognized the importance of the sector in supporting livelihoods and food security, they urged India to reform its agricultural policies that continued to be based on significant levels of domestic and export support for key crops, including through subsidies for certain crops such as sugar, and to inputs.”
“Given the importance of the services sector, Members considered that India’s active involvement in the ongoing WTO discussions, such as on services domestic regulations and e-commerce, would contribute to further India’s economic development,” the chair said.
The chair, however, did not reflect the comments made by many developing countries which praised India for its strategic globalization and developmental initiatives, said a person, who asked not to be quoted.
“Strategic globalization and a developmental path instead of uninterrupted trade liberalisation aims to place the interests of India’s domestic agriculture and industry before the market capture by a group of developed countries,” the person said.