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Why India Needs More Open Trade

In the modern era of exchange, India needs less trade regulation.

Ed Gresser | Progressive Economy

Among the world’s big economies, India is the trade underachiever.

Ranking 2nd in the world for population and 3rd for GDP (using purchasing-power-parity estimates), it is 14th for exporting – and at $350 worth of software, clothing, jewelry, generic medicines, etc. shipped out per person annually – and last among the world’s 25 biggest economies in exports per capita.

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Why the under-performance? India’s figures reflect some immutable facts of geography and demography – few and not invariably friendly neighbors; a large population and a big internal market – but also attitudes inherited from the post-colonial isolationist phase, and modern-day bureaucratic obstacles.

The World Bank’s 2013 Trading Across Borders report, for example, finds the forms and procedural requirements needed to get a shipping container through an Indian port costing $770 per box on average – which, in local context, is well above Pakistan’s $460, Indonesia’s $455, Sri Lanka’s $480, and Malaysia’s sparklingly efficient $265.

Thus, the reason the Bank and World Economic Forum estimates find India getting especially big returns from trade facilitation.

History Lesson

And what might be done? Preparing for its campaign last spring, India’s Bharatiya Janata Party (BJP) called for a shift in approach, invoking ancient global-economy glory as an inspiration for new modern-day approaches:

“India is the most ancient civilization of the world and has always been looked upon by the world as a land of wealth and wisdom.

From the Vedas to Upanishads and Gautama and Mahavira, and then to Kautilya* and Chandra Gupta and down up to the 18th century, India was respected for its flourishing economy, trade, commerce and culture.

It had an international outreach from Korea to Arabia, from Bamiyan to Borobudur and beyond. … India was also one of the greatest shipbuilding nations and consequently had an access to international markets. Indian prosperity held the world in thrall.”

“The modern era is an era of exchange, [and India needs] trade facilitation to ensure easier customs clearances and visas for business travel. … Over-regulation needs to be addressed to stop the harassment of the businessmen and traders.

At the same time, we have to set up transparent systems, which ensure credibility of our goods and services. The bottlenecks in transporting and exporting them have to be removed. Also, the flow of information about our tradable items has to be made available to the rest of the world.”

This suggests a systematic move, away from Jawaharlal Nehru’s post-colonial isolationism and towards the ideas of the Kautilya referenced in the Manifesto.

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 The modern era is an era of exchange, [and India needs] trade facilitation to ensure easier customs clearances and visas for business travel.

As author of a giant policy-manual called Arthashastra — published somewhere between 300 B.C. and 150 A.D. — Kautilya advocated heavy public investment in seaports, land border-crossings, and roads.

Kautilya also advocated for a trade-facilitation program through which “the King shall protect trade routes from harassment by courtiers, state officials, thieves, and frontier guards, and from being damaged by herds of cattle.”

Nonetheless, in government so far BJP has acted in ways contrary to Kautilyan advice and similar to its recent predecessors. Its first big global-economy decision, last July 31st, was to block the WTO’s implementation of its agreement, last November 2013, on trade facilitation.

Loosen the Grip

This is a set of measures which, along the manifesto’s lines, would ensure easier customs clearance and visas, reduce harassment of businesses and traders by courtiers and regulatory officials, set up transparent systems, and so on.

The point of India’s veto was to ‘seek negotiating leverage’ for an unrelated change in WTO rules, in order to prevent anyone from filing a disputes against India’s food-stockpiling program as a breach of farm subsidy limits.

In fact, though, no challenge to this system appeared likely at the time, and the previous Congress Party government’s support for the Trade Facilitation Agreement came in exchange for a four-year “peace clause” in which (a) no other WTO member would challenge the stockpiling program, and (b) the WTO members would negotiate out an agreement to meet concerns about the program’s legality under WTO rules.

So yes, so far a change. But despite reverence for the classics and promises of new ideas, it looks like change toward a program less, rather than more, friendly to the global economy.

Negotiating leverage?

What’s the point? At least in the BJP’s telling, India’s blocking of the Trade Facilitation Agreement is not because of a decision that the trade facilitation agreement is per se a bad idea.

Rather, it is a tactical option, made because blocking something useful and popular creates a form of “negotiating leverage” to secure a less popular goal (forcing a change in the WTO’s Agriculture Agreement to avert possible challenge to India’s food stockpiling program).

This line of thought has some negotiators’ logic, but also illogic. In blocking the Trade Facilitation Agreement, Indian trade diplomats simultaneously blocked the accompanying “peace clause” agreement barring challenges to the stockpiling program until 2018.

Thus, it is open once again to dispute filings. Meanwhile, attempts by one party to find negotiating leverage invariably lead to searches by others for counter-leverage – the most obvious example being an actual challenge to the stockpiling program. The Brookings Institution’s Joshua Meltzer has ideas on ways to bring it into compliance. goldbrown2

Ed Gresser
Ed Gresser is Executive Director of Progressive Economy, a Washington (D.C.)-based project of the non-profit GlobalWorks Foundation that is joined in the campaign to eliminate global poverty. Before joining GlobalWorks, Gresser served as Director of the Trade and Global Markets program and as interim President of the Democratic Leadership Council, and as Trade and Global Markets Director for the Progressive Policy Institute. He served as Policy Advisor to U.S. Trade Representative Charlene Barshefsky during the Clinton Administration.

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1 Comment

  1. Pingback: Why India Needs More Open Trade | Longitudes &n...

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