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Are India and China Ready to Lead Trade?

With two global trade pacts in balance, will India and China seize the opportunity to lead?

John Murphy | U.S. Chamber of Commerce

India and China are giants on the world stage, with a combined population of 2.6 billion — more than one-third of humanity. Adjusted for purchasing power, their combined economic output tops $20 trillion, well ahead of America’s $17 trillion.

However, when it comes to international trade negotiations, it remains an open question whether India and China are ready to provide responsible leadership commensurate with their growing economic heft.

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[The TFA] could boost the world economy by as much as $1 trillion and generate as many as 21 million jobs globally.

With two global trade pacts in the balance, the weeks ahead should reveal whether Beijing and New Delhi will seize the opportunity to lead — or if they will allow their own parochial politics to push these agreements’ huge benefits to the side.

India stunned the world in July when it blocked adoption by the World Trade Organization (WTO) of the recently concluded Trade Facilitation Agreement (TFA). As the first multilateral trade agreement in nearly two decades, the TFA was unanimously endorsed by the WTO’s 160 members at a meeting in Bali, Indonesia, last December.

The TFA is a cost-cutting, anti-corruption agreement that would streamline the passage of goods across borders by cutting red tape and bureaucracy. The Peterson Institute for International Economics has estimated it could boost the world economy by as much as $1 trillion and generate as many as 21 million jobs globally.

New Delhi is explicitly seeking leverage to secure a permanent “peace clause” to ensure its farm subsidies are not challenged before a WTO dispute settlement panel. In recent years, India has greatly expanded these agricultural subsidies and has done so in ways that may violate WTO rules. However, India won a considerable degree of protection for its subsidies in Bali.

A Way Forward on Trade Facilitation?

India has thus snatched defeat from the jaws of victory. The TFA would promote economic growth and raise living standards around the world, with most gains going to the world’s poorest.

Moreover, concessions India won in Bali relating to its agricultural subsidies were joined with the TFA in the “Bali Package,” so India will obtain no relief for its demands without a deal.

In a recent interview, former U.S. Trade Representative Susan Schwab said: “It’s absolutely unconscionable that the new (Indian) government should ruin a deal that the previous government had reached after much agonizing by every WTO member.”

Already, many governments are considering how to secure the TFA’s benefits for the vast majority of WTO members that support its swift implementation. One option would be to implement it as a “plurilateral” agreement among all parties that are willing — and many are keen to move forward.

When India’s recently elected prime minister, Narendra Modi, visited the White House in late September, President Obama raised his concerns about the impasse and the threat it poses to the multilateral trading system.

Modi expressed hopes of finding a compromise soon, saying: “India supports trade facilitation. However, I also expect that we are able to find a solution that takes care of our concern on food security.”

Modi has an opportunity to be a statesman. By taking yes for an answer — accepting the win India secured in the Bali Package — he would receive not only those direct benefits, but the opportunity to show leadership as a global power.

China Can Lead on IT Trade

For China, the question involves the Information Technology Agreement (ITA). Negotiated in 1996 under the umbrella of the WTO, the ITA has delivered a cornucopia of innovative technology products to the world over the past two decades.

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 Thanks in large measure to the ITA, China today is the largest exporter of IT products in the world.

Today, 70 countries are members of the ITA, accounting for 97 percent of world trade in IT products, which has reached about $4 trillion annually.

This sum represents nearly one-fifth of global merchandise trade. Thanks in large measure to the ITA, China today is the largest exporter of IT products in the world.

However, the ITA is showing its age. Since it was concluded, innovative industries have developed a host of new products, such as GPS devices, Bluetooth technologies, and flat-panel displays. All remain outside the ITA’s reach.

Expanding the ITA to cover these new products could add $190 billion to global GDP annually, according to the Information Technology Industry Council.

Despite progress, the ITA expansion talks have stumbled along in a stop-and-go mode over the past year. At issue is China’s push for tariffs on a wide range of goods to be dropped from consideration or subjected to long phase-out periods.

No other country has adopted such a cautious stance, and many WTO members have objected. The Chamber was one of 82 top business groups from dozens of developed and developing countries that issued a statement in September calling for action. However, an interagency battle in Beijing has hamstrung China’s negotiators for months.

Not only does China have a trade surplus in many of the product categories it has sought to exclude, it would be a principal beneficiary of an expansion of the ITA’s coverage. An ambitious outcome could save China’s tech sector $8 billion in reduced tariffs on overseas sales each year, the Information Technology & Innovation Foundation estimates.

As it happens, China is hosting the Asia-Pacific Economic Cooperation (APEC) meetings this year, with President Obama, Chinese President Xi Jinping and the leaders of the other 19 APEC economies gathering in Beijing in November. The ITA actually traces its origins to APEC, and many in the business community sense that these upcoming meetings represent a key opportunity.

From the Chamber’s perspective, reaching a final agreement on ITA expansion will be the key indicator of the success of China’s APEC year. With just weeks remaining, now is the time for China to take a leadership role.

On trade, when you stand still, you fall behind. For both China and India, these global trade pacts represent a chance to show leadership on the world stage and secure real benefits for their citizens. goldbrown2

 This article first appeared on October 15, 2014 on GE Ideas Lab and was republished with permission.
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John Murphy is Senior Vice President for International Policy at the U.S. Chamber of Commerce.

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