Trade pacts losing relevance, protectionism is becoming driving force of contemporary global treaties

The US Secretary of State Mike Pompeo’s recent visit to India prior to G-20 shows the latest challenge of foreign trade treaties.

S Mohammed Irshad July 04, 2019 18:13:33 IST
Trade pacts losing relevance, protectionism is becoming driving force of contemporary global treaties
  • Global market rather than politics is the deciding factor, and hence common and benefit sharing treaties are increasingly becoming insignificant

  • WTO’s provisions of positive discrimination for protecting domestic interests have become an impediment for market expansion

  • India’s strength is its domestic production and market, so the government is bound to support the local market

The World Trade Organisation (WTO) agreement in 1995 was the biggest change in global trade. The General Agreement on Tariffs and Trade (GATT) 1947 became the secretariat for WTO. It was an agreement on the trading of textiles and clothing, technical barriers to trade, trade-related investment measures, pre-shipment inspection, licensing procedures, subsidies, and countervailing measures and safeguards, etc.

It was a comprehensive treaty and put in place a forum for trade across countries and negotiations. Countries that are export-oriented actively push the treaty. A country like China is benefitted by the WTO. However, India traders and small scale producers were against the treaty and there were massive protests against the WTO.

Trade pacts losing relevance protectionism is becoming driving force of contemporary global treaties

Roberto Azevedo, Director-General of the World Trade Organization (WTO), Reuters

Trade treaties facilitate and take on matters out of Parliament. Every member country trusts the WTO and hardly ventures to have separate negotiations. The expectation of WTO started changing with an increase in trade and expansion of the market of member countries.

The US Secretary of State Mike Pompeo’s recent visit to India prior to G-20 shows the latest challenge of foreign trade treaties. Pompeo's No. 17/2019-Customs imposed an additional tariff on an import from the US including food products and manufacturing items. This decision made US administration worried and they decided to have direct negotiations. Still, the US is India’s main partner in foreign trade.

Interestingly, the US has experience of a negative balance of trade with India. The US is still a good export market for India, though.  (See Table 1.)

India’s attempt is within the limit of the WTO and other trade treaties. At the macro level, India’s balance of trade is experiencing negative growth since 1949-50.

Trade pacts losing relevance protectionism is becoming driving force of contemporary global treaties

 

The deficit is increasing every year and Indian exports are unable to explore the global market. China overtook India by incentivising its export-led growth and through a massive expansion of export processing zones. India’s market also expanded quite a bit in these years, however, the fact is that Indian import policies through trade cartels seldom consider the local manufacturing sector.

Trade treaties often displace domestic production, for instance, the tea industry. The entry of foreign tea displaces many marginal and small-sized tea gardens. Small scale coffee producers are also badly hit by international trade treaties. India seldom exercises its right assigned in trade treaties. However, the US operates on a trade protection mode. What the US wants is access to the Indian market without India imposing extra tariff on US products.

The US government realises trade treaties often hamper domestic interests. Trade has increasingly become the main agenda of lateral and diplomatic meetings across the world. The countries which had been pushing for international trade treaties are now reverting their position and trying to have a parallel discussion with trade partners. It also represents the new economic system in which the big exporters prefer to overrule trade treaties and push for the government. It indicates the emergence of a powerful trade lobby and their influence on political administration.

WTO’s provisions of positive discrimination for protecting domestic interests have become an impediment for market expansion. The option is to overrule the treaty and go back to the old system of trade agreements. Export-oriented countries are upfront in having parallel negotiations. The European Union is another agency wanting to displace trade treaties and demonstrated its interests on parallel negotiations rather than trust WTO or other trade agreements.

It is true to state that market information is not limited to geographical boundaries only.  Global market rather than politics is the deciding factor, and hence common and benefit sharing treaties are increasingly becoming insignificant.

India’s strength is its domestic production and market, so the government is bound to support the local market. It is a kind of neo-protectionism that developed export-oriented countries practice in order to save their producer. It can be called ‘re-emerging mercantilism’  which is a driving force of contemporary global trade.

(The writer is Assistant Professor, Jamsetji Tata School of Disaster Studies, Tata Institute of Social Sciences)

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