The Rupp Report: A Lot Of Question Marks: Is India Isolating Itself?

Instead of continuing with the reports about physiological apparel, the Rupp Report is forced to take a look at India again: Some weeks ago, the Rupp Report asked: “What’s wrong with India? With millions of cheap workers and a huge domestic market, the country should be as successful as China, but it is not. The industry is underdeveloped and unproductive, and it contributes only some 16 percent to the gross domestic product (GDP). Responsible for this misery are the excessive bureaucracy, endemic corruption, poor infrastructure, permanent energy shortages, excessive taxes as well as outdated property rights and restrictive labor laws.” (See “The Rupp Report: Will India Recover Now?”, May 20, 2014.)
And now, there is the next act in a somewhat tragic drama, which might bring the second-largest population in the world into even deeper trouble and isolation.
India In Isolation?
For years, trade facilitations and standardizations of processes in the customs authorities have been central concerns of the World Trade Organization’s (WTO’s) somewhat dormant Doha Round of trade negotiations. At WTO’s Ninth Ministerial Conference in Bali, Indonesia last December, the unanimous adoption of the so-called Bali Package was celebrated as an historical breakthrough in the multilateral way and as an instrument to stimulate world trade.
And now, the Doha Round has suffered a severe blow. The first global agreement on trade facilitations in the WTO’s 20-year history has failed owing to the resistance of India and a handful of developing countries. In a night meeting of the representatives of the 160 WTO members in Geneva on July 31, WTO Director General Roberto Azevêdo reported that finalization of the agreement on global trade facilitations in customs matters had failed and could not be signed. It is a paradox: Experts have calculated that just the implementation of this agreement would create 21 million jobs around the globe and would boost the production of goods.
The United States’ WTO Ambassador Michael Punke was sad and disappointed after the short session — which did not include any discussion by the 160 WTO members — that a small number of countries were unwilling to meet obligations that they had agreed to during the Ministerial Conference in Bali.
Stubborn Indians?
In recent weeks, seconded by some developing countries, India has shown some signs of backing out of the agreement. The new nationalist government in Delhi doesn’t feel a responsibility to fulfill the obligations of the previous government. India is willing to sign the protocol to the agreement of Bali only if a solid waiver for India, supported in the basic rules of the WTO for the subsidy of staple food, is connected. Of course, this request was rejected by the majority of WTO members.
According to the WTO, it is mainly the developing and emerging countries that would benefit from the reforms in the Bali Package. However, a small group of malcontents, led by the new Indian government, took the opportunity to play trade liberalization against food security, and, once more, to paralyze the WTO. In short, the group not only killed the agreement on trade facilitations, which aims to simplify and harmonize the intricate, corruption-prone customs in industrialized and developing countries. Now the reputational damage to the WTO as the global supporter and referee of the trading system is very great.
At the Ministerial Conference in Bali last December, the participants managed to agree on a minimal program to wake up the Doha Round from its agony. In Bali, the Indian Minister of Commerce played all cards to expand the subsidization of Indian agriculture under the disguise of protecting the food supply chain. Now, an exception that was granted until 2017 should soon be replaced by a permanent regulation. If the new regulation were not to be concluded soon, Delhi was ready to collapse the agreement; and that’s what has happened now.
With this procedure, the Indian government is undermining its own credibility as a negotiating partner. Ultimately, former Indian Trade Minister Anand Sharma gave his blessings in Bali for the agreement on trade facilitations. Now, India is isolating itself within the WTO.
Meaningless WTO?
In contrast, according to conjectures by diplomats in Geneva, the WTO has now the risk of ending up in a dead-end street again and slipping into irrelevance if it should continue to prove its incapability to stimulate world trade through agreements for reduction of customs barriers and other impediments to the exchange of goods.
However, the major economies would not suffer, Azevêdo said. They have other options to push their trade relations. Victims of the final failure to reach a global agreement would primarily be developing countries.
The open and unanswered questions around the Bali Package are detracting from the real goal of the meeting of trade ministers: It was up to the member states to identify which concrete, unilateral measures they would contribute to the growth target that the G-20 finance ministers set last February. These measures stipulate that the collective GDP would be 2 percent higher than the forecasted growth.
And Now?
Many voices now predict the end of the multilateral treaty system in world trade. As for areas such as the climate and disarmament issues, there is no common mutual understanding. While the WTO has paralyzed itself in recent years, bilateral and regional trade agreements have filled the vacuum many times. There are also so-called multilateral agreements, where like-minded people grant preferences and get rid of mere copycats. With their blackmail, the Indians have rendered a big disservice to multilateralism.
Trade facilitation and standardization of customs procedures are one thing. The rightly feared sellout of a country’s food security, at first glance, is actually something else. At second glance, however, it is not. Between rich and poor countries, trade facilitations can always cause a dangerous tendency for one country to sell out its food security at the expense of poor countries. For the government of India, and particularly the billions of Indians, food security is of vital importance. One has to wonder whether it would be better to develop more sensitivity toward the existential needs of poor countries, instead of rich WTO countries deploring the pigheaded attitude of India.
And The Textile Industry?
Perhaps no other industry is so dependent on easier terms between countries as is the textile industry. It is to be hoped that the outcome of this Doha Round will not trigger bigger problems for the global movement of goods in the textile sector. It seems that precautionary measures should not be wrong.
The earlier Rupp Report about India asked the question, “Will India now recover?” For the moment, it seems rather not.
August 12, 2014