OPINION ASIA

The Consequences of Indian Obstructionism

Narendra Modi portrays himself as a pro-growth reformer, but he is behaving like an economic nationalist.

By

GREG RUSHFORD
Aug. 3, 2014 1:00 p.m. ET
Wall Street Journal Asia
India’s newly elected Prime Minister Narendra Modi last Thursday vetoed the implementation of a trade agreement that promised a trillion-dollar boost to the global economy. The deal, inked last December at World Trade Organization meetings in Bali, was the WTO’s first successful multilateral trade negotiation in 20 years.

Mr. Modi wants to extract permission to tear up existing WTO rules that limit government food subsidies and stockpiling. His extortion bid runs counter to the purpose of all WTO negotiations, which is to liberalize trade, not further entrench protectionist rackets.

Moreover, the previous Indian government had agreed to the Bali deal. The “core issue,” as U.S. Ambassador to the WTO Michael Punke reminded his colleagues in Geneva last week, is this: “Will members of the WTO keep their commitments?” Lamented an obviously saddened WTO Director General Roberto Azevedo of India’s handiwork: “This will have consequences.”

One consequence is that India’s reputation as a trustworthy negotiating partner will be further tarnished. The limits on agricultural protectionism that Mr. Modi wants to break date to another WTO trade commitment that India signed 20 years ago. Essentially, the Indian government pays its farmers above-market prices for their crops, which are then stockpiled and doled out in India’s notorious city slums (particularly when elections loom). Much of the grain rots or is stolen.

The Bali deal already gave the Indians a four-year “peace clause,” allowing New Delhi to increase temporarily the otherwise WTO-incompatible subsidies. The four years were to give India time to come up with a more economically defensible system. But the four-year exemption was not enough for Mr. Modi, who demands a permanent exemption to subsidize as much as he wants—and right now, thank you.

How many more rupees does India intend to dole out in the name of “food security”? Many diplomats in WTO headquarters in Geneva would like to know the answer to that question. The last time any Indian government honored its WTO obligations to report how much it spends on agriculture subsidies was 2011—and even then, no data was provided beyond the 2003 crop year.

Mr. Modi promises that his planned increased subsidies and mountains of stockpiled grain will not distort global markets by driving up costs of food around the world. But India’s record of keeping such promises is poor. New Delhi slapped export controls on rice in late 2007, ahead of 2008 elections. That contributed to skyrocketing rice prices in the global markets and riots in Haiti, Cameroon, Senegal and other countries. One of the first things Mr. Modi did after he came to power was to impose new price controls on onions and potatoes.

Mr. Modi’s dubious trade behavior goes beyond just agriculture. India has been a participant in the WTO’s Information Technology Agreement since 1997. As an ITA member, Delhi slashed its tariffs on imports of computers and telecommunications equipment. But in Mr. Modi’s first two months in office, he’s already advocated new trade restrictions and jacked-up tariffs on imports of iPhones.

The clever catch: such high-tech gadgets weren’t invented when India joined the ITA in the 1990s, and thus aren’t covered by that agreement. While Mr. Modi portrays himself as a savvy pro-growth leader from Gujarat, he is rapidly acquiring the look of a pugnacious economic nationalist.

The consequences of India’s blocking implementation of the WTO’s Bali pact will be far-reaching. Individual governments (Sweden and Norway are leaders) and international organizations such as the World Bank and the WTO’s International Trade Centre are spending more than $300 million annually on trade-facilitation projects around the developing world. But much more is needed, as a quick look at Africa illustrates.

It takes three or four days, at best, for ships to clear cargo in Mombasa, Kenya (as compared to just a few hours in Hong Kong and Singapore). To transit goods from Mombasa to Kampala, Uganda, takes another four days; and then another two days on to Rwanda’s Kigali.

That’s actually good news. It used to take 22 days to move cargo from Mombasa to Kigali, says Valentine Rugwabiza, a former high-ranking WTO official who is now CEO of the Rwanda Development Board. “Trade facilitation globally is extremely important,” emphasizes Ms. Rugwabiza.

The Bali deal would have institutionalized this effort and given poor countries the financial and technical wherewithal to modernize their clogged ports, fix their bad roads, and streamline their notoriously inefficient (and corrupt) customs bottlenecks.

India’s ploy has been criticized by dozens of WTO member countries including the United States, the European Union, Australia, Japan, China, Vietnam, Nigeria, and evenVladimir Putin‘s Russia, which isn’t always known for principled stands on rule-of-law issues.

Unless and until Mr. Modi backs off, the credibility of the WTO as an institution capable of forging consensus of its 160 member countries to forge genuine multilateral deals that will expand global trade flows will continue to erode. Nations will increasingly turn to their own bilateral and regional trade arrangements—with New Delhi left behind.

Mr. Rushford is editor of the Rushford Report, an online journal that tracks the politics of trade and diplomacy.