Fed Up

Posted on by

Fed Up

(First of a two-part series)

 Sometimes in life, there comes a tipping point when — enough is enough. And that pretty much describes the present mood in the Geneva-based World Trade Organization. The Americans, Aussies, Kiwis, Europeans, Canadians, Scandinavians, Japanese — basically, all of the most important trading centers around the world that comprise the vast majority of world trade — have had it. They are fed up. Fed up with India, especially. India’s new prime minister, the pugnacious Narendra Modi, has brought all WTO negotiations to a halt, thanks to his unprecedented recent veto of the only successful multilateral trade-liberalizing negotiation in the institution’s nearly twenty years of existence.  “Disgusted” even more, as one diplomat based in a European country un-delicately puts it, because Modi’s reasons simply defy economic logic.

Leading WTO members have also had it with various African and Latin American leaders like those in South Africa, Zimbabwe, Venezuela, and Bolivia. The leaders of such countries have gradually eroded their credibility by making no secret of the fact they just don’t really believe in the WTO’s core mission of dismantling trade barriers on a multilateral basis. Fed up with how the economic laggards have meanwhile been holding the rest of the WTO’s 160-member countries hostage to their parochial demands.

Over the years, the WTO and its predecessor international trade rules-making organization have operated on two core beliefs. First, that trade liberalization must be done for the good of all members, on a multilateral basis. Second, that the negotiations to dismantle trade barriers will be reached by consensus — but with the expectation that member countries will conduct themselves with a certain civility, and restraint. The institution cannot function when those core beliefs are trampled upon.

True, some WTO members like Switzerland, Norway and Japan who are presently outraged at India have their own protectionist rackets that they defend vigorously in negotiations (think only of Japan’s 500-plus percent rice tariffs). But, in significant contrast with India, such respected WTO member countries always conduct themselves with civility and restraint. It is unthinkable that they would wreck the institution for domestic political gain.

The frustrations with India and the other chronic economic under-achievers who have anti-colonial chips on their shoulders hardly stop at the traditional “North-South” divide between the rich countries and their former colonial possessions. Privately, some key officials from countries that have traditionally identified themselves with the WTO member countries from the “South” — including Mexico, Brazil, Pakistan, and even some in Rwanda, Ghana, Kenya, Nigeria, and Benin — share the frustrations. True, some of these same countries can’t seem to make up their minds which side they are on — Kenya comes immediately to mind, as do Tanzania and Uganda. Africans have often joined in the constant attacks against the WTO since it succeeded the General Agreement on Tariffs and Trade in 1995. But now, there seems to be an emerging fear in Africa that things have gotten out of hand, and that vulnerable African economies will suffer the consequences of India’s irresponsibility.

And there are the more economically enlightened smaller countries in the “South” — like Panama, Costa Rica, Peru, and Chile — that have been prospering because they have wisely embraced the global trading system. These admirable symbols of what trade liberalization can accomplish have been leading by their examples. And they are growing weary of the continuing shrill attacks against the system brought by WTO members who just don’t get it.

In short, there is a growing belief in leading WTO circles that if the institution is going to survive, it can no longer continue to do business as usual. Leading trade diplomats in Geneva and other key capitals have concluded that WTO’s future ability to liberalize trade cannot be based on the traditional consensus-based multilateral approach, where any single member can enjoy veto power. Instead, the WTO’s future negotiations will focus on a so-called plurilateral approach, where smaller groups of like-minded countries that genuinely want to liberalize trade will do so. If the laggards don’t participate, fine. From now on, well-placed diplomatic insiders vow, no longer will weak countries which aren’t really important international trade players anyway, be allowed to poison progress for everyone else. India, for example has about a 1.9 percent share of global trade flows, but Indian leaders seem to think they deserve 90 percent of the attention.

U.S. President John F. Kennedy once famously said, “trade, or die.” Now, for the World Trade Organization, the new mantra is becoming “change, or die.”

Such are the impressions gleaned from nearly two-dozen confidential interviews conducted over the course of several months with key players in the USA, Europe, Africa, Asia, and Latin America. This two-part series offers details and analysis aimed at explaining in in clear language what many thoughtful trade diplomats would like to say publicly, if they were not constrained by the requirements of diplomacy.

***

An Institution Under Constant Attack

With apologies for the use of the personal pronoun, I have been covering the WTO and its predecessor the General Agreement on Tariffs and Trade — the GATT — for more than three decades. Launched in 1947 by the United States and 22 other countries, the GATT became the world’s most successful international economic experiment. Seven successive multilateral trade-liberalizing rounds contributed to expanding global prosperity by slashing tariffs and dismantling trade barriers. The last of those negotiating successes, called the Uruguay Round, set up the WTO in 1995.

And that’s when multilateral trade liberalizing negotiations pretty much hit the wall. One could say the GATT morphed into the General Disagreement on Tariffs and Trade.

Remember the famous 1999 anti-trade riots in the streets of Seattle? Many Third World countries inside the WTO’s ministerial meetings quietly cheered the unruly protestors who trashed that beautiful city. There would be no Seattle Round. In 2001, the WTO did manage to launch the Doha Round (for trivia fans, named for the city in Qatar where that year’s ministerial meetings were held). But the Doha Round has been in deep trouble ever since.

In 2003 many African countries openly celebrated their success in killing that year’s WTO ministerial in Cancun. We came to make demands, not make concessions, the Africans boasted. Indian negotiators contributed to that failure, although to their credit, the Indian official delegation seemed crestfallen that they had gone too far. They had not meant to put the Doha negotiations in intensive care.

Then in 2008, a deal was close to being struck in Geneva that would have completed the Doha Round. Among other economic benefits, trade-distorting agriculture subsidies for both rich- and poor countries would be substantially reduced. Financial services would be allowed to flow more freely across international borders. And both rich- and poor countries would do more to open their markets to global competition. But that deal also collapsed in bitterness. While there is plenty of shared criticism for the 2008 failure, it was clearly India’s intransigent “non-negotiable” demands that did the most to poison the atmosphere. And this time the Indian negotiators, led by their abrasive trade minister, Kamal Nath, returned to New Delhi boasting of their triumph.

In those previous WTO trade spats, at least, everyone came away from the battlefield vowing, at least for public consumption, to do better the next time. Until this year, when some of the Africans and the Indians struck again. The bitter irony is that the present mood comes in the wake of the WTO’s most impressive negotiating success, where the rich- and poor countries (finally) worked together for the common good to give global trade flows a significant boost.

Meeting in Bali last December, the WTO’s then 159 member countries agreed to a so-called Trade Facilitation deal that promised, over time, a trillion-dollar economic payoff. Essentially, the wealthier WTO members have already been giving poorer countries hundreds of millions of dollars annually to help facilitate trade by fixing embarrassments that have long clogged Third World borders — corrupt customs offices and cumbersome red tape, inefficient ports, shoddy roads, and such. It doesn’t take a PhD in economics to understand why difficult borders prevent the rising economic prosperity that stems from enhanced trade flows. The Bali deal promised much more assistance to speed the movement of goods and services across borders. The deal was a win-win for everyone: both for giant multinational corporations that move goods and services across borders, and for millions of citizens of poor countries whose living standards would stand to rise along with the resulting expanded trade opportunities.

The Bali Package was the first successful multilateral trade-liberalizing deal in the nearly two decades of WTO history. Finally, the institution had shown that it could deliver something meaningful on the multilateral negotiating table. The general belief was that the success in Bali would spur the revival of the Doha Round, which now has been floundering for thirteen years.

 But now those hopes have been dashed. On July 31, India’s Narendra Modi vetoed the schedule to implement the Bali deal.  Since then, all subsequent efforts to give Modi a face-saving way to back off have failed. There are some (slim) hopes that meetings in the WTO’s headquarters in Geneva scheduled later this week could put the deal back on track. But the sad truth is that the Bali deal has acquired a definite Humpty Dumpty look. The essential trust in the system — that countries will honor what they have agreed to instead of negotiating in bad faith — has been lost. It will not easily be regained. Whether it will be officially declared or not, the Doha Round is dead.

The WTO’s wealthy countries are even bitterer because they had had to work very hard, for years, just to persuade the poor countries to accept substantial financial sums to bind themselves to do things they should have long ago done themselves, in their own self-interests.

Adding to the bitterness, Modi’s demands simply made no good sense. He was fighting for policies that are clearly not in India’s best interests. “India’s economy is today the least integrated into global production chains among the world’s top-25 exporting economies,” Hosuk Lee-Makiyama, Natalia Macyra, and Erik Van Der Marel of the highly respected European Centre for International Political Economy in a recent paper: India & the WTO. “India is failing in sectors it chooses to protect, and is only competitive in sectors where it chose to liberalise, for example its IT services sector and the outsourcing business.”

Nor are the specific agriculture policies that Modi has fought for in the interests of other WTO countries that import Indian rice and other grains. In recent years, and up to the present, India’s domestic farm policies have inflicted economic damage in other poor countries. India’s grain exports have distorted food prices not only in neighboring Pakistan and Bangladesh, and on to Haiti and some African countries as well.[Coming tomorrow, the conclusion: “Hot (Headed) Yoga”]

 

 

The Consequences of Indian Obstructionism

Posted on by

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.

India’s Bali Debacle

Posted on by

OPINION ASIA

India’s Bali Debacle

Delhi holds free trade hostage to score political points at home

 By
GREG RUSHFORD
Wall Street Journal Asia
Dec. 9, 2013 11:50 a.m. ET
Bali, Indonesia

After four days of intense round-the-clock negotiations, the 159 members of the World Trade Organization struck a deal last week that is expected to give the global economy a $1 trillion boost. But progress toward freer trade came at a price. Indian Commerce Minister Anand Sharma held up the deal to extract permission for Delhi to break current WTO rules that limit agricultural cash subsidies and food stockpiling.

The real surprise was how India’s backsliding provoked an angry reaction even among its fellow developing countries. By overplaying its hand, Delhi damaged its reputation as the champion of the world’s poor. That may have important consequences for future WTO negotiations.

First the unalloyed good news. The core of the deal, the Trade Facilitation Package in WTO parlance, aims at moving goods more efficiently across international borders, especially in the less-developed parts of Asia, Latin America and Africa. It should help streamline inefficient customs procedures, improve some of the world’s worst roads and otherwise foster efficiencies in clogged ports of entry.

Mr. Sharma was willing to throw all of these benefits away to score political points at home. Sonia Gandhi’s Congress Party, weakened by corruption scandals, is lagging in the polls ahead of next April’s general election. Mr. Sharma’s mission in Bali was to secure agricultural protectionism, a centerpiece of Congress’s appeal. The largesse is meant to be doled out to hundreds of millions of India’s poor voters–from subsistence farmers to urban slum residents.

At a contentious Dec. 5 press conference, Mr. Sharma told reporters that he had come to Bali not “to make a deal,” but “to secure the interests of the poor, as well as food security.” India was no longer a “beggar nation,” he insisted, and called all criticisms of his position wrong or misinformed.

That infuriated a journalist from Benin, one of the world’s poorest countries, who at the conference shouted to Mr. Sharma, “You don’t speak for us.” WTO members like Benin recognize they cannot afford to lavish subsidies on their poor farmers, Indian style. They did not want Bali to fail.

Nor did more than 100 influential WTO members and groups, including Hong Kong, New Zealand, Costa Rica, Chile, all of Asean, and most African and Latin American countries. On Nov. 29 these WTO leaders circulated a strong letter supporting Director-General Roberto Azevedo’s attempts to ensure a “successful outcome” in Bali. “We were sending a clear message about India’s likely obstructionism,” one Asian diplomat involved in drafting the letter explained.

India also lost the support of important players like China, Brazil, and even Russia. An upset Indonesian President Susilo Bambang Yudhoyono leaked to the Jakarta Post that he planned to call Indian Prime Minister Manmohan Singh, hoping to persuade India to be more reasonable. Indeed, the leading Indonesian newspaper hammered India all week, rightly reporting that Delhi had been “widely blamed” for the hardball tactics leading to the negotiating impasse.

Mr. Sharma offended many peers and undermined his claims to be negotiating in good faith by asserting that his demands were “non-negotiable.” Diplomats privately called the Indian position “arrogant,” “condescending,” and “insulting.”

Said one Latin American trade negotiator, “The WTO is supposed to be about freeing trade, not negotiating increased protectionism.” Another senior Asian diplomat reminded me that India’s unfortunate record of stockpiling grains contributed in 2008 to skyrocketing rice prices that caused food riots from Haiti to the Ivory Coast and Indonesia. “You can’t trust these people,” he said of the Indian delegation.

At the end of the day, Mr. Sharma’s insistence that India needed a permanent exemption from existing WTO rules limiting agricultural subsidies was supported only by the usual suspects when it comes to backward-looking economics: Zimbabwe, Venezuela, Cuba, South Africa, and Bolivia. Not that Mr. Sharma had reason to care. He was really speaking to Congress Party constituencies back home.

Still, the threat to torpedo the entire negotiating package was considered credible enough that Mr. Sharma ended up getting most of what he had wanted. The “peace clause” in this deal allows India to continue its subsidies for four years, at which point the fight could start all over again.

The politics of trade are distorted in India by the country’s failure to take advantage of past openings. China and others have developed their manufacturing industries by exporting finished goods to North America and Europe. In the process they have created unskilled jobs for people moving off the land and into the cities.

In India, by contrast, excessive regulation, taxation and corruption prevent companies from building factories. So the rural poor continue to demand handouts and protection from agricultural imports.

Most other developing countries face a different political calculus. As their labor force moves into the cities, they are less concerned with protecting grain markets and more interested in using the WTO to open markets wider to their manufactured exports.

That created what some are now calling a “South-South split.” While it’s not clear how this will affect the political landscape in future WTO negotiations, it was clearly evident in Bali. The backlash against the main obstructionist power in global trade talks could mean that the tide is finally turning away from a “rich vs. poor” mentality that has stymied the WTO’s Doha Round for the last 12 years.

Mr. Rushford publishes the Rushford Report, an online journal based in Washington, D.C. that specializes in the politics of international trade and development.