Delusional Politics
Page 19
This combined with access to the latest technology is the only way our products and services can become world class and India can become a central part of the global value chain. Again, in order to increase market share of our exports in the world from 2 to 3.5 per cent, the Foreign Trade Policy focuses on engineering, electronics and pharmaceuticals exports. The challenge, however, is not just to make products of world quality; this must be preceded by massive investment in research and development so that innovation can lead to higher positioning in the global value chain—an aspect the Foreign Trade Policy would have done well to address.
Finally, it is important to study our approach to multilateral negotiations and the WTO in particular. India has a long history of negotiating hard and if the occasion so arises, going it alone in multilateral trade negotiations. This is as it should be since we are a large country with certain sui generis characteristics. But it is also a fact that we have not done too badly where we have engaged seriously and intensely in negotiations. The Foreign Trade Policy (2015–20) has this to say on the subject:
India, a founding member of the World Trade Organization (WTO), believes that a rules-based, non-discriminatory multilateral trading system is necessary for bringing transparency, equity and fair play into global trade relations. Such a system ensures discipline and enables members at all levels of development to chart out a course in global trade that would meet their economic development requirements. The multilateral trading system offers the best institutional architecture for a developing country. The consensus-based decision making in the WTO ensures that even the voice of the smallest Members is heard. India also recognizes the extraordinary contribution made by the WTO in dispute settlement, laying down jurisprudence in areas where the law was relatively ambiguous or not fully developed. As a founding member, and a country which has evolved significantly since the WTO was established, India will continue to contribute to the capacities of willing developing members to help them to fully participate in the rule making process . . . The need to ensure that the FTP is aligned with both India’s interests in the negotiations, as well its obligations and commitments under various WTO Agreements, has been an important consideration in framing this Policy. 22
It is important to undertake a serious examination of our participation in multilateral trade negotiations and how we have come through. The Uruguay Round of trade negotiations took place against the background of India which had yet to undertake important economic reforms. It was only towards the fag end of the round that India embarked on tariff reforms, more out of compulsion than conviction. Remember, of course, that in 1991 the country faced a precarious situation and had to ship gold to the Imperial Bank of England as collateral for getting a meagre amount as loan. It was therefore understandable that we approached the Uruguay Round negotiations with a defensive mindset. Even so, there were some remarkable achievements to the credit of the Indian negotiators. For instance, the elimination of the quota raj in textiles and clothing was almost entirely the result of the efforts made by India against all odds. That said, there is no denying that the Uruguay Round outcome as a whole was unfair to all the developing countries. There is now a considerable body of literature to prove this.
Because of our negative experience with ‘new issues’ in the Uruguay Round, especially the Trade Related Intellectual Property Rights (TRIPs), there has been an understandable reluctance on the part of India to agree to new issues. Hence, the tag of a naysayer for India.
While this tag should not and need not bother the country, it is the author’s submission that whenever and wherever we have engaged and negotiated in the WTO since then, we have done well to defend our national interests. Thus in the Doha Round of negotiations launched in 2001, India not only staved off unreasonable demands for inclusion of issues, but actually succeeded in coming up with a declaration on TRIPs and public health which, short of amending the TRIPs Agreement, gave valuable guidance for future dispute settlement panels on how to interpret the agreement. This was arguably the most important outcome from the point of view of India and the developing countries since the conclusion of the Uruguay Round. Here was proof, if proof was indeed needed, that Indian negotiators with a clear brief and backed by resolve could achieve positive results in the WTO.
Since Doha, of course, things have changed dramatically in the WTO. For one thing, the Doha Round itself seems to be under intensive care, as it were an ICU! The Doha Round is important for developing countries like India, since it was the first time that the leading Western powers undertook to place the needs and interests of developing countries at the heart of the negotiating agenda. Hence the name Doha Development Agenda! To now say that the Doha Round is dead would amount to burying with it the promise made to developing countries that their interests would be taken care of by the WTO.
It is therefore the author’s belief that one last attempt should be made by India and other developing countries to conclude the round. This will involve, however, the following. In return for the Western countries taking into account issues of importance such as public stockholding in agriculture for India, the developing countries would have to agree to at least look at the possibility of negotiations in investment facilitation and e-commerce.
In any case, the time has come to launch a wide consultation with all stakeholders (private sector, NGOs, chambers of commerce, etc.) on all issues of importance not just in the WTO but also in the RCEP. Many of the issues, such as e-commerce and investment are common to both the WTO and the RCEP negotiations and it is time India took a clear position of what is at stake. So far, we have been content to argue that we do not want new issues in the WTO because it constricts ‘policy space’.
This is good as far as it goes. But then, every international negotiation is about giving up ‘policy space’ and ‘sovereignty’ and getting something critical for national interest, be it investment or job creation. At the end of the day, the WTO is a forum where concessions are exchanged. While the developing countries including India are right in insisting on less than reciprocal concessions (based on Special and Differential Treatment), the developed countries may also expect something in return for concessions granted by them.
The Foreign Trade Policy (2015–20) has rightly underlined the importance of the WTO and the multilateral trading system for a country such as India. The question therefore is: What should India do since the WTO is showing signs of being in the most serious existential crisis since its establishment? It is the author’s view that India should undertake initiatives for restoring confidence in the WTO. Wide consultations on the subject are important. Our interests, as of most other nations, are best served by an open, predictable and rule-based multilateral trading system. Only countries in a ‘dominant’ position can afford to go unilateral outside a multilaterally negotiated set of rules and norms of conduct. India’s stakes today in the WTO are far greater than say even Western countries such as the US.
Two other specific developments in the WTO merit India’s attention. One is the crisis confronting the appellate body. There is a paucity of members, thanks to the new appointments being vetoed by the US. The time has come for a coalition of developed and developing countries (say led by EU and India) to impress on the US that no matter what, the dispute settlement system of the WTO cannot be held hostage to politics. The system is what gives confidence to all countries, big or small, strong or weak, in the WTO, and this cannot be allowed to erode any further. This is an emergency and needs to be attended to without further delay. And India should take the lead in this regard, rather than allow the drift to continue. It is the efficacy and sanctity of the WTO’s dispute settlement machinery that distinguishes it from all the other international arrangements.
The other issue that confronts India is perhaps even more serious. It is clear after the December 2017 WTO ministerial meeting in Argentina that a group of countries (call it coalition of the willing, if you like) are ready to launch negotiations in new areas such as
e-commerce, investment facilitation and fisheries subsidies. Obviously, these, if they are launched, will be plurilateral in nature. There is a need to ensure, at a minimum, that these negotiations are open to every WTO member and that once an outcome emerges, it will be applicable to the rest of the WTO membership on an MFN basis. It is noteworthy that a number of developing countries are also willing to join hands with the developed countries to look at these new subjects. China, for example, appears to have no problem with some of these new areas. And where it does, Hong Kong, China (a WTO member in its own right) seems to cover it pretty well. This does pose problems for India, and we should be conscious of this, even while being steadfast in protecting our vital interests, such as public stockholding for food security purposes. It should also be a matter of concern that some forty-six countries, including developing ones, are quite happy to bid good bye to the Doha Round. These need not deter us, but it does underline the importance of carrying out far-reaching domestic consultations to reach definitive decisions on what constitutes fundamental national interest and what else could be used as negotiating leverage to obtain concessions from our trading partners. Especially in new areas like e-commerce and investment facilitation, it would be good to determine the redlines to be ready for all eventualities.
A nation’s trade policy is not static; it is dynamic and should be recalibrated from time to time. Now may be a good time to take stock and tweak our trade policy to bring it in line with current economic attributes and the ongoing policy reforms.
Ironically, our defence and strategic partnership with the United States continues to make great strides, but the trade and investment dossier remains as thorny and as vexing as ever. The problem has aggravated since Donald Trump’s ascent to power as he has displayed an unmistakable proclivity to see bilateral trade as a zero-sum game. He has done so with great élan vis-à-vis China, given the huge trade deficit the US has with it. Less understandable is why he has not spared India which, for one thing, is not anywhere close to the trade surplus that China has with the US. Furthermore, threatening to hit us with steel tariffs when our share of exports is minimal is unfair.
There is little doubt that the use of Section 301 in and of itself, without any resort to the WTO’s dispute settlement system in parallel, is not in conformity with the obligations of the US in the WTO. The Chinese have taken the US to dispute settlement precisely on this issue. But it is not clear whether the issue will go forward in the WTO dispute settlement mechanism. It is not inconceivable that the Chinese might settle with the US bilaterally at some stage. Indeed, bilateral negotiations between China and the US are ongoing, albeit with very little progress so far.
This unilateral instinct of the US is neither novel nor unprecedented. Indeed in the bad old GATT days, Section 301 was used with impunity against countries such as India, Brazil and Argentina with a view to bring us on board the Uruguay Round TRIPs negotiations. But with the onset of the WTO, the US has by and large kept its commitment made in the Uruguay Round that it will not resort to unilateralism without first exhausting the WTO dispute settlement mechanism. But now reneging on this commitment, President Trump is reverting to the old mechanics of conducting international trade, going against the principles of the WTO, which the US had helped create. This poses an existential challenge for developing countries such as India which actually depend heavily on the multilateral trading system for their international trade.
It is possible that Trump steps back from the brink. However, this is far from certain. Should he go ahead with what he has threatened, then there is a real danger that it may sound the death knell of the multilateral trading system as we know it. From India’s perspective, there is thus a need to engage the US bilaterally at all levels along with a plan B upon which India can fall back should the need arise. This plan B must be formulated by the ministry of commerce in close consultation with all domestic stakeholders.
It turns out that Trump was not bluffing when he said that he would penalize trading partners who were not ‘playing fair’ by the US. To prove this, in March 2018 he announced punitive tariffs on steel and aluminium (25 per cent and 10 per cent respectively) on EU, Canada, China and India. All countries, including India, protested at this move, but to no avail. What was particularly galling to trading partners such as Canada and EU was that Trump justified it on grounds of ‘national security’! Canada argued that it could never pose a national security threat to the US and that this was an absurd argument. 23 Again, this had no effect on Trump who went against all the above trading partners at the G7 meeting held in early June 2018 in Canada. The meeting ended in failure with US not agreeing to a joint statement. So far India has played it well. The minister of commerce travelled to Washington from 10–12 June 2018 and had detailed talks on this issue with his US counterpart. After waiting for a decent amount of time and realizing that the US would not change course with regard to India, on 13 June 2018, India announced its own retaliatory tariffs which in WTO parlance would be ‘suspension of equivalent concessions’ in response to the ones imposed by the US. Again the WTO was kept in the picture. India’s retaliation would apply to some thirty items of US exports such as almonds, dry fruits, chocolates, shrimps, motor cycles, heavy machinery, etc., worth USD 240 million, which was India’s calculation of the loss it suffered due to the tariffs on steel and aluminium. 24 This was the right thing to do since India could not have just kept quiet and accepted these tariffs when every other trading partner of the US was protesting.
The good news is that US officials from the commerce department met with their Indian counterparts again in September 2018—this time in New Delhi. There has emerged a consensus on both sides that a dialogue must continue to resolve the lingering thorns that continue to act as an irritant in this important bilateral relationship. From an Indian perspective, it would be good to have a list of items where we can make reciprocal concessions to the US so as to defuse the matter and prevent it from deteriorating into a full-blown trade war which we can ill afford. The challenge is to ensure that our trade, investment and IPRs with the US do not derail a vitally important strategic relationship for India.
This graph highlights the decline of the Indian National Congress and the rise of the BJP in 2014 using percentage of vote share as the metric. It depicts how the BJP, which got less than 10 per cent of votes in 1984, is India’s leading national party today. For further reference, see page 13.
Images 2, 3, 4 and 5: A post-poll alliance between the Congress and the JD(S) shows that the electoral results in Karnataka are a classic example of India’s people demanding a ‘Congress-mukt Bharat’. For further reference, see pages 86, 87.
Photograph courtesy of the Hindustan Times
Photograph courtesy of the Hindustan Times
Photograph courtesy of the Hindustan Times
Author’s Note
This, my second book, Delusional Politics, draws inspiration from an early phase in a long career when I started to observe, across the world, public figures who seemed perfectly rational, exhibiting tendencies in their decision-making that could only be described as delusional. As I note in the Introduction, this phenomenon is not new—Adolf Hitler, Pol Pot, Attila the Hun, Joseph Stalin, Maximilien Robespierre and many more have gone down this path, leading to catastrophic outcomes for the rest of the world. Given the scale and scope of disruptions taking place the world over, I was tempted to study contemporary politicians and their decision-making, which in many cases displayed a delusional streak. I chose to study three countries, the UK, the US and India, only because I am more familiar with the internal dynamic in these than I am with political nuances elsewhere. The chapters on global governance, terror and trade must be read in line with the experiences of these three countries, for each of them has implications, in one way or another, to influence the contours of the world order.
Delusional Politics was written prior to my joining the council of ministers in September 2017. While statistics have been upd
ated and developments post September 2017 have been incorporated in the text, my conclusions in each of the chapters remain unaltered. To summarize each of these briefly, I would like to begin with the UK.
It is now widely recognized that the decision to hold the ‘Brexit’ referendum was, at the very least, taken in haste. With the benefit of hindsight, it is clear that PM Cameron, sitting at a pizza parlour at Chicago airport, came up with the idea in an attempt to undermine his party colleagues. Prior to the vote, he was feeling the heat from within the Conservative Party as new challengers threatened his position. ‘To smoke them’ out, he decided to call a referendum, not realizing that he was providing a platform to ‘Brexiteers’ such as Nigel Farage, leader of the UK Independence Party. To make matters worse, having lost the referendum, the leaders of the UK decided to double down on delusional decision-making. PM May, who succeeded Cameron post the results, called a snap poll in order to strengthen the position of the Conservative Party as they negotiated the terms and conditions of Brexit. The result? Conservatives were left weaker, barely managing to form a government, and the Labour Party, under the leadership of Jeremy Corbyn, won more seats than it previously had. My own analysis is that the UK is descending into what is now called FUKEW or the Former United Kingdom of England and Wales. Their fortunes, particularly at the international stage, are dwindling, and will continue to do so unless the status ante is restored, and this is not even in the realm of consideration, or so it would seem.