Economy: WTO; Trying to Catch Up

The Government begins to reassess its orientation to the world trade body following limited gains so far.

Nearly four years after India signed the World Trade Organisation (WTO) agreement hoping for mega trade gains, it has come to realise that the trade body can be a double-edged sword. Not only has the country's share in global exports been virtually stagnant, but non-tariff barriers such as quality control and labour standards threaten to mar the future of Indian exports. Worse, India seems to have opened up its markets by lowering tariffs much ahead of committed schedules -- because the previous governments were overzealous in trying to liberalise. This was not even preceded by adequate policy reforms to enable Indian industry to compete or by effective anti-dumping mechanisms. The subsequent surge in imports affected domestic companies.

HASTENING SLOWLY

Post-WTO, India has not gained any great access in markets abroad. Its share in world exports has been almost stagnant at 0.62%. In 1950 it was 2%.

Tariffs were lowered ahead of schedule, which led to a surge in imports. But this preceded adequate reforms needed to make Indian industry competitive.

The anti-dumping system is still weak. It takes up to eight months for a provisional order when the minimum time specified is two months.

With the Government beginning to gear up only now, the projected export gains through WTO may remain a distant dream.

Not surprising then that the swadeshi lobby in the BJP-led Government has been demanding that it opt out of the agreement. But in a radical move, the Government seems to have decided that opting out is no solution, given especially the problems the country will face if it were to sign bilateral agreements with 132 countries across the globe. Says Union Commerce Minister Ramakrishna Hegde: "After a lot of deliberation we have come to the conclusion that being a member of the WTO will benefit India."

This awareness has clearly come post-Pokhran. It is because India is a member of the WTO that punitive trade sanctions could not be imposed against it following the nuclear tests. Besides, after the WTO was set up world trade has grown at a pace much faster than world output, spelling hope for revving up the Indian economy.

Hence, the BJP government has decided to revamp its total strategy towards WTO. It is drawing up a cohesive plan to encash trade advantages and to prevent dumping of goods. To improve its standing and bargaining ability within the trade body, about a fortnight ago, the government decided to recognise product patent. A bill to acknowledge product patents and replace the Patents Act of 1970 has been cleared by the Cabinet and will be placed before Parliament in the winter session. Significantly, the past two governments did precious little to update the antiquated and inequitable law that derecognises the authorship rights of those who invent drug molecules or the architecture of new software. If the government can pull off the amendment, India will finally begin to respect product patents once again by the year 2000, five years ahead of the schedule set by the WTO.

To ensure greater access for Indian products abroad, Hegde has appointed WTO expert H.A.C. Prasad, a former professor at the Indian Institute of Foreign Trade, as economic adviser to give exports a "WTO focus". To counter effectively non-tariff barriers being imposed in the transition period by other countries, Hegde has decided to centralise India's legal fightback. He has also nominated an additional secretary-rank officer as the nodal officer for handling 25-30 anti-dumping and anti-subsidy disputes against India which have affected Indian exports. Till now such disputes were being handled by different ministries and often by officers without any legal or foreign trade background. And to shield future exports, the Government has formed six consultative bodies of experts to assist it in its negotiations.

However, the Government needs to do much more. The country's share in world trade inched up marginally from 0.59 per cent in 1994 to 0.63 per cent in 1996, only to drop the following year to 0.62 per cent. As late as 1965, India had a one per cent share of global exports and in 1950 it was a significant high of two per cent. Moreover, non-tariff barriers have also been affecting Indian exports.

The present scenario is even more disturbing than what the figures show. The 1998 World Bank macro-economic update on India points out that the country's export growth rate in dollar terms in 1997 was actually lower than the global average export growth rate that year. Even 1998 is unlikely to present a brighter picture, the country having recorded a negative export growth of 3.8 per cent in the first quarter (April to June) of the financial year (global export has been marginally positive in that period). Besides, India's share in world imports, at 0.7 per cent, continues to be higher than that of exports. Says Rajesh Chadha, economist with the National Council of Applied Economic Research: "India has never had a proactive approach and that's why it has suffered."

With the real WTO knock-outs beginning in the year 2000 -- that's when the non-tariff barriers are removed from most countries -- India cannot afford to be complacent. In most sectors it lacks the ability to compete (see box). It also needs to gear up especially for service-sector negotiations, which too begin in 2000. It is a potential goldmine for India as services constitute 25 per cent of its exports.

On this front, India hasn't had a good start because it did not campaign for simultaneous negotiations for the entire services sector. Prasad points out that simultaneous bargaining always promises a better outcome. It is like, as he says, India allowing zero-duty imports on information technology and at the same time pushing for abolition of subsidies in health services abroad so that foreigners descend on India in large numbers for low-cost medical treatment.

So far India has been moving at a snail's pace. Example: with garment exports and rice milling reserved for the small-scale sector, productivity has suffered. In the pharmaceuticals sector, the controlled price regime has been a millstone around the industry's neck. The BJP government has at last taken the initiative to change the laws and frame new rules, but it has a long way to go before it can reap the trade gains.