U.S.-India Insight: Highlighting India’s Pro-Trade Arguments & Voices
March 27, 2018Despite a long list of anti-trade moves by successive Indian governments, there are some voices within the government that make thoughtful and compelling arguments for international economic integration. Two such groups recently released reports, covering the auto industry as well as India’s adoption of standards. Such voices must be augmented, for within their policy recommendations lie the only true prescription against the rising tide of protectionism—and for international success of the “Make in India” initiative.
India has a mixed record over the last three decades on trade integration. Most of India’s positive steps on trade integration have been executed unilaterally, bringing customs duties down from prohibitive levels in the late 1980s to an average applied tariff of around 13.8 percent, as of March 2015. On a bilateral basis, India has been willing to negotiate free trade agreements, although most of these have been relatively light in terms of commitments to liberalize tariffs and investment restrictions. On the multilateral front, India is correctly seen as one of the main obstacles to negotiating important new deals at the World Trade Organization (WTO). India has studiously avoided entanglement in the WTO’s newer mini-lateral deals to expanding the Information Technology Agreement, crafting a Trade in Services Agreement, or negotiating an Environmental Goods Agreement.
India’s historical reluctance to embrace trade liberalization through negotiations has been exacerbated in the last three years. Pending trade agreements with Europe, Canada, Australia, and New Zealand are paralyzed. India unilaterally reopened its existing investment treaties, pressing for renegotiation based on an ill-conceived new model. India is considered the main obstacle to progress by other members of the Regional Comprehensive Economic Partnership (RCEP). Also, India forced a delay in implementation of the WTO’s Trade Facilitation Agreement to extract an additional concession for its agriculture subsidies. The Narendra Modi government’s 2018–19 Union Budget increased customs duties on nearly 50 product groups, just weeks after Prime Minister Modi decried protectionism in his keynote speech at the World Economic Forum (WEF) at Davos.
Still, there remains a nascent debate over the benefits of real trade integration. Sometimes, smart, pro-trade policy ideas are buried deep in the details of reports from working group convened by the Indian government. Such reports need more attention so they are not lost to the “dustbin of history.” Two such examples have come out in recent weeks:
National Auto Policy: In March 2018, the Ministry of Heavy Industries released its strategy for augmenting India’s powerful automotive sector. The ministry has several recommendations, including:
- Assess countries where trade deals could help expand exports;
- Conform to international standards to ensure easier access to export markets;
- Offer import duty exemptions on auto component prototypes, lowering the bar to create internationally competitive products.
- Indian firms will be more competitive abroad by harmonizing domestic standards with international standards;
- The government should implement these changes to international standards over a five-year period;
- Technology regulation barriers should be a last resort for market control.