India Summary

India’s role as an actor in trade negotiations has been substantially amplified since the WTO ministerial meeting in Cancun this September. In response to Draft Ministerial text offered in Cancun, India, along with Brazil and China, led other developing nations into the formation of the G22 group. In staging a mid-conference "walk-out", the G22 communicated, in no uncertain terms, that they were dissatisfied with the extent to which their interests had been represented in the Draft Ministerial text. Specific concerns included the lack of progress in agriculture (i.e. the continuation of the "blue box" with no promise of reduction). [1] and the formal introduction of the Singapore Issues, which would dilute WTO negotiating capacity. India and the G22’s strong statements have been pointed to as one of the causes for the falling-out of negotiations at Cancun. While this event has been applauded by activists around the globe for having brought the concerns of developing nations to the fore, India and other G22 members are eager to resume negotiations.

In its most recent trade policy review by the WTO in June 2002, India was commended for its reform process that had fueled an average economic growth rate of 6% during the last decade. Reforms taken to facilitate this growth included trade liberalization, lower government involvement, and deregulation of key service sectors. Concern has been expressed, however, over some of India's continued high tariffs, subsidies, and its large stock of food grains. While some "dereservation" in textiles has been undertaken, outsiders continue to criticize India’s protection of a list of several hundred items "reserved" for exclusive manufacture by its small scale sector as a policy for promoting domestic small industry. Further objections have arisen over New Delhi's increased use of anti-dumping measures including labeling, certification, and standard requirements.

Agriculture

India, is pressuring the WTO to grant flexibilities to developing countries to safeguard their interests in both agriculture and non-agriculture sectors. Roughly two-thirds of India's population depends upon farming for their livelihoods, and small plots employ about 18 million workers. [2] The Group of Ministers, set up by the Indian government to strengthen its negotiating position and expedite its decision making process on WTO issues, is focusing on increasing the competitiveness of its domestic industries and performance of its exports, as well as on protecting Indian agriculture. While the WTO continues to allow for high subsidies in rich countries, India objects that it lacks sufficient resources to provide the same level of support to its farmers; it is therefore pushing for reductions in the large subsidies afforded to farmers elsewhere.

In terms of particular concerns to be taken up during the next round of talks on agriculture, India has proposed a cut in the WTO bound rate for palm oils from the present 300%, provided that the rate be increased proportionately for soybean oil. Under current WTO rules, the Indian government is at liberty to raise its customs duty on palm oil up to 300%, but its basic duty on refined and crude palm oils are only 85% and 65%, respectively. It is the single largest buyer of palm oils produced by Malaysia and Indonesia, and an increase in customs duty in India typically has large negative effects on those markets. India is also the world's largest importer of vegetable oils, and the low 45% tariff has given to a major increase in its soybean oil imports. Therefore it would greatly benefit from conceding to a reduced palm oil tariff ceiling and acquiring a raised cap on the soybean oil rate. The government has dropped another proposal it had made to change the classification of rubber from an industrial to an agricultural product, with the intent to increase the eligible bound rate on the commodity above the current 40%. Instead, other non-trade distorting subsidies are being provided to protect domestic rubber producers.

Automobile Industry and Service Sectors

The government reports to have removed a set of controversial import restrictions from over its automobile industry. India had previously obligated its automotive manufacturers to use a certain ratio of local parts and to "balance any importation of certain kits and components with exports of equivalent value". [3] Complaints by officials from the EU and US initiated a WTO investigation, and the organization’s dispute settlement body subsequently found the measures to contravene global trade rules.

Significant progress has been made in the deregulation of India's telecommunications, banking and insurance sectors. The success of the software sector is indicative of its ability to compete globally, and government efforts to enforce the protection of intellectual property rights via new legislation and an educational awareness campaign have also won accolades in the WTO.

Relations with Europe

The European Union intends to intensify dialogue with India for the purposes of ironing out differences and boosting trade volumes to 50bn euro by 2008 from the present value of 25bn. High tariffs in several sectors, however, continue to bar European business from increased market access. As perceptions of India have improved among business interests in Europe, the EU has identified several areas in which it would like to work more closely with India including market access, anti-dumping, and TRIPS. It is interested in promoting geographical indications, or the protection of many traditional, high-quality products specific to a region of the world (i.e. basmati rice and Darjeeling tea in India), as well as in expanding special and differential agreements under WTO rules that would help developing countries integrate themselves into the international trading and investment system.

Between 2000 and 2001, foreign direct investment to India from the EU increased from 3bn to 5bn euro (including 1bn euro in the telecom sector alone). [4] Some European IT companies have set up bases in India, while several EU countries are allowing IT professionals easier visa access in order to tap Indian prowess in the software sector.

In October 2003, however, the EU (along with the US) made the decision to impose 8.4% duty on Indian textile products which atop the EU custom tariff of 9.6% brings the duty on Indian products up to 18%. As textiles constitute 35% of India’s exports, India is deeply concerned by this development. In the absence of an agreement with Europe, India is likely to retaliate with the imposition of import duties on a number of products including soybeans, cotton, dairy and produce.

Conclusion

India now holds that further liberalization will depend on the extent to which its trading partners will commit to reductions in export subsidies and domestic support. It maintains that substantive benefits to developing countries may accrue only if the developed countries eliminate the tariff peaks and tariff escalations that pervade important sectors such as textiles, leather and marine products. India has consistently expressed dissatisfaction with the slow pace of negotiations in addressing the concerns of developing countries and with the minimal progress achieved by developed countries in carrying out the Doha agenda. Along with other developing countries, India is hopeful that having a representative of the developing world (Thai leader Supachai Panitchpakdi) as WTO director-general will lead to a more sympathetic understanding of its concerns and ensure faster movement in addressing issues of implementation.

[1]The blue box is an exemption from the general rule that all subsidies linked to production must be reduced or kept within defined minimal ("de minimis") levels. Whereas the amber box encompasses all domestic support measures considered to distort production and trade (with some exceptions). For more information see: http://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd08_domestic_e.htm

[2] "India wants WTO to allow flexibilities to developing countries, The Press Trust of India, Nationwide International News section, Sydney, 15 Nov 2002.

[3] "India: Measures Affecting the Automotive Sector", Item 4(b), Report of the WTO Appellate Body, 19 March 2002.

[4] "India-EU bilateral trade targeted to touch 50 bn Euro by 2008," Nationwide International News section, New Delhi, 12 Nov 2002.

Last updated November 2003