India may lose more than it gains by staying out of WTO talks on tariff liberalisation
Until the 1980s, India followed a virtually autarkic policy. Over the last two decades, it has liberalised its trade regime, with the average tariff rate on manufacturing imports falling from over 100 per cent in 1991 to between 5 and 10 per cent today. This reform has been unilateral and not based on reciprocity from its trading partners. The reform period has experienced high rates of growth, giving India economic heft and making it an important player in multilateral trade negotiations, fighting its own cause as well as exercising leadership on behalf of the developing world.
Recently, India announced that it was opting out of negotiations between key World Trade Organisation (WTO) members on the tariff liberalisation of 357 information technology (IT) products and 54 environmental goods, and on the reforms of foreign direct investment (FDI) and visa regimes. Senior government officials claimed the talks were not in India’s interests. To judge this a priori is not easy. Note that these talks are being called “plurilateral”. This means a subset of WTO members will discuss among themselves the extent of this liberalisation. At the same time, they may add to or subtract from the product list on their agenda. Once they reach an agreement, the concessions could be extended to all members of the WTO or restricted to the select group of members that takes part in these negotiations. There is precedence for both kinds of plurilaterals. The first kind is truly a WTO agreement, where all the concessions are extended to all WTO members on a most favoured nation (MFN) basis, as was the case with the Information Technology Agreement (ITA) in 1996. The second is no different from a free trade agreement (FTA).
Right now, there seems to be uncertainty about the kind of plurilateral these talks are going to result in. If it is of the first type, that is still multilateral liberalisation and might be a genuine alternative to the Doha round as a “single undertaking”. If India wants to remain a major player in the world trading system, it does not make sense not to participate in these negotiations. After all, taking part in discussions to try to shape the final agreement does not mean signing the agreement. If the plurilateral is of the FTA variety, the WTO should not allow it