Poor, but developed or rich, yet developing?

Poor, but developed or rich, yet developing?


“I want to go to India.”  “We don’t have any money.” “Everybody is poor there. People live with nothing.”

The dialogue is from a 2016 Hollywood movie ‘Tallulah,’ and is just another instance of the picture of India in Western media. The statement is not totally wrong, either. The contradiction is that India has been removed by the US from the list of countries eligible for the generalised system of preferences (GSP) to correct the trade deficit US has with India. Although it hurts India’s competitiveness, India cannot complain because GSP was devised as a mechanism to correct the prevailing trade imbalance against developing countries.

The cause for concern is the statement of President Trump that India and China cannot be called developing countries and that preferential treatment to developing countries under the WTO require a relook. India and China are two different stories, though of Asian origin both. China is ready to overtake the US as the leading world economy while India is still struggling with farmers’ suicides, malnutrition and a host of other problems related directly to its economic condition.

There is very little in terms of preferential treatment for developing countries under the WTO. Provisions relating to technical assistance under pacts like the Agreement on Sanitary and Phytosanitary Measures and the Agreement on Technical Barriers to Trade are of little practical value. Most other agreements gave little extra time for implementation of WTO provisions and have now become obsolete after 25 years. But provisions of this nature providing more time for transition may have relevance for future agreements. The Agreement on Trade Facilitation, which came into force three years back, is one such example.

Another set of deferential provisions are contained in trade remedy measures. Antidumping, countervailing and safeguard measures should not be taken against countries whose share in imports are below the percentage mentioned in the respective agreements. Such countries may be developing or developed. Specific provisions for developing countries in such agreements, such as Article 15 of the Antidumping Agreement, are little more than pious statements. A more substantial provision relates to export subsidies. Export subsidies are generally prohibited under WTO except for the least developed countries and a group of specifically mentioned developing countries till the time their per capita GNP is less than $1,000 per annum. India recently lost a case in the WTO and its export subsidies were held to be inconsistent with the WTO Agreement on Subsidies and Countervailing Measures because its GNP per capita had crossed the red line.

Dumping subsidised goods in international markets may be considered unfair, especially from the perspective of the importing country, but India is a lower middle-income country and is currently ranked 126 on per capita income basis. The anomaly is that it is also ranked the fifth richest country in the world on the basis of GDP. Support to agriculture is a way to correct the income distribution gap. Other than the GSP program, the Agreement on Agriculture is one pact from which developing countries get a substantial preferential treatment. They have greater scope to provide domestic support and can have food security programs. Will a country like India continue to benefit under such provisions or would it be put in the club of rich countries even though its people are poor?

The WTO does not define developing countries or least developed countries. Members self-designate themselves as developing or otherwise. India has opposed the US demand for new rules relating to developing countries. But, instead of outright rejection, it may be prudent to adopt a definition of a developing country through adoption of authoritative interpretation by the Ministerial Council under Article IX:2 of the WTO Agreement. With regard to the revocation of the GSP program, there is very little to complain and worry about because importing countries are allowed to select the beneficiaries. What is more crucial for India is firstly, its ability to support its farm sector and secondly, securing benefits in any future agreement, including time for transition, and to re-establish leverage of its exports in countervailing measures taken by importing countries.

India and members in the developing countries’ club have a better chance to get a fair deal in negotiations for a settled definition of developing and least developed countries. If a developed country raises the issue in a dispute settlement proceeding, there is possibility that a decision may be given on the basis of opinion from an international body like IMF, as happened in the India-Quantitative Restrictions case. In such a situation, we may lose without remedy.

The immediate repercussion of this could be that we may have subsidy reduction obligations similar to developed countries, including on agricultural subsidies. With the increase in share of developing countries in international trade, developed countries are going to bargain harder. Self-designation may not be accepted for long. A differential definition of developing countries for the purposes of different WTO provisions may allow us to get better treatment for our vulnerable sectors. It may be a better way to link trade and development.

(The writer is Professor of Law, National Law University, Odisha)

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