Developed world’s two-faced approach to trade
In his usual style and without any substance, US President Donald Trump declared last week that both China and India are no longer developing countries and hence their status in the World Trade Organization (WTO) needs to be changed.
Trump accused both countries of “taking advantage” of their developing nation status and said that, unless the WTO acted to change their status and the conditions under which they trade, the US would even go so far as to leave the global trade body.
While the joint attack on India and China was not unusual, Trump has been increasingly targeting New Delhi over trade. After having spent almost two years battling with China over its immense trade surplus with the US and imposing hundreds of billions of dollars in additional tariffs, Trump has begun to make similar noises against another Asian giant in the shape of India. The president has been complaining that India is keeping its own markets closed, while seeking to increase its exports to the US manifold.
A few weeks ago, he removed India from the US Generalized System of Preferences (GSP), a scheme that allows nominated developing countries to benefit from duty-free exports to the US on a range of products. Though India was the largest beneficiary under GSP, with exports of about $5.7 billion under the scheme in 2017, it was not a big issue as the total benefit in terms of duty reductions was less than $200 million.
The latest tirade by Trump is perhaps a surprise in letter, but not in spirit. Though Trump may be brusque and vocal, his outburst pretty much reflects how the entire developed world has felt and behaved for a long while as far as global trade is concerned. Not a single country has honored, at least in spirit, the principles of the last global trade agreement that was signed at the end of the Uruguay Round of multilateral trade negotiations almost 30 years ago.
The following round was named the Doha Development Round as it was meant to reach an agreement that would address the developing countries’ concerns in terms of providing better market access for their exports, both through lower tariffs and the removal of non-tariff barriers. The round was meant to be completed within five years. However, 18 years later, there is no sign of any progress and, for all practical purposes, the Doha Round is dead. Using the excuse of the global financial crisis of 2007-08, most developed nations have even stopped talking of Doha and its mandate of being a developing country round. Instead, they have been busy pushing their own agendas, such as opening up services markets around the world. In addition, they have also stubbornly refused to open their own markets, even for basic exports from developing nations, notably agricultural products.
Most Indian farmers struggle to make a living and face ruin each time the monsoon fails or if it rains too much or unseasonably.
Ranvir S. Nayar
The high level of farm subsidies is the first indication of the two-faced approach of the developed nations. The US, with only about 2.6 million people employed in farming, gives out more than $20 billion each year in subsidies, not counting special assistance such as the $16 billion package announced by Trump for the farmers hurt by China’s hiked import tariffs on US farm products. Similarly, the EU spends more than $70 billion each year in supporting its 10 million farms. By contrast, India’s total farm budget is less than $9 billion, even though more than 800 million people depend on farming as their principal livelihood. Most Indian farmers struggle to make a living and face ruin each time the monsoon fails or if it rains too much or unseasonably. No wonder tens of thousands of farmers commit suicide each year in India.
The situation is hardly any better for farmers in practically all other developing nations. Agriculture is perhaps the one sector where developed nations can make a real difference in lifting hundreds of millions of people out of poverty. Yet, instead of opening up their own agricultural markets, the developed nations forced developing countries into signing a deal whereby they would phase out the little support they were providing in terms of export subsidies.
Instead of deferred and differential treatments as the developed countries had promised the developing world, they have forced them to move at almost the same speed as the developed nations themselves, even though developed country leaders continue to dole out billions of dollars of aid to their farmers.
The situation is no better in any other area of exports, as can be seen in the lackluster global trade, which has been either flat or declining in the last decade or so. This also reflects in the living standards in developing nations and their rather slow climb in per capita incomes. India may be en route to becoming a $5 trillion economy, as the government has been boasting, but its per capita income remains a miserly $2,015 a year, compared to $62,641 in the US. Similarly, even though China has performed spectacularly as a global trading powerhouse and is now the world’s second-largest economy, its per capita income continues to be below $9,770 — just a sixth of the US.
Trump and his fellow developed country leaders would do well to revise their math, at least when it comes to dealing with large countries like China, India, Indonesia, Brazil or Nigeria. With burgeoning populations, their gross domestic product as a whole may appear impressive, but the situation on the ground and especially on a per capita basis is a firm reminder that, with the exception of tiny nations like Singapore, hardly any developing country in the world has come anywhere close to becoming developed.
- Ranvir S. Nayar is the editor of Media India Group, a global platform based in Europe and India that encompasses publishing, communication and consultation services.