Building on Hong Kong

It is well recognised that one of the reasons why the Hong Kong ministerial meeting of the World Trade Organisation didn't go the Cancun way, or that of Seattle, was because it discussed few specific numbers, preferring instead to outline broad areas of movement in the trade talks, with the actual details to be filled in through tough negotiation over the next six months or so. That deadline expires by the end of July this year. So, while the Hong Kong ministerial got a pledge to reduce EU export subsidies of $2.5 billion by 2013, how much and by when the $112 billion of domestic farm subsidies will be cut is something that is subject to negotiations till July. And it is precisely on such issues that the G-6 talks in London this week floundered and failed to provide, as Commerce Minister Kamal Nath put it so eloquently, "the click of a deal". There is, however, no need to see this as a major setback as we're well within the deadline for the negotiations. The G-6 meet, though, underlines how much work lies ahead. Indeed, US Trade Representative Rob Portman's statements on the tough political decisions required for reducing farm support and industrial tariffs were indicative of the hard battles that will be fought. Recent protectionist voices in many countries, and the emerging attitudes to cross-border investments, all speak of a rise of economic nationalism, and none of this can augur well for WTO trade talks.

For India, the battle is not just about average industrial tariffs, which are, in any case, quite low in most developed countries, but on the huge peaks for items of export interest to this country. In the case of India's exports of various items made out of man-made fibres to the US, the import duty is 32 per cent""ironically, if such items of apparel are exported to India, the import duty is a much lower 15 per cent. This gets compounded by the fact that the US has free trade agreements with various countries which export similar products, so Indian exporters get discriminated against. In the case of women's knit shirts/blouses, for instance, the US imported $6.5 billion worth of such items in the first 11 months of 2005. Of this, just $177 million was out of India, over $4.6 billion was imported from various preferential trade countries. This is something that India needs to stress since the argument is typically couched in terms of India's higher import duties vis-a-vis the lower ones in developed countries.

The other issue that Indian negotiators need to work on is the misconception about Indian import duties. While there is little doubt that they are high, and higher than in most parts of the world, they are much lower than is commonly believed. In 2005-06, for instance, around half of what is called customs duty was actually made up of countervailing duties, which by definition is equal to excise duties and so cannot possibly be included in any calculation of import duty protection. Remove this from the equation, and the average import duty in the country, based on import duty collections, falls from 6.6 per cent in 2004-05 to barely 5 per cent in 2005-06. Contrast this with the average of 11 per cent, based on total customs collections as officially defined, and you realise what a public relations disaster the Indian authorities have created for themselves through misclassification.