India’s new prime minister, Narendra Modi, is a man of many contradictions. Frequently criticized for being a Hindu chauvinist, he has disavowed parochialism and presents himself as a leader for all Indians.
An avowed nationalist, he nevertheless invited Pakistani Prime Minister Nawaz Sharif to his swearing-in as prime minister. His readiness to find common ground with China has confounded many observers who expected a harder line toward Beijing.
Perhaps his most perplexing move came at the end of last month when Modi, a man whose entire record has reflected a commitment to helping businesses shed the heavy hand of the Indian bureaucracy, torpedoed a World Trade Organization (WTO) deal that would have reformed customs rules and made global trade much easier.
Indian officials insist that the agreement is not yet dead, but India’s intransigence may have delivered a blow to the WTO from which the organization, already struggling for relevance, may not be able to overcome.
The 160 members of the WTO have struggled since 2001 to reach agreement on the Doha Round of trade negotiations. Hopes for a grand bargain that would catalyze global trade and growth have disintegrated and members have since focused on smaller, incremental steps that would demonstrate an international consensus for liberalization. Yet even those scaled-back ambitions have been frustrated as negotiations on various issues dragged on without resolution.
Last December, however, the group reached agreement on ways to streamline customs procedures, a modest deal that was nevertheless reckoned to add at least $400 billion a year to global gross domestic product and 21 million jobs.
Details were to be worked out by a July 31 deadline, and there was apparent consensus on that — except for Indian negotiators who demanded a parallel deal that would give developing countries more freedom to subsidize and stockpile food supplies (in the name of food security, but more practically to maintain the political support of farmers and publics accustomed to cheaper food).
All parties to the December accord had accepted the need for a food security agreement, but it was to have been concluded by 2017. In the meantime, Indian subsidies that violate WTO rules would be immune from complaint by other WTO members.
Apparently that was not good enough for Modi, who instructed his negotiators that there would be no customs deal without a similar food security agreement.
According to published reports, the decision reflected Modi’s personal intervention, a surprising move for a man who has made economic growth the cornerstone of his political program.
A U.S. official, in India for the annual Strategic Dialogue between the United States and India, spoke for many when he said the veto of the trade deal “undermined the very image Modi is trying to send about India.”
Of course, if nationalism is narrowly defined as the protection of particular vested interests, then Modi’s decision makes some sense. If, however, nationalism is seen more broadly as promotion of the interest of the entire nation, including the perception of a government as being ready to advance larger interests through global leadership in such negotiations, then India’s intransigence does not make much sense.
Indian officials and analysts counter that the customs agreement is not dead and that Delhi’s commitment to both trade reform and a leadership role in such negotiations remains undimmed.
They cautioned, however, that Modi will pursue an “India-first policy,” and criticized previous Indian governments for failing to do so. “We will not compromise on national interest,” explained one prominent lawmaker from Modi’s Bharatiya Janata Party (BJP).
A deal may yet be possible, but damage has been done. India’s intransigence has angered many of its negotiating partners, even ostensibly like-minded developing nations.
Delhi was backed in its 11th-hour obstructionism by just Bolivia, Cuba and Venezuela. Other developing nations, including China, criticized the decision.
Coming on the heels of a federal budget that disappointed many by its timidity and piecemeal reform efforts, Modi’s “business-friendly” image has taken a hit.
More worrisome though is the potential damage to the WTO. The organization has been deeply scarred by the failure to reach a substantive deal during the Doha Round. While there are increasing doubts about its viability, suggestions that this failure could sound its death knell are hyperbole.
Even if the group cannot reach a grand bargain, the WTO’s dispute resolution mechanism remains in place, and that may ultimately prove to be its most important component. If those rulings are ignored, then the WTO will become marginalized.
If global trade negotiations appear to have no chance of success, then there is the very real possibility of the “Balkanization” of trade talks and the promotion of smaller, regional deals.
These offer some relief and advantage to participants, but they are suboptimal arrangements and often distort trade, penalizing countries that are left out.
There is already talk of pursuing the customs deal without India, although other governments are not ready to take that step. Either way, Modi has made his mark, although it is not at all clear that his intransigence serves well his country or the world.