WTO TRADE POLICY REVIEW OF INDIA
September 14 and 16, 2011
Statement by Ambassador Michael Punke
U.S. Permanent Representative to the WTO
Thank you, Chair. A warm—but very brief—welcome to Secretary Khullar and the entire Indian delegation.
India is an increasingly important trading partner for the United States. The total value of trade in goods between our two countries has increased over threefold since 2001, with over half of that coming in the last five years despite the recent global economic downturn. Both countries also continue to significantly expand investment ties, with investment doubling in each direction since India’s last TPR. As President Obama highlighted during his visit to India last November, this booming trade and investment, led by the dynamic private sectors of our economies, has formed a critical component of the strategic partnership between our two countries.
The United States is also pleased to note that these increased trade and investment flows have helped contribute to India’s impressive 8.4% average growth over the past several years. Equally impressive, in our view, is the fact that this growth does not appear to be limited to the most privileged segments of society, but in fact, has been a critical factor lifting up India’s burgeoning middle class. The United States strongly believes that, combined with other initiatives taken by the government, market opening measures play an important role in meeting India’s objective of inclusive growth.
We recognize, however, that more recent challenges such as inflation have slightly tempered expectations for future growth in India. In this respect, the United States invites India to consider how increasing the openness of the country’s trading regime can help India harness the benefits of trade to combat these challenges. This would include significant, long-term reductions in agricultural tariffs, and removal of unjustifiable SPS and TBT impediments on agricultural imports, both of which can help address food price inflation; opening the retail sector to more foreign investment, which the Indian Government has recognized will be valuable in improving supply chains and greatly reducing food wastage; and avoiding recourse to export restrictions, minimum export prices, and other measures that tend to exacerbate the problems associated with global supply.
Indeed, the critical role played by India’s ongoing economic reforms and market-opening measures in fostering inclusive growth, including in fields such as information and communications technology (ICT), is well documented, not least by the many Indian-born economists that now call the United States home. It is therefore disappointing to see recent actions taken by certain entities in the government that appear to chart a different course for the development of particular industrial sectors. For example, the past year has witnessed policies, already adopted or being considered, that explicitly shut out imports entirely, as in the case of the National Solar Mission, or require private entities to source a significant amount of their purchases from manufacturers in India, as in the case of policies on electronic products and telecom equipment. Although India has expressed its intention to continue on its successful trajectory of liberalization, these types of initiatives tend to evoke comparisons to trade-restrictive policies pursued in previous, poorly-performing periods of India’s economic development.
The United States has observed that goods exports have played a greater role in contributing to India’s recent economic growth than in previous years. We welcome efforts taken by India to diversify the sources of its growth, and in particular, to take advantage of more open markets around the world to export more goods. It is unfortunate, however, that India has chosen to push exports in the past year through a series of new trade-distorting export incentives. While the state of the global economy has posed difficulties for industries across WTO Members, this type of response tends to promote one Member’s economic gains at the expense of another. The United States considers these measures particularly troubling when afforded to the textile and apparel sector, given India’s obligation to gradually phase out export subsidies in that sector starting no later than 2007.
The United States welcomes India’s decision to participate as an observer to the WTO Government Procurement Agreement. A fair and transparent government procurement regime will be essential as India embarks on a concerted effort to improve infrastructure, which will pay significant dividends for India’s development objectives. Many of India’s infrastructure procurements, including at the state level, reflect the progress made towards such a fair and transparent government procurement regime. The United States is concerned, however, that rather than moving in the direction of applying international best practices in government procurement, the Indian Government more recently appears to be severely restricting certain areas of government procurement to Indian goods and services. The United States urges India to reconsider these restrictions and to take the necessary steps to accede to the GPA at the earliest opportunity.
The agriculture sector in India remains closed to many foreign products. Where exceedingly high tariffs themselves do not make importation prohibitive, they foster an unpredictable trading environment inasmuch as India can change the applied tariff rates at a moment’s notice. Furthermore, products often face obstacles in the form of SPS and TBT measures that appear to have no scientific or other justifiable basis under the WTO Agreements. The closed nature of India’s agriculture market is even reflected in India’s regional trade agreements, none of which contain meaningful market access for agricultural products, notwithstanding the requirements of GATT Article XXIV. Given the increasing concerns with food price inflation, and the growing needs of India’s food processing industries, India’s agricultural trade policy continues to do a disservice to consumers and producers in India.
India’s economic growth continues to be led by its dynamic services sector. As one of the leading WTO Members to have benefited so greatly from access to services markets around the world, India is in a unique position to lead by example in terms of adopting the sorts of open policies that it continues to press for in its trading partners. Yet, at the same time that consumers in India are looking to take advantage of the services offered by high quality, global firms, and when Indian firms are seeking much needed capital to expand their operations in India, India has done little to meet these demands, with multiple policy initiatives stalled for several years. Of even greater concern are recent signals that India may impose FDI caps or other investment restrictions in sectors such as pharmaceuticals and banking where more open policies have helped those sectors flourish in India. Such actions do little to help the government’s efforts to respond to significantly declining FDI flows over the past year.
India’s highly successful creative and innovative industries depend greatly on the protection and enforcement of intellectual property rights. These rights are also prerequisites to the development of a value-added manufacturing sector that India seeks to establish. India’s IP policies and enforcement, unfortunately, do not reflect this imperative. Furthermore, although India has long been considering legislative and other initiatives to update some of its IP policies, including the Copyright Bill currently before Parliament, those efforts tend to fall well short of international best practices in these areas.
Finally, the United States recalls that transparency and predictability in a Member’s trade policy regime are critical for traders and investors. In this respect, the United States commends recent steps taken by the Government of India towards improving the transparency and effective functioning of its policymaking institutions. Last year’s decision by the Department of Industrial Policy and Promotion to begin issuing consolidated FDI policies has helped investors avoid searching through various press notes and clarifications in order to determine the extent to which sectors were open for investment. In addition, the continuing implementation of the Right to Information Act, begun in 2005, has been invaluable in providing affected parties with the legally enforceable right to receive information about the government’s operations.
Despite these improvements, the United States continues to be concerned about the lack of transparency in many aspects of India’s trade policy. This contributes greatly to the difficulties of firms, particularly small and medium-sized enterprises, trying to invest in and trade with India, and helps explain India’s ranking of 165 out of 183 countries in the World Bank’s 2011 “Doing Business” report. In addition to India’s failure to submit required notifications to the WTO, particularly in the areas of agriculture, subsidies, SPS and TBT, India does not regularly issue draft regulations or engage in the timely public consultations that would ensure the development of sound policies in matters affecting trade and investment. Furthermore, as the Secretariat Report notes, traders often face significant difficulties in areas such as customs valuation, tariffs and other charges, internal taxation, import licensing, and trade remedies, because of opaque or inconsistently-applied procedures. A uniform, all-of government approach to the development of regulations would go a long way to addressing these concerns.
The lack of transparency in India’s trade policy regime is what led the United States to ask India so many written questions for this TPR. We, ourselves, became increasingly amazed at how many matters we found to be important and for which we were unable to obtain answers independently. The institutional value of the TPRM in enhancing the WTO’s core principle of transparency came into sharp focus. We thank India in advance for its efforts to respond to our questions, and we plan to review its responses carefully and request clarifications as necessary during the course of this TPR.
As India continues to grow dynamically and to strengthen its trade policy institutions, the United States encourages India to take advantage of the opportunities to implement meaningful economic reforms, which, as experience has shown, will significantly advance India’s objectives of inclusive growth and economic development. The United States joins other WTO Members in supporting India’s use of an open trade policy to fulfilling these broader objectives. Our support for such an approach, however, underscores our disappointment in India’s reluctance to participate in meaningful market opening through the Doha Round negotiations, despite India’s place as one of the world’s fastest growing economies. We look forward to working constructively with India and with other Members as we jointly take steps to strengthen the rules-based multilateral trading system.
The United States appreciates the opportunity to engage in this dialogue, and we look forward to discussing further India’s trade policy regime with the delegation from India. Thank you.