India must act fast on free trade agreements

THE crisis that manifested itself recently at the 13th Ministerial Conference (MC13) of the World Trade Organisation (WTO) and may lead to the extinction of the intergovernmental organisation in the not-too-distant future is an opportunity and a challenge for India. It dares the new government to be formed after the Lok Sabha elections to go for the biggest administrative restructuring in many decades. The time has come to merge the ministries of External Affairs and Commerce into a single entity. The sooner it is done, the better placed India will be to take on the challenge of growing into the third largest economy in the world.

Across the world, from Australasia to America, in parts of Europe and in Asia, tradition-bound foreign ministries have been rechristened to reap a new harvest of opportunities from globalisation and to take advantage of a rapidly changing world. Thus, Australia’s Department of Trade and the Department of External Affairs were amalgamated in 1987, and New Zealand did the same a year later. Canada’s Department of External Affairs became the Department of Foreign Affairs and International Trade in 1993. There are many such examples, and their number is growing. Name changes in other countries should not merely be the reason for India to follow suit. Circumstances and objectives are more important. The MC13 in Abu Dhabi, which failed to make any progress on the most urgent trade issues of our time but covered up its spectacular deadlock in diplomatese, is an occasion to take a fresh look at India’s external aspirations. These now encompass trade and economic activities as much as conventional diplomacy.

In less than 11 months, the White House in Washington may have a new occupant, and it is entirely conceivable that it may be the redoubtable and unpredictable Republican, Donald Trump. During his term as the US President from 2017 to 2021, Trump withdrew from a slew of commitments and organisations that the US had pledged to uphold and support. The Paris Climate Agreement, the Iran nuclear deal, the Trans-Pacific Partnership trade agreement, UNESCO (UN Educational, Scientific and Cultural Organisation), the UN Human Rights Council… and the list goes on. If Trump becomes the US President again next year, the WTO will be one of his bêtes noires, and his presumptive administration may well pull out of the global trade body, which includes almost the entire world — 166 countries in all. Even if the US, under a Republican leadership, does not pull out of the WTO, Trump will make it toothless by putting ‘America First’. The rest of the world will have to put up with his ‘my way or the highway’ approach and craft new trade policies outside the WTO, the demise of which will be speeded. Where does that leave an aspirational India, which has hitched its economic and technology interests significantly to Washington? How equipped is India to deal with a world without the WTO or its predecessor, the General Agreement on Tariffs and Trade? For better or worse, New Delhi had become habituated to both, one succeeding the other, since Independence.

The MC13 signalled that China is preparing to steal a march in international trade policy over India and other economies similar to India’s — such as Brazil and South Africa — which now fit the space between poor, developing states and rich, developed ones. Notwithstanding bilateral disputes in other areas, India and China cooperated with each other in the WTO until recently because their interests and concerns were similar. The 2003 WTO Ministerial Conference (MC5) in Cancun, Mexico, became a landmark in the history of global trade negotiations for the alliance forged between then Commerce Minister Arun Jaitley and his Chinese counterpart, Lu Fuyuan, at that meeting. The MC5 was critical for both India and China because export subsidies were the most important issue in Cancun. The WTO was not as toothless two decades ago as it is now. Jaitley was the intellectual powerhouse in Cancun for the Group of 21 (G21) developing nations in the WTO at that time, and the Chinese minister became the group’s frontman by tacit agreement within the G21. When ministers from the Group of Seven (G7) rich nations approached Jaitley with proposals to pull back the MC5 from the brink of collapse, he blamed Beijing for the G21’s obduracy. But he also offered to persuade Lu to compromise. The G7 was unaware that India and China were acting together behind the scenes. Jaitley thus became the mediator between the rich nations and the G21 and wrested unprecedented concessions on export subsidies in Cancun.

The Abu Dhabi ministerial saw the end of such cooperation between India and China. Beijing recognises that the WTO is now on life support and that its end is near. It is already switching from the multilateral track in its trade policies and opting for the plurilateral route. India must do the same without delay. At the MC13, China’s proposal for an agreement on “Investment Facilitation for Development” was meant to secure the Belt and Road Initiative through the backdoor. India must sit up and note that in Abu Dhabi, this proposal won the support of at least 100 countries. It did not get WTO approval because the global trade body requires consensus for its rules. India opposed the Chinese proposal.

New Delhi must now make haste with its multiple free trade agreements (FTAs), which are under negotiation. A worthwhile model is the Comprehensive Economic Partnership Agreement (CEPA), which was signed with the UAE in record time in 2022. Although the Commerce Ministry was in the driving seat for this CEPA, it would not have been facilitated without the ground being prepared ahead in South Block, the seat of the MEA and the Prime Minister’s Office. Both these institutions have excellent chemistry with their UAE counterparts, which helped in the successful negotiations. Such give-and-take is not happening in FTA talks with the UK, the European Union or the Gulf Cooperation Council. That strengthens the imperative of combining India’s synergies in conventional diplomacy and trade policy negotiations. A merger of the Commerce Ministry and the MEA will end their turf wars and instead advance the cause of putting economic diplomacy at the front and centre of South Block’s initiatives.