A Conversation with Kamal Nath, Indian Minister of Commerce and Industry

This summary was prepared by Matthew Ocheltree, Research Assistant, Carnegie Endowment for International Peace.

IMGXYZ494IMGZYX The Carnegie Endowmented hosted Indian Minister of Commerce and Industry Kamal Nath for a discussion on the Doha Round of negotiations at the World Trade Organization.  Minister Nath discussed negotiations on international trade in services, manufactures, and agricultural goods, and responded to questions and comments from the press, policymakers from U.S. and foreign governments, representatives of private sector groups, and trade and development specialists from think tanks and non-governmental organizations in Washington.  Sherman Katz, Senior Associate in the Carnegie Endowment's Trade, Equity and Development Project moderated the discussion.

Minister Nath opened his remarks by saying that the Doha Round had reached a critical moment. The summer follow-up meetings in Geneva represent an opportunity to do what should have been done during the Hong Kong Ministerial. At the same time, Nath was hopeful about the state of the Round and optimistic about the desire of all countries to be engaged in the negotiations. That was not the case during the Uruguay Round. He recalled that when the Multi-Fiber Agreement and Aspects of Trade-Related Intellectual Property Rights Agreement were being negotiated, there was no participation by non-governmental organizations or civil society in the process, nor was the Internet available as a tool for distributing information. Now, a tremendous amount of data and analysis are readily accessible to all WTO members and to the public. All of these are positive developments.

Minister Nath next gave a brief overview of the current situation in Geneva regarding the three major negotiating pillars: services, agriculture, and non-agricultural market access (NAMA). On services, Nath reported that 30-40 of the WTO’s 150 members were involved in plurilateral discussion, but that negotiators were still struggling to find balance in defining the broader goals of the talks. Next, Nath said that agriculture remained the most structurally flawed part of world trade. He does not believe in a link between domestic support and tariffs, instead arguing that tariffs are the only way to correct price distortions. He applauded the commitment of all WTO members to end export subsidies by 2013. On NAMA, negotiators were continuing to grapple with the problem of coefficients. But coefficients are only a means to an end, and the real question should be the overall level of ambition. He criticized the developed countries for forcing developing countries to abandon protection for infant industries when the OECD countries have benefited from such protections for over fifty years.

More generally, Nath remarked that globalization means global competitiveness. India was not very involved in the international trading regime in the 1990s, but has reengaged over the last few years because it is now globally competitive. The future of international trade lies not in tariffs but in rules, in the structural processes of the WTO that are so important to both the United States and India. India has committed to do its part in the Doha Round and does not want to see the multilateral system fractured by the failure of the talks. At the same time, Nath contended that the WTO needs to be more democratic.

Services

Despite misunderstandings on Capitol Hill, Mode Four—the movement of people for purposes of temporary employment—is not the same as immigration. Since the United States is a signatory to the General Agreement on Trade in Services (GATS), there should be no confusion on this matter. Approximately 55% of India’s GDP is comprised of service industries; this number jumps to 60% for India’s 1 billion citizens under age 25. Consequently, India is seeking a balanced package on services trade and has unilaterally taken steps beyond its Uruguay Round commitments to open its services markets.

India’s main request on services concerns contractual workers. If Microsoft or Motorola want maintenance for two months to fix their equipment, Nath wondered why Indian workers should not be able to secure a visa to provide this service. India wants to see the United States bind—not even enhance—its current posture toward outsourcing. In return, India is willing to bind what it has done on retail services, financial services, etc. and to open further selected services markets.

Discussion Session

Sherman Katz asked the minister to comment on the potential value of the plurilateral request-offer system in seven core service areas, including telecommunications, energy, the environment, computers and information technology, construction and architecture, and engineering. Minister Nath replied that India was interested in such an approach but required reciprocity in the negotiations. He pointed out that many Indian banks still struggle to get a license to operate in the United States and that services liberalization should not be a one-way street. Nath had suggested the creation of a services group to be chaired by the United States and India, but many countries were wary of the idea and resisted. It took a lot of effort on India’s part to convince developing countries not to kill the initiative.

Sherman Katz then asked if India’s offers on services were linked to or contingent upon progress on Mode Four. Minister Nath responded that this was not necessarily the case, and that India was looking for reciprocity on all four modes. He emphasized that India’s position on Mode Four holds that U.S. business should not be denied foreign services when they demand them. On this question, a dialogue from business to business would be more productive than one between governments.

Peter Ehrenhaft of Miller and Chevalier pointed out that services are regulated by the individual states in the United States and argued that there has been a lack of recognition of this reality in the negotiations. Minister Nath responded that India also has a federal system of government, understands the United States’ constraints, and is going to work with and around them. More generally, he lamented that services are often neglected in the multilateral negotiations.

Susan Finston of the American BioIndustry Alliance asked if enlisting the support of industry might be crucial to the success of the services negotiations. Minister Nath praised U.S. business interests for being very helpful in advocating for their needs and interests. In his opinion, government should take a back seat to these needs.

Steven Stewart of IBM asked the minister to comment on the position of Brazil and other G20 nations on services. Minister Nath said that the G20 uses its own plurilateral processes to establish its position, and that most G20 members do not want to oppose services liberalization.

Finally, Sherman Katz asked the speaker to comment on the position on services of China, Malaysia, Thailand and other southeast Asian nations. Minister Nath admitted that many of these countries opposed plurilateral negotiations at Hong Kong out of fear that they would not be able to reject demands made of them through the request-offer process. India worked hard to convince them that they would not be hurt by the negotiations.

Non-Agricultural Market Access

Minister Nath informed the audience that India has already unilaterally reduced tariffs from an average of 50-60% to an average peak of 12.5%. Statistics show that Indian markets are more open then they were several years ago. Thus, India should not be penalized for its unilateral liberalization. India’s position is the following: whatever the United States proposes, India is willing to do slightly less than that. If the United States agrees to 80% reduction, India will do 70%; if 50%, then India will do 40%. Currently, India is being asked to accept 70% while the United States reduces by 20%, and this offer is a non-starter.

Discussion Session

Sherman Katz asked whether India and Brazil would be willing to accept the projected compromise of 20% for peak bound tariffs. If so, he wondered what special product exemptions might be included in a deal. Minister Nath answered that India’s average applied tariff is currently 12.5%, excluding wines and spirits, cigars, and textiles. On textiles, India is being careful not to let the Chinese do to it what they have already done to the United States. On automobiles, India wants to maintain high tariffs to protect recent investments by General Motors and Ford. At the same time, India seeks to retain some national policy space, which would mean not immediately binding reductions in applied tariffs. Minister Nath reminded the audience that import tariffs are a major source of revenue for many developing countries, although India is not one of them. For these countries, tariffs are not a market access issue but a revenue one, and this perspective should not be ignored.

Mary Irace of the National Foreign Trade Council said that U.S. business needs a strong Doha package, and that to this end India could serve as a catalyst on NAMA. The real test will be whether meaningful market access in emerging economies materializes from the negotiations. As she argued, locking in bound rates does not produce market openings. Minister Nath expressed his disappointment with the direction of the NAMA negotiations and with the lack of full reciprocity in the Hong Kong coefficient proposals. He said that more than 100 developing countries are still puzzled by this absence of reciprocity.

Sherman Katz asked the speaker to comment on the potential of sectoral negotiations to advance the broader services talks. Minister Nath replied that he was willing to look at sectorals, but that if members start doing this now they will never get beyond that process. Sectorals require an intensity of discussion that has not yet been reached. India would be particularly interested in this approach for leather goods, of which it is the world’s leading producer.

Agriculture

Minister Nath reminded the audience that for billions of people agriculture is subsistence, not commerce. He emphatically stated that India was willing to negotiate “commerce but not subsistence,” and cited the 2004 July Framework as supporting this position. From India’s perspective free trade is fair trade and should be based on a level playing field, not one that is as structurally flawed as the global agriculture market. Subsidized trade flows displace millions of people. If the current system is left in place, India will need 200 million additional visas for unemployed farmers.

Furthermore, Nath said that protection for self-designated ‘special’ products was already included in the Hong Kong Ministerial Declaration, and that India was not willing to renegotiate provisions that were already set in the Declaration or Framework Agreement. If the Doha Round were to fail on that point, India would accept that outcome.

Discussion Session

Sherman Katz suggested that the EU and G20 proposals would not lower average agriculture tariffs in India below current levels. He said that in order to be able to sell a Doha package to Congress, U.S. industry would need to be convinced that there is enough market access in the deal to justify cuts in domestic subsidies. Minister Nath replied that the United States and EU must converge, and that the EU needs to come up with a better offer. He disputed the premise of the question, and claimed that, according to simulations, 75 tariff lines would be reduced in India as a result of the EU or G20 proposals.

Sam Gilston of the Washington Tariff and Trade Letter suggested that urban dwellers in India will benefit from cheaper food and asked the speaker to comment on this point in clarifying his position on the agriculture talks. Minister Nath responded that India cannot displace 300 million farmers to support an urban population that does not need the help. He delivered the surprising statistic that over 100,000 Indian farmers have committed suicide over the last ten years, citing that number as a response to existing tariff levels; it would only increase if tariffs are further lowered.

Sherman Katz asked the speaker to comment on the Brazil-India dynamic within the G20. Minister Nath replied that the members of the G20 have a diverse range of interests. In his mind, this diversity is a strength that gives the group added credibility when compared to others such as the G10, which represents defensive interests only. He proposed that the United States cap its agricultural tariffs at reasonable levels. If this happens, India will follow suit and cap its tariffs as well.

In response to the final question about his basic message to USTR Susan Schwab and Secretary of Agriculture Mike Johanns, Minister Nath said that as long as the international community does not “rock the subsistence boat” India is willing to go to any lengths on NAMA and services. He reemphasized that India wants to see the success of the Round as much as the United States does.