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Foreign Policy a la Modi
India Scuttles WTO Agreement

Indian Prime Minister Narendra Modi was elected on the promise of uplifting India’s sagging economy. He presented himself as ‘pro-business’, promising jobs, trade, and an end to the ‘Licence Raj’, India’s labyrinthine bureaucracy that has hindered corporations from investing, and companies already in India from growing. Modi appeared to backtrack pretty hard on these promises when his administration scuttled a landmark WTO agreement that would have reformed customs rules, streamlining trade for all member states. The FT has the report.

The collapse of the agreement to reduce red tape at borders around the world immediately drew a concerned response from business groups and came just seven months after it was reached by WTO members in Bali.

At the time, the trade facilitation agreement was celebrated as the first in the Geneva-based body’s almost two-decade history, which would provide a way forward for multilateral trade negotiations.

Roberto Azevedo, the WTO’s Brazilian director-general, told members on Thursday night that his efforts to overcome Indian objections had failed before the expiry of a July 31 deadline set in Bali.

The decision highlights India’s economic reality: a mostly rural population overwhelmingly dependent on, and expectant of food and other subsidies from the government. Despite criticizing the previous Congress government for the handouts, it seems Modi’s government is eager to keep them. By coupling food security with the trade facilitation agreement, Indian representatives said they cannot move on the latter without guarantees for the first.

In fact, it has been defiant in its response. “We will not compromise on national interest,” Jayant Sinha, a lawmaker from the ruling Bharatiya Janata Party (BJP) told Reuters. “That is the way (a previous BJP-led) government operated between 1998 and 2004 and this is how this government will operate.”

That sounds odd, because it seems that boosting trade and cutting red tape—also in effect, fulfilling Modi’s campaign promises—was precisely in India’s national interest. Harking back to the BJP’s last stint in power is also instructive. Serving the ‘national interest’ back then resulted in international isolation and a resounding defeat in the next elections.

The breakdown of the deal also had awful timing. John Kerry was in New Delhi to revitalize American-Indian ties, which had cooled ever since an Indian diplomat was arrested for visa fraud in New York last year. He mentioned that blocking the trade agreement was sending the ‘wrong signals’.

In any case, the ghost of Indira Gandhi must be smiling somewhere. Modi’s first major act of economic policy is to defend the worst and most damaging set of misguided policies that hinder India’s progress—and to weaken the global institution that offers India the most hope.

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  • El Gringo

    India wants to have its gulab jamun and eat it too.

  • GodisanAmerican

    Indian Catch-22
    India wants to clean its temple toilet.
    Cleaning must be done by the untouchables but untouchables are considered dirty and therefore cannot enter the temple.

    • FriendlyGoat

      That’s why a temple is a more useless thing in India than a toilet.

      • Tappering

        @godisanamerican:disqus your (nick)name suggests your extremist lineage from (US) America, and @friendlygoat:disqus or is it just as a church is in the US?
        North America’s history of discriminating against the original (Reds and Latin) Americans is well scripted. even if one concedes on existence of the problem, at least these people should not lecture India on ‘untouchables’ or ‘dirty’ people. a civilization that has been in existence for thousands of years (and is definitely likely to remain as such in different forms) had several such lags in various periods that it yearned to undertake as minor challenges … easily overcome.
        Indians actually laugh at the ‘American value’ of superficial life.

    • Curious Mayhem

      I mean no disrespect — perhaps the temple has a back door?

  • Duperray

    Most of modern nations develop themselves for decades somehow protected from abroad by custom tariffs. But when they went Globalization a long decade ago, their development level was at that time much higher than India’s today. Abruptly opening borders of such a very special economy leads to collapse. Remeber ex-USSR post 1991 collapse. Let them the time to self develop – perhaps slower than WTO evangelistic propaganda – but is a safer way. When they are on level, they can join WTO circus.
    NB: Present “world” propaganda even denies them the right to develop their coal energy for the sake of believing into global warming IPCC sectarian religion. Implementing their diktat is immediately killing indian industry, let’s alone US one.

    • Curious Mayhem

      There’s some truth to this complaint. But it’s not a good reason to scuttle an agreement that would benefit the poor most of all, even though it threatens the power of entrenched interest groups. All of us non-Indians had to impression that Mr. Modi was running on exactly such a platform. Apparently, we were misinformed.

      Such agreements do include provisions to allow more time for poorer countries to develop worker and environmental protections. The West had to go through a long, two-century process to find a balanced path between not exposing society to unnecessary dangers, while also not imposing undue costs or stifling innovation. Countries developing do not need such a long time, because the path — including its dead-ends and mistakes — has been at least partially explored.

      (BTW, the Soviet Union did not collapse in 1991 because of “joining the world.” It collapsed for two reasons, the Party no longer having any political legitimacy, and the accelerating implosion of the isolated, closed, and heavily militarized and collectivized Soviet economy. Its final two decades were made possible only because of the high oil prices of the 1970s and early 80s. In that respect, the Russian economy hasn’t changed much.)

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