‘We Can Call This Global Swadeshi’
It will be a welcome step if the government is able to safeguard and promote domestic industry within the parameters of international trade agreements, using flexibilities therein
Photo Credit :
Globalisation has gone into reverse gear in the last four years, starting with the US and later Europe, now going through Brexit. In the last two years, India too has raised tariffs and imposed anti-dumping duties more aggressively to stop imports and protect domestic industry.
Since 1990 the tendency the world over has been to shed barriers to trade - both tariff and non-tariff. The World Trade Organization (WTO) mandates member countries to use its dispute settlement mechanism should any country raise barriers to trade. Till recently, no country has argued explicitly in favour of protectionism, rather the barriers erected earlier were removed. Prior to the WTO, India imposed import duties of more than 400 per cent on many commodities and quantitative restrictions (QRs) on more than 1,400 items. Today with some exceptions, import duties of 0-10 per cent are imposed and the QRs have been totally removed.
Markets the world over have been overshadowed by Chinese products in the last 15 years, forcing industries to close down. China turned into a manufacturing hub and trade deficits of most countries began mounting against it. In his election campaign, US President Donald Trump spoke of the closure of US industry. He promised to revive rusting factories, create jobs and also restricts imports.
In India, it’s an open secret that due to mass dumping of Chinese products most non-ancillary industries have closed down. Most of our small industries are now ancillaries of large industries such as automobiles, pharmaceuticals, chemicals and consumer goods. The share of manufacturing in the GDP has either stagnated or declined. Our domestic industry couldn’t withstand competition from cheap Chinese products. Our electronic and telecom industry couldn’t take off and our established machinery, chemical and consumer goods industries were badly hit. Despite it, no effort has been made to safeguard the industry from the Chinese onslaught. The lack of action was less from fear of action from the WTO than the overwhelming faith of Indian policymakers and mainstream economists in the doctrine of free trade.
Belief in free trade was so profound that there was seldom any effort to even use the flexibilities in WTO agreements. In these agreements, every country has committed a bound rate of tariff for each commodity. However, our applied tariff rates are much lower than the bound rates. We have the flexibility to impose an average of 40 per cent tariffs. Moreover, every nation can raise barriers to protecting health and the environment. So far, we have not made much use of these measures, because of this overwhelming belief in free trade.
Generally, countries have followed the rules of the game. In the recent past, however, voices against free trade have grown louder. Donald Trump’s decision to increase tariff on most imported commodities has given rise to a debate on whether the world will walk the path of protectionism. At the World Economic Forum, Prime Minister Narendra Modi stated that protectionism is no less disastrous than terrorism. But, immediately after, when the protective tariff was imposed on various commodities in the Budget, protagonists of free trade were not able to digest it.
Protectionism is not always bad. Free trade, if honestly adopted, can benefit all. The argument that if we continue to protect inefficient domestic industry, inefficiencies will creep into the system, hindering healthy industrial development, is also valid. However, all countries are not honestly pursuing free trade.
It will be a welcome step if the government is able to safeguard and promote domestic industry within the parameters of international trade agreements, using the flexibilities available therein. This is no protectionism of the past. This is a new informed protectionism based on the horrible experience of the free trade obsession. This is carrying out international trade keeping national interest at heart and not based on the fundamentalist approach of the free trade protagonists. We can call this ‘Global Swadeshi’.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.