Most of the time the International Trade Commission makes the news — in these pages, at least — it’s because of its enforcement of anti-dumping rules that do little but boost the price of items such as steel and sugar for U.S. consumers. However, on Tuesday, the Commission will hold what promises to be a high-profile hearing on India’s cavalier treatment of international trade laws, and the outcome may very well portend the future of multilateral trade negotiations.
Put briefly, India treats trade treaties that it has signed as mere suggestions rather than law. Its companies refuse to respect intellectual property and the Indian government refuses to enforce laws that require its companies to pay to use it. It continues to place barriers to foreign direct investment, and it also makes foreign companies investing in the country use locally sourced components. And when these actions don’t make life easy enough for the corrupt, inefficient local companies then the Indian government takes a page from China’s playbook and haphazardly applies its regulatory policy to gum up the works for their foreign-owned competitors.
These actions have left U.S. companies that have operations in India more than a little angry. According to an ITC report from late last year, nearly ⅔ of all U.S. companies doing business in India report that they have had to make “strategic responses” to the selective observation of trade law, most of which has consisted of a reduction in investment in the country.
This matters for a lot of reasons, the least of which is that it punishes U.S. businesses trying to do business there. But more important than that is that this mercantilist approach to trade policy makes it much more difficult for the Indian economy to achieve the growth rates necessary to propel a new generation of its citizens out of poverty and into the middle class.
India didn’t get around to embracing a market economy until the 1990s, more than a decade after China, and it remains well behind China in most measures of well-being. Hundreds of millions of its citizens remain in abject conditions little different than their ancestors did centuries ago. The ITC estimates that U.S. investment in India would be twice as today that U.S. exports to India would be ⅔ higher were India to honor its trade agreements to the letter of the law. That would amount to a down payment on a better standard of living for millions of its people, and one that it could use—the country’s rapid economic growth unleashed by its economic liberalization has precipitously slowed in the last few years, and the populace has noticed. Understandably, it isn’t happy about it.
But the most ominous implication of India’s cavalier treatment of international trade law is that it bodes poorly for future free trade agreements. If India can blithely ignore its trade treaties, then there’s little reason for other developing countries to follow the letter of the law of its trade treaties either. The behavior of India and China in this regard has already served to dampen some of the enthusiasm for future free trade agreements amongst business interests, who are normally the most fervent supporters of such agreements.
Greater ambivalence on their part may put a freeze on future agreements between developed countries and the developing world. Why put forth such an effort to get a treaty giving them greater access to invest and sell in the developing world if it is going to be haphazardly enforced?
The election of Prime Minister Narenda Modi last May gave a lot of people hope that the bureaucratic obstinacy that has made a mockery of the enforcement of Indian trade rules would soon change. Alas, thus far nothing of the sort has happened. While one year may be too soon to move the aircraft carrier that is the Indian bureaucratic behemoth, there’s little evidence that he has yet to even touch its tiller. If he doesn’t attempt to do so soon it may be too late to steer the country away from the shoals of a ruined trade policy, to the detriment of the poor both in India as well as the rest of the developed world.
Ike Brannon is a former Chief Economist for the House Energy and Commerce Committee.
