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Indian-Born Economist Sees Power Shift At WTO

Arvind Panagariya
International negotiators failed this week to reach an accord on global trade liberalization, in talks that ended in Geneva on July 29 under the sponsorship of the World Trade Organization (WTO). In an interview with RFE/RL correspondent Andrew F. Tully in Washington, Arvind Panagariya, an Indian-born professor of economics at Columbia University in New York, says the talks -- known as the Doha Round, which began in the Qatari capital seven years ago -- demonstrate the growing economic power of several developing countries, including his own.

RFE/RL: The welfare of farmers in developing countries seemed to be at the center of the disagreement between Western countries on one side of the talks and developing countries on the other side. Is that so? And what was the nature of the dispute?

Arvind Panagariya: This was about the farmers. Even the existing [WTO] rules on industrial products, for example, allow that if there is a major surge in imports that causes injury to the domestic industry, then temporarily countries can raise their tariffs. In agriculture, similarly, the developing countries are asking: "If we are going to open up our agricultural markets, so many tiny little farmers who pretty much can hardly make ends meet every day will be impacted. And so we want to be able to invoke the safeguard, this kind of raising of the barriers in case of a major surge of imports relatively rapidly." So they are asking for a different kind of safeguard, a different kind of mechanism, by which they can raise back the tariffs, at least temporarily, without having to go through the [current] lengthy legal process.

RFE/RL: It's been reported that by sticking to their demand for such safeguards, developing countries such as India and China successfully exerted their newfound economic power within the WTO. Was this the case in Geneva?

Panagariya: There is no question that in this round, there's been a major shift. Until the Uruguay round [of WTO talks, which ended in 1994], you could see that there were the "Quad Countries," which was the United States, European Union, Japan, and Canada. These countries agreed, more or less, they would find carrots and sticks for the rest of the [WTO] member countries to go along with [the group of four].

I think that has shifted now. Now the developing countries are major forces. And China, India, Brazil, and South Africa have emerged, actually, as major players. And I call them now the "New Quad," where at least for a while the negotiations were sort of concentrated among Brazil, India, the United States, and the European Union. That kind of equation has certainly changed.

And it has also changed, actually, not just because India, China, and Brazil have become larger, but they're expected to become, in the next 15 to 20 years, much, much larger. And so access to their markets, when you take them altogether and where they will be in 10 to 15 years -- access to their markets for the developed countries is almost as important as, in the past, access to the U.S. and EU markets was for these countries.

RFE/RL: How does Brazil fit into this equation? On the one hand it's a developing country, but on the other, it occasionally sides with the West on trade issues.

Panagariya: Brazil is a little bit different than others because it has export interests in agriculture, so it's certainly seeking liberalization, particularly from the European Union but also from the United States, in agriculture. And so its interests are a little different than countries like India and China, which are not big exporters -- not currently anyway -- of agricultural products. They are more likely importers of agricultural products, certainly big producers of agricultural products. On that specific issue, their [Brazil's and the West's] interests diverge, but on industrial products, and in services, Brazilian interests are more aligned with those of the other developing countries.

RFE/RL: What has caused India's economy to grow so rapidly in recent years?

Panagariya: [The] Indian economy was [at one time] very, very heavily controlled. The trade barriers were gigantic, meaning everything was subject to licensing, so anything you wanted to import needed a license. On top of that, you know, tariffs averaged about 160 percent. This was, like, prior to about 1991. And likewise investment was subject to licensing for any major investment you wanted to do.

Both of those things were eliminated, actually, in 1991. That was a big reform. And subsequently there has been a large set of reforms in the financial sector, in the telecommunications sector, infrastructure sector, deregulation in the airlines industry. And that, I think, has been behind the surge in growth.

RFE/RL: Will India be able to maintain such growth for long?

Panagariya: India is a much younger country now, and it's getting younger and younger as we go forward into the next 15 to 20 years, so the proportion of the working force to the total population is also rising -- it's higher than in most other countries, and it's rising. My take is that in the next five to 10 years we'll certainly see about 8 percent growth [per year]. And as more reforms get done, there are some major things still to do. Currently -- in the last four years -- the present government actually has not been able to do any serious reforms. But if that [a reform movement] goes on, I will expect it to rise up to about 11-12 percent.

RFE/RL: Back to the WTO. What can we learn from the collapse of the Doha round of talks?

Panagariya: I would emphasize just two things: One, that the current collapse is a step forward nevertheless. Nobody has said they are withdrawing the offers they have on the table currently. So the process will continue, and eventually, I do think that this round will be concluded.

And the second thing, of course, is that all of these countries have huge amounts to gain because in the end, you know, liberalization helps not only when other countries do it [lower trade barriers] for you, but also when you do your own liberalization. So in the end, India and China have to come to the table also.

RFE/RL: So despite the assertions of some observers, you believe the WTO remains relevant in the 21st century?

Panagariya: Absolutely, absolutely. And remember that what we are trying to do here [in the Doha round] is [an effort to make] progress over what already exists. So there's a huge amount of what the WTO does -- is in existence and is supported by all of its 153 members. So whatever liberalization was done in the past, the institution that helps you enforce that liberalization and maintain that liberalization is the WTO.