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 (Image courtesy: IMF)
 
Is the Trump Administration merely flexing muscles against free world trade to extract concessions from trading partners? Will Mr. Donald Trump’s Presidential Executive Orders (PEOs) on trade culminate in strong protectionist measures, which would obviously invite retaliation and/or complaints from affected countries? 
Concern over US President playing victim card is growing among its trading partners. “The return of isolationism has cast doubts over the future of international trade and multilateralism,” says European Commission in its White Paper on the Future of Europe released in March this year.
China has also expressed concern at a meeting convened by World Trade Organization (WTO) to discuss US trade policy review (TPR) report in March this year.
As put by China, “The recent campaign rhetoric of ‘pulling out of the WTO’ made by the U.S. President-elect Donald Trump has caused serious worries among WTO Members regarding the future of the multilateral trading system”.
The US, on the other hand, has repeatedly assailed China’s protectionism over the last few years.
At a WTO meeting held on 26th September 2016, the US stated: “we see several examples of Chinese Government policies that attempt to skew the playing field in favor of domestic enterprises. These include: China’s continued use of export quotas and export duties on a large number of raw material inputs; the manipulation of value-added tax rebates on exports of steel and a variety of other manufactured products; low tariff-rate quota fill rates for many bulk agricultural commodities despite strong demand for these commodities in the China market; and prohibitions on foreign investment in the production, distribution and exhibition of movies, even though China's movie market is the second largest in the world and is projected to become the largest market in only a few more years. The ‘Made in China 2025’ initiative also falls into this same category.”
Will such protectionism ping-pong played by different countries ultimately result in pragmatic negotiations for a new free trade order?
Though the answer to these questions would start emerging within next 6-12 months, the fact remains that the US is taking protectionism to a new high. And certain others WTO members such as India are subtly enlarging the protectionist web to promote domestic manufacture. 
Before suggesting a way out for rebooting global free trade, a recapitulation of recent developments should help us put the complex trading problems in perspective. Start with the US.
On 31st march, President Trump sought an ‘Omnibus Report on Significant trade deficits’. He ordered: “The United States must address the challenges to economic growth and employment that may arise from large and chronic trade deficits and the unfair and discriminatory trade practices of some of our trading partners. Unfair and discriminatory practices by our trading partners can deny Americans the benefits that would otherwise accrue from free and fair trade, unduly restrict the commerce of the United States, and put the commerce of the United States at a disadvantage compared to that of foreign countries.”
Another crucial PEO, which Mr. Trump signed on 29th April, pertains to all foreign trade violations and abuses. Under this, the Administration would conduct comprehensive performance reviews of all bilateral, plurilateral, and multilateral trade agreements and investment agreements to which the US is a party.
PEO says: “Each performance review shall be submitted to the President by the Secretary of Commerce and the USTR within 180 days of the date of this order and shall identify: (i) those violations or abuses of any United States trade agreement, investment agreement, WTO rule governing any trade relation under the WTO, or trade preference program that are harming American workers or domestic manufacturers, farmers, or ranchers; harming our intellectual property rights; reducing our rate of innovation; or impairing domestic research and development.”
It adds: “The findings of the performance reviews required by this order shall help guide United States trade policy and trade negotiations.”
This diktat was preceded by another one that President signed on 18th April to articulate ‘Buy American and Hire American’ theme.
He ordered government entities to strictly enforce all “Buy American Laws” to promote economic and national security and to help stimulate economic growth, create good jobs at decent wages, strengthen our middle class, and support the American manufacturing and defense industrial bases.
These three PEOs should suffice to show the intensity of President Trump’s determination to rock WTO. 
US Treasury Secretary Steven Mnuchin aired Mr. Trump’s stance at the International Monetary and Financial Committee’s (IMFC’s) 35th meeting held on 22th April under the aegis of International Monetary Fund (IMF).
Berating unfair trade practices, Mr. Mnuchin observed: “excessively large trade surpluses, like excessively large trade deficits, are not conducive to supporting a free and fair trading system. Fair and transparent currency practices are also a critical part of ensuring that the benefits of trade are shared equitably.”
He added: “Countries should abide by their exchange rate commitments, including commitments to refrain from competitive devaluation, to not use monetary policies to target exchanges rates for competitive purposes, and to consult closely on exchange rates”.
Like Trump administration, Modi Government has also played the domestic manufacturing promotion chord to sneak in soft protectionism. 
On 3rd May 2017, Indian Cabinet approved ‘Policy for providing preference to domestically manufactured Iron & Steel products in Government procurement’. 
The policy stipulates grant of preference to specified Domestically Manufactured Iron & Steel Products (DMI&SP), in government procurement. 
The policy is applicable on all government tenders where price bid is yet to be opened. It provides for a minimum value addition of 15% in notified steel products which are covered under preferential procurement.
Earlier in April, Ministry of Petroleum and Natural Gas unveiled a policy to provide purchase preference (linked with local content-LC) in all public sector enterprises that work under Ministry's guidance. 
The policy says: “whenever the goods/services are procured under this policy, eligible (techno-commercially qualified) LC manufacturer / LC service providers may be granted a purchase preference of 10% , i.e. where the quoted price is within 10% of the lowest price, other things being equal, purchase preference may be granted to the eligible (techno-commercially qualified) LC manufacturers / service providers concerned, at the lowest valid price bid”.
These initiatives appear WTO-compliant. Moreover, India is not signatory to WTO’s government procurement agreement, which itself allows a signatory to seek exceptions before signing it. 
What is significant here is that these initiatives have been unveiled in spite of WTO’s ruling against domestic content requirement in Central Government-aided grid solar power projects in February 2016. India agreed in November 2016 to implement WTO ruling but sought time for this.
India has now notified draft Solar Photovoltaics (SPV), Systems, Devices and Components Goods (Requirements for Compulsory Registration) Order, 2017.
The draft prohibits any entity from manufacturing or importing SPV products without first securing registration Bureau of Indian Standards under the Bureau of Indian Standards Act, 1986.
Almost all countries issue similar technical notifications that are often perceived by trading partners as non-tariff barriers or means to make market access difficult.
Non-tariff measures (NTMs) are pervasive. Some NTMs represent the manifestation of domestic regulations as applied to imported goods. While these may impact trade flows, their stated aim is to protect health, workplace safety, the environment, or consumers,” says a policy paper (PP) jointly prepared by IMF, WTO and the World Bank last month for consideration by G20.
Captioned ‘Making Trade an Engine of Growth for All -The Case for Trade and for Policies to Facilitate Adjustment’, PP points out that “services trade remains hampered by substantial policy barriers. While measuring restrictiveness in services trade faces data and methodological challenges beyond those in goods trade, two mutually supportive international initiatives, one led by the OECD, the other by the World Bank and WTO—provide similar overall messages”.
It continues: “The World Bank Services Trade Restrictions Database (and its accompanying STRI) reveals that restrictions on entry, ownership, and operations of foreign service providers remain common. Opaque and discretionary licensing can make market access unpredictable in many countries, even when there is no explicit discrimination.”
The combined effect of growing protectionism practiced by many WTO member countries over the years has stunted the growth of world trade.  
As put by WTO Director-General Roberto Azevêdo at IMFC meeting, “in 2016, global trade growth, at 1.3%, hit its lowest level since the financial crisis. Trade growth fell below GDP growth for the first time in 15 years”.
Admitting that trade can cause job displacements, Azevêdo cautioned: “the effect should not be overstated. Technology and innovation are having a much bigger impact on the structure of labour than trade. Many jobs in developed and developing countries are at risk of automation. Like trade, technological progress is important for growth and development”.
He suggested that the concerns of affected communities must be heard and addressed through a range of domestic policies. He contended that “erecting new barriers to trade would not solve these challenges; in fact it would make them worse. Protectionism reduces consumer purchasing power, discourages innovation and harms the competitiveness of domestic firms”.
WTO should, in fact, treat free trade agreements (FTAs)/regional trade agreements (RTAs) as protectionist cliques that leave out or marginalize non-participating WTO members. 
Mushrooming FTAs, RTAs and their variants have smothered prospects for growth of free global trade in which each member country has theoretically a chance to compete. What is the combined effect of over 330 such agreements on free flow of goods, services, capital, labour and intellectual properties across the world? 
It is here pertinent to note that President Trump has withdrawn the United States as a signatory to the Trans-Pacific Partnership (TPP) and put proposed Transatlantic Trade and Investment Partnership (TTIP) in the deep freezer. He has already announced his intention to begin renegotiating the North American Free Trade Agreement.
Though his actions on FTAs are governed by Buy American; Hire American considerations, the decisions do underline the fact all is not well with FTAs. They indeed act as barriers to free world trade. WTO should announce sunset timeframe for phasing out all bilateral and regional trade pacts. 
Let the complex web of nationalist and regional protectionism be replaced by pragmatic, new world trade order. This must provide for fair rules not only for all countries but also for both goods and services. Justice must be done to services trade conducted through mobility of professionals from one country to another. 
These reforms, coupled with domestic policy reforms by all member countries, can only save the world from whirlpool of slow growth and slowing trade. 
                                              
published by taxindiainternational.com on 24th May 2017
 
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