Following the global financial crisis, protectionist measures taken by countries are on the rise. Business Line spoke to Mr Alejandro Jara, the Deputy Director General, World Trade Organisation, to find out his views on the extent of the impact of these protectionist measures on global trade and the WTO’s Doha Round negotiations. Mr Jara was in the Capital to speak at a conference on ‘International Cooperation in Times of Global Crisis’ organised by the think-tank ICRIER.
Excerpts from the interview:
Do you fear a rise in protectionism?
We are always concerned about this. The affected countries should express their concerns if they think that these measures are in any way a breach of the obligations that a country has in the WTO. Of course, they can use the WTO’s Dispute Settlement Mechanism (DSM). Certainly WTO’s DSM has been kept very busy as many of these (protectionist) measures are being challenged. But as global trade grows, you are bound to have more frictions and disputes.
We have to continue to monitor the situation and analyse the impact of all the protectionist measures that Governments take to act in time and prevent an increase in protectionism. We have to make big efforts in keeping markets open. That is very important to help global economic recovery.
When do you think the Doha Round talks will be concluded?
It is going to be on a Friday, but I don’t know what month, week or year. I haven’t heard anything specific about timelines. We are going to conclude this when we get a good agreement. We have made big efforts in trying to create a scenario where political options are clear. Things are not right there yet to call the ministers (of WTO member countries) in, but there is an intensive process underway in exploring what those options are in all areas of negotiations.
Conclusion can mean different things. It can mean closing the negotiations and initialling a document.
Or it can mean reaching a broad political understanding about the level of ambition in different fields of negotiation and leaving the technical details to be worked out. There is work being done for that.
Are you hopeful that the November G-20 Summit in Seoul will provide an impetus to conclude the Doha Round?
They (G20 leaders) have said in the past that the Doha Round should be concluded as soon as possible.
I wish that they will come out with something more operational that just a general desire to conclude this Round as quickly as possible.
I can’t say what those will be because it is up to them to decide. If these Governments are more flexible in their positions to take forward the Round, that is something that they could recognise and state (in the G20 meeting). For example, they can say ‘we find that there are flexibilities in our positions which we can further explore’. They have to be more flexible and power their officials to negotiate enough.
Do you have any concerns on trade finance?
The situation in trade finance is being kept under close surveillance and monitoring by the users, banks, WTO and other international agencies. We should probably have the meeting of all the different stakeholders soon on trade finance. Since we (WTO) began monitoring trade finance situation, there is been a marked improvement. But the situation is far from perfect in terms of finding credit easily for enterprises to do the financing of their trade operations.
Are you worried about the increasing bilateral trade agreements in the absence of a Doha deal?
They (bilateral pacts) show that there is a lot of appetite to keep opening markets and I think that is particularly important for the weak and poorer countries. That is positive sign pointing to the right direction. However, they (bilaterals) are not as efficient as the multi-lateral agreement. They (bilaterals) create their own set of problems in terms of transaction costs. Also, you don’t solve problems such as agricultural subsidies, agricultural protectionism, anti-dumping, fisheries subsidies and others bilaterally. The Doha Round or the WTO still stands as the first best option for all these to be solved. What we hope is that all these efforts being put into the bilaterals do not cut back on the effort that these countries should be placing on the multi-lateral negotiations.
US protectionism, not a worry for Indian outsourcers’
Despite the tumultuous reaction in India to Ohio’s ban on the foreign outsourcing of government-funded, back-office and information technology projects, Indian software outsourcers need not entertain undue apprehensions, says a recent research report by Moody’s Investors Services.
Co-authored by Moody’s Investors Services’ Senior Vice-President Mr Philipp Lotter and Vice-President Mr Ken Chan, the research monograph said the recent protectionist sentiments in the US would pose potentially negative credit implications for Tata Consultancy Services (TCS with a rating A3 stable) and India’s other major outsourcing firms, Wipro (unrated) and Infosys (unrated) but not to the extent of endangering TCS’ rating or outlook.
The report said the US State’s ban last month came close on the heels of pending US federal legislation to raise fees for skilled workers’ visas and recent presidential rhetoric to end tax breaks for firms creating jobs and profits overseas.
Long-term prospects ‘intact’
Stating that the long-term trend of growth in outsourcing to low-cost countries such as India remains firmly intact, it said the ban and other measures play to a domestic US constituency concerned about the unrelenting rate of unemployment as Congressional elections are due in November.
As India’s largest outsourcer, TCS has around 11,000 of its 1.64 lakh employees working on temporary visas in the US in part to get more work on local and federal and healthcare projects, which US laws prevent from transferring data overseas.
Besides, a presence in the US also helps TCS compete with rivals to win some of the expected $52-billion in contracts that the US Federal Government would have outsourced this year alone. It pointed out that TCS’ hiring a worker in the US can cost seven to eight times as much as one hired to do similar work in India, so it has kept its permanent local US workforce at a small fraction of the global total.
Such measures, designed to encourage the hiring of more US citizens, would lower TCS’ margins but not to a material extent, despite the company’s heavy reliance on the US market, it said, adding that TCS derived 52 per cent of its total revenues in the most recent fiscal quarter from North America. But exposure to the US of TCS’ competitor Infosys is even higher with two-thirds of its revenue coming from the US.
The report contends that the added cost of higher visa fees, if passed on to US clients, are also not likely to shift either the secular growth in outsourcing or its geographical pattern away from India to elsewhere because the legislation does not target any particular country.
A US firm that intends to outsource its non-core business is unlikely to change strategic direction based on a marginal change in the price of doing so.
Reality check
Further, it noted, government-funded work represents a small, single-digit percentage of the business of TCS and its main Indian competitors.
If other US States or even the federal government took up Ohio’s ban, and if such measures survived WTO scrutiny, business derived just from banking and financial service firms at 44 per cent of TCS’ total in the last quarter would still dwarf the lost revenues in magnitude. Hence, it argued that eventually the recent measures might have more important political consequences within the US than financial ones for outsourcing firms doing business in the US.
