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A recent WTO ruling against India on mobile phone tariffs highlights issues with its dysfunctional dispute settlement system. With the Appellate Body non-operational, India cannot appeal trade decisions properly. This jeopardizes key Indian industry growth plans.
Analysis for a Layman
WTO’s Role in Global Trade
The World Trade Organization (WTO) oversees global trade disputes and policies between countries. But its appeals court system has stopped working due to political blocks. Now India cannot challenge a WTO decision against its mobile phone export tariffs. This causes problems for India’s big smartphone and electronics manufacturing goals. Other agricultures and exports may also be hit as more dispute decisions get stuck. India is pushing WTO reforms to resolve this but progress is slow.
The breakdown of the WTO dispute process amplifies trade policy risks for India. Without an operable appeals channel, inaccurate or unjust panel rulings can permanently impair industries where India is strategically investing and cultivating global leadership. While bilateral negotiations are an alternate path, smaller countries like India often have less leverage in direct engagements with major economic powers. Ultimately this situation allows strong-arming of trade terms and precarious reliance on diplomatic bargaining over rule-based adjudication.
Impact on Retail Investors
For retail investors, the uncertainty introduced around Indian export growth sectors like IT hardware, agriculture, and more is worrying. Dispute paralysis freezes the status quo, allowing competitor countries to legally challenge and undermine key policy efforts to boost these industries. This can dampen revenue trajectories for related public companies. Investors may face decelerating earnings and intensifying price volatility until WTO reforms materialize or backup options like bilateral treaties are secured.
Major export segments like electronic hardware and software, automotive parts, generic pharmaceuticals, and agricultural commodities face potential disputes where legal immobilization can directly hit output targets. For example, growth projections for India’s $300 billion electronics industry hinge on retaining tariffs to counter cost incentives abroad. These plans are jeopardized without dispute resolution.
Long Term Impacts
Lingering disputes produce enduring policy uncertainty that dampens investment in R&D and capacity for high-growth industries. This can constrain economic expansion and the rise of Indian firms as global leaders in spaces like technology equipment and generic drugs. Trade friction also erodes partnerships between Indian and foreign companies.
Short Term Impacts
Ongoing disputes immediately stall exporter revenue upside in affected categories via hampered market access or unfair cost impediments. This slows job creation in key sectors as well. Currency and inflation shocks can also transmit from trade volatility.
Companies That Gain
Companies heavily reliant on domestic India sales may benefit from reduced foreign competition if disputes allow protections for local industry. These include ICICI Bank, HDFC Bank, consumer giants like Hindustan Unilever.
Companies That Lose
Major exporters reliant on global market access and stable trade cost structures face uncertainty. Examples include TCS, Infosys, and pharmaceutical players like Sun Pharma, Dr. Reddy’s.
India requires an urgent WTO dispute resolution system reboot or backup mechanisms to ensure trade policy stability, enforce growth initiatives, and champion Indian industry ascendancy on the global stage.
Source: Khan, Shariq. “If India wants to grow, it has to get the WTO trade dispute system working” Business Standard, 8 December 2023.