WTO report warns of protectionist policy in non-digital sectors

Context:  The World Trade Organization (WTO) released its annual World Trade Report (WTR) that aims to deepen understanding about trends in trade, trade policy issues and the multilateral trading system.

Positives highlighted in the report:

• The transition towards a digital economy: A key objective of so-called ‘new industrial policies’,
  • As data becomes an essential input, firms rely more on intangible assets than on physical ones.
  • Digital firms are more scalable, reach global markets faster, and large players may expand globally without the amount of physical investment previously necessary in other sectors.
  • Underscores the need for openness: for -
    • Access to information and communications technology goods and services,
    • Open-source technology, foreign markets, collaborative research projects, and
    • The diffusion of knowledge and new technology,
  • Provisions under World Trade Organisation’s: Information Technology Agreement (ITA) has helped:
    • Eliminate tariffs on internet and telecommunications infrastructure products.
    • Stimulate e-commerce with moratorium on duties on cross-border digital flows.
    • Advocate a robust and stable framework for Intellectual property.

Negatives highlighted in the report:

• Retaining protectionism: Protectionist policies in non-digital sectors are subjected to intense competition and technological transition for addressing employment concerns.
  • Recent policies have shifted focus to the domestic manufacturing sector through higher import duties besides lower income tax rates and production-linked incentives to large companies.
• Negative fallout of digital economy: Distorting trade, diverting investment, promoting unfair competition with the winner-takes-all characteristics.

Some recent steps taken by the Indian government:

• For expanding digital infrastructure: Providing government services through the internet, digital empowerment of citizens and other actions through the Digital India initiative.
• For employment generation: Helping domestic manufacturing sector through higher import duties, low-income tax rates and production-linked incentives to large companies.

Conclusion: The WTR is a highly nuanced report that deserves the attention of policymakers, business leaders and analysts, and wider discussions on the issues it raises can help tweak the policy responses.