Suzuki and the WTO

The GOI-Suzuki fight provides valuable insights into government thinking on the WTO issue

ON the face of it, it seems silly to want to go back to the government’s fight with Suzuki Motors (both own equal shares of auto-leader Maruti Udyog Limited) four years ago in order to understand the government’s positioning in the just-concluded WTO ministerial meeting at Doha. But even before this column establishes a common pattern — once you wrap your argument in the tricolour, any gambit will be cheered — it’s interesting that the dramatis personae are the same, at least as far as the government is concerned. Murasoli Maran was the minister in charge of industry (and therefore in charge of the government’s Maruti shareholding), and his secretary was none other than Prabir Sengupta — exactly the same as the Doha cast.

In 1997, when Maran was industry minister, the government accused Suzuki of essentially ripping it off — it said Suzuki was over-charging on the components and deliberately not indigenising fast enough, that it was not making the gear-box in India so that it could overprice it, and so on. Things reached such a pass that the government used its strength on Maruti’s board to wrest control of both the chairman and the managing director’s posts at Maruti — both partners were to have one post each by rotation, according to the contract. Sengupta became chairman and another government nominee became managing director.

Anyway, at that time, the government could do no wrong, wrapped as it was in the tricolour. So when it blocked Suzuki’s attempts to finalise design specs for a new engine for the Maruti 800 for well over a year, no one objected — so what if, at that time, Maruti had no engine to meet the emission norms for 2000? Or that even its Zen offered just 50 bhp on a 1000cc engine as against Daewoo’s to-be-launched Matiz that offered 52 bhp on a 800cc engine. Stopping Suzuki, it seemed, was in the ‘national interest’.

So, apart from some academic curiosity, it didn’t seem to matter that Suzuki publicly (through newspaper ads) rebutted each allegation, and that the government had no answer to this. Its indigenisation, Suzuki said, was 95 percent at Maruti, higher than any other auto firm’s in the world. It did get a 5 per cent excise duty advantage over bigger cars, but then so did fuel-efficient LCVs, and import duty concessions were also extended to the Contessa and the 118 NE, when they argued they were also fuel-efficient. As for the gear-box, it was a very expensive project and didn’t make sense to set up unless really large volumes were being built.

Cut to November 2001. There are really no outstanding issues between the government and Suzuki. Except, the government will probably get around fifteen hundred crore rupees less for its Maruti stake thanks, in large part, to a policy that consistently bled Maruti over the years. This is the same mindset Maran and his secretary displayed at Doha. We’ll not give in, never mind if every other country ditches us, was Maran’s battle cry. We will not agree to a fresh trade round until developed countries open up their markets further, lower farm subsidies, and so on. Not surprisingly, this tricolour-wrapped argument was cheered in the press and even by politicians in the opposition. The question to be asked is what did we achieve through all this tough behaviour — by refusing to negotiate at all for five days at Doha and threatening to walk out on the sixth?
Commerce ministry spokespersons (which includes FICCI these days) argue that it was our tough stand at Doha that ensured no ‘Singapore issues’ are part of the negotiations in the new round.

These are issues like common international rules for treating foreign investment, or transparency in government procurement. Now it’s an open question as to whether India would have lost if these had come in — hear Bibek Debroy of the Rajiv Gandhi Foundation on this — but these issues haven’t been put off the agenda either. The new Doha Declaration clearly states they’ll be negotiated after the next ministerial - and that’s another two or three years away.
Getting the WTO to agree to discuss the phasing out of farm subsidies in countries like the EU and the US is an achievement. But negotiations are not the same thing as phasing out. Besides, an agreement to discuss reductions in farm subsidies was evident from the pre-Doha draft declarations themselves—so clearly this wasn’t a Doha victory. Maran has been forced to agree to get environment issues on to the negotiating table and that’s clearly a big defeat.

No concessions whatsoever have been gained in either textiles or in greater access to the markets of developed countries — Maran insisted that he wanted these ‘implementation’ issues sorted out first, before he agreed to a new round. What he’s got now is the promise to sort these out as part of the new round (albeit on a priority basis), or exactly what countries like the US were offering well before Doha. Of course, getting developed countries to agree to a significant dilution on patents for epidemics and other national emergencies was a big victory for Maran, though some argue the US and the EU agreed as a tactic to get African countries on board.

The point is that had the prospect of a new round got scuttled at Doha because of the Indian intransigence, would anyone have blamed Maran? Chance are, they wouldn’t. He was wrapped in the tricolour, you see. The flag has to be good for something.

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