Wednesday, September 06, 2006

India and the WTO

August 31, 2006

In some part, the career of globalisation – both as a phenomenon and as a term -- is congruent with that of the World Trade Organisation. In the early-1990s, when multilateral trade negotiations under the Uruguay Round were mired in seemingly irreconcilable differences between the industrialised countries, “globalisation” as a term featured but rarely in the policy lexicon. Key breakthroughs in the negotiations occurred in 1993, following which the final act of the Uruguay Round -- which among other things established the WTO -- was signed in April 1994. Since its genesis on January 1, 1995, the WTO’s life of just under twelve years has seen “globalisation” become an integral part of the policy vocabulary in all parts of the world.

Partly on this account, the WTO has become emblematic of the hopes and anxieties that surround the process of globalisation, in both the policy discourse and the dissenting view. The sharp polarisation of views on the WTO as an institution has again been evident since the ongoing round of trade negotiations -- under what is called the Doha Development Agenda (DDA) -- ran aground in July. Critics have reacted with grim satisfaction, rehashing their well-worn line that no deal is better than a bad deal. Champions of free trade as the best prescription for growth have, in equal measure, been dismayed that the only hope developing countries had to escape the poverty trap, is rapidly receding because of the deadlock in the global negotiations.

Joseph Stiglitz, the Nobel Laureate economist, has few doubts about who bears the responsibility for the current impasse. The European Union and the U.S., he says, have long since “reneged on the promises they made in 2001 at Doha to rectify the imbalances of the last round of trade negotiations”. And in the lead-up to the mid-term elections to the U.S. Congress, the George Bush administration has in Stiglitz’s words, proven more attentive to the “25,000 wealthy cotton farmers” in the country, and the “10,000 prosperous rice farmers”, than to the many millions of the world’s poor. When bold decisions were called for, the U.S. political establishment has chosen to play along with the “corrupt system of campaign-contributions-for-subsidies”.

The sixth ministerial conference of the WTO at Hong Kong produced a final declaration only because expectations had quite deliberately been moderated – in the words of WTO Director-General Pascal Lamy, “recalibrated” -- over the preceding weeks and months. For most part, the December 2005 conference remained deadlocked over the developing countries’ insistence – represented by a group of twenty countries including India and Brazil – that an end-date for export subsidies in agriculture be written into the final declaration. The E.U., which saw itself as the main target of this demand, responded by putting the onus on the U.S., Australia and other major agricultural exporters to commit themselves to ending their disguised export subsidies.

In the event, the E.U. conceded a provisional end-date for export subsidies, but insisted that it would be inoperative if modalities were not agreed on the parallel elimination of all other forms of unfair practices. The deadline for agreed modalities was put at April 30, 2006. Effectively, the EU, the US and other developed country exporters, gave themselves four months to unravel a conundrum that has defied solution for four years or more.

That effort was preordained to fail. The April 30 deadline passed with agreement nowhere in sight and it took an extraordinary appeal by leaders of the group of eight industrialised countries (the G8), to bring six big negotiators in the WTO – the U.S., the E.U., Japan, Australia, Brazil and India -- to Geneva in July for another effort at breaking the logjam. Expectedly, agriculture proved the main hurdle and the Geneva conclave did not have an opportunity to begin addressing the other issue of “non-agricultural market access” (or NAMA, which in WTO-speak, refers in the main to industrial goods).

Bitter recriminations followed the breakdown of talks and both Brazil and India tilted towards the E.U. in holding the U.S. responsible. The U.S. demand that all other countries should ensure significantly higher market access – by sharply cutting tariffs in agricultural products – in return for a reduction in subsidies, failed to win much favour. Under the Uruguay Round’s Agreement on Agriculture (AoA), every WTO member is obliged to maintain its “aggregate measure of support” in the sector below a specified level. This commitment is laid down in terms of “final bound commitment levels”, which leave a generous amount of head-room for developed countries. At Geneva, the U.S. offered to cut farm subsidies by 53 percent – referring of course, to the final bound level. This meant reducing the allowable ceiling from $ 48.2 billion to around $ 22.5 billion, when the most reliable data available with the WTO indicate that aggregate support to U.S. agriculture has increased since the AoA entered into force, but remained well within the mandated ceiling. Indeed, aggregate support has grown from $ 6.2 billion in 1995 to $ 14.4 billion in 2001, and the figure for the last U.S. accounting year stands at around $ 19.7 billion – still well below the final bound level that the U.S. has consented to.

There will in short, be no effective cut in U.S. domestic support for agriculture. And for this phantom concession, the U.S. demands from the rest of the world, a significant increase in market access for agricultural products. The E.U. reportedly was asked to reduce tariffs in the sector by upto 66 percent, since that would provide the benchmark for market access commitments on the part of the developing countries. India for one, has agreed that it is prepared for a tariff cut equivalent to two-thirds the magnitude of that agreed by the rich countries. The standards of market access established in agriculture were in turn, expected to set the framework for talks on NAMA. But with the negotiations failing to clear the first hurdle, there was no opportunity to even approach other significant issues.

Needless to say, India was among the countries most outraged by the U.S. demand. Commerce Minister Kamal Nath accused the U.S. of cavalier disregard for the subsistence needs of many millions in India who depend on agriculture. This reflected the longstanding complaint of the developing countries – where an estimated 90 percent of the global population dependent on agriculture live – that they can compete with U.S. farmers, but not with the U.S. treasury. As Kamal Nath said after the Geneva failure, the very idea that market access should be a price that developing countries pay to secure a cut in rich country subsidies, speaks of a “gap in mindset”. The subsidies that the developed countries hand out to their farmers have no business being there in the first place.

These reactions prove how seriously the WTO continues to be scarred by the circumstances of its birth. Between 1990 and 1992, the Uruguay Round negotiations were deadlocked by the rival perspectives of the U.S. and the E.U. on agricultural trade. The Blair House agreement in 1992, which was no more than an attempt to circumvent the problem by defining it differently, took care of that. After sealing a limited deal on subsidies payable to oilseeds growers, the U.S. and the E.U. agreed on numerous other artifices to break down the issue of agriculture into a complicated, quasi-legal maze that would defy the best efforts at comprehension. Thus, subsidies were classified into three colour-coded entities, and limits specified under each of these. A de minimis level of domestic support was permitted and a “peace clause” agreed, under which domestic support in agriculture would not be cause for WTO complaint except under pressing circumstances.

Developed countries in other words, agreed to limits on their agricultural subsidies, which were well above the actual sums paid. Calculations done then, showed that agriculture in most developing countries was in contrast, negatively subsidised. The rich countries gained the freedom to increase subsidies, while the developing world remained under compulsion to cut them. In return for significant concessions on intellectual property rights and industrial trade, the developing world got nothing by way of additional space for agriculture. And the only substantive gain for it was a heavily “back-loaded” agreement on textiles that deferred most of the purported gains to the very end of a ten-year implementation period.

Stiglitz’s assertion that the foremost priority of the Doha agenda should be the removal of the imbalances of Uruguay, resonates strongly with the view that India has long held. Indeed, prior to the launching of the Doha agenda, India had, in league with a group of developing countries, insisted that more than a new round of trade negotiations, attention needed to focus on issues in the implementation of existing trade agreements. The Uruguay Round had produced agreements that covered a large number of areas, but in many of these, the experience of the developing countries had been far from happy.

India's insistence that these glitches, both major and minor, need to be ironed out as a matter of priority failed to stem the tide of defections to the cause of a new trade round. Singapore, which hosted a meeting of a smaller group of the world’s major economies just prior to the Doha ministerial conference of the WTO, produced what was delicately described as a “quasi-consensus” on implementation issues: to discuss these in most part within the framework of a new round of trade negotiations. Indeed, in an elaborate concession to global sensitivities on the issue, the minister from Singapore who chaired the meeting, urged that future negotiations should seek to move towards working out a global “development agenda”. India’s reservations were assuaged in other words, by merely calling the new trade round by another name.

The fourth ministerial conference of the WTO at Doha in 2001 almost collapsed over agriculture. Till the dying hours of the conference, the E.U. had insisted on playing hardball and resisting any reference to the objective of phasing out export subsidies in agriculture. And despite being the only recalcitrant on this issue, the E.U. was playing for high stakes on other fronts, demanding an explicit acknowledgment that negotiations on a bundle of issues of special interest to European corporations would begin no later than the fifth Ministerial Conference scheduled for 2003.

Developing countries were equally adamant then, that there could simply be no presumption that the WTO could venture into these areas - investment, competition policy, government procurement and trade facilitation – which were potentially deeply intrusive on national decision-making processes. But as the clock was stopped and the conference went into overtime, the E.U. conceded that it would not be averse to the objective of phasing out export subsidies, provided there would be no “pre-judgment” of the issue. Partly in response, a number of developing countries began softening their stand on the four new issues that the E.U. wanted in the WTO agenda.

India then stood well and truly isolated. If ever there was a moment when India’s relations with the WTO reached breaking point, that was it. Early on the morning of November 14, 2001, India was presented a draft declaration that put in place all the issues that it had spared no effort to remove from the WTO agenda. Crunch time had come and the Indian delegation without further heed to diplomatic delicacy made known that its intention to vote with its feet. Commerce Minister Murasoli Maran, as the leader of the delegation, informed the conference that India would not be party to the purported consensus. The situation was only retrieved when the host government, as chair of the conference, issued a declaration that said among other things, that the four new issues would only be taken up for negotiations on the basis of an “explicit consensus” at the fifth ministerial meeting.

These issues in turn, proved the deal-breaker at the 2003 ministerial conference in Cancun. This was a surprise in itself, since the pre-conference expectation had been that agriculture had reserved that role for itself. India and Brazil had prior to the conference, taken the initiative in constituting the G20 which brought together a number of major developing countries on a joint platform to frontally challenge the insincerity of the rich countries on agriculture. The immediate provocation had been an effort by the U.S. and the E.U. in the lead-up to Cancun, to reprise the dubious record of the 1992 Blair House accord and present the developing countries a virtual fait accompli. All through the five-day conference at Cancun, it was agriculture that dominated discussions. And the four new issues that the E.U. in particular wanted on the agenda, only proved decisive because many countries did not want the talks to clear that hurdle. That would have brought the focus of discussions perilously close to their strong protectionist interests in agriculture.

The proposals on agriculture submitted by India and other countries at Cancun, were remarkable in seeking to harmonise the interests of developing country exporters and economies that have a strong defensive interest in protecting their markets. India counted itself quite decisively in the second category, whereas Brazil fell unequivocally in the first. That the unity forged in Cancun has, despite this strong divergence in interest, lasted right till the Hong Kong conference and beyond, speaks of a determination to ensure that the errors of the Uruguay Round are not repeated.

In the days since the breakdown at Geneva, India has expressed an interest in joining negotiations towards creating a mega-trade bloc involving the ten ASEAN nations, Japan, China, South Korea, Australia and New Zealand. It has been a feature of the years since the creation of the WTO, that RTAs – which in most instances, institutionalise a “WTO plus” model of trade liberalisation -- have increasingly tended to dominate world trade. Yet India has failed to integrate itself into a strong regional trading arrangement, reflecting in part the adverse political and economic circumstances in its own neighbourhood, as also the strong defensive trade interests it continues to have. Though talks are still at a very preliminary state, trade observers are unsure that India has any realistic prospect of joining the proposed Asian trade bloc. Typically, the East and South-East Asian models of trade liberalisation operate with very limited “negative lists” of products and if India is to go on board, it would only be with a rather long list of exempted items.

There are political sensitivities involved. Early in April, Sonia Gandhi as president of the ruling Congress Party, wrote to Prime Minister Manmohan Singh, urging that ongoing bilateral negotiations on possible free trade arrangements be put on hold. The farm sector, she pointed out, was going through an acute crisis. And the last thing the country needed was an influx of cheap imports – quite possibly subsidised by source country governments – that would deprive the Indian farmer of the few market opportunities he had.

It does not take very much knowledge of the Indian farm scene, to figure out that a major increase in imports has not been a serious concern. The problem rather is more a consequence of declining investment, a drying up of institutional credit, and the absence of appropriate marketing infrastructure. Though India has since the Uruguay Round, earned a reputation for being a forceful and well-informed negotiator in world trade councils, the sustenance of this role would require at the least, that these infirmities of domestic economic policy be addressed. This is especially the case since regional free-trade agreements seem to suit India’s interests even less than a multilateral arrangement.

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