WTO: India’s needless posturing, hollow rhetoric
by Virendra Parekh on 06 Aug 2014 2 Comments

“For India, food security is non-negotiable, need of public stockholding of food grains to ensure food security must be respected. Dated WTO rules need to be corrected.” That was Anand Sharma haranguing fellow trade ministers in WTO at Bali last December.


It is easy to see through the bogus rhetoric. A government really concerned over food security for the poor would never have allowed food prices to rise so high. A government genuinely exercised over farmers’ welfare would not have driven them to suicide in thousands. The pro-poor posturing was meant for consumption of vote banks back home rather than diplomats listening to the speech.


However, don’t expect the Modi government to disown this hollow thundering. The image of a courageous government standing firm rocklike against global pressure at an international meeting for the sake of hungry millions at home is too tempting for most governments to forgo.


Conversely, the prospect of being portrayed as a weak anti-poor dispensation selling out national interest under pressure of big bullies on the global stage would be too terrifying for a new government whose first priority is to avoid getting caught on the wrong foot.


The government may, therefore, regard India’s singlehanded blockage of the WTO’s Trade Facilitation Agreement (TFA) before its agreed deadline of 31 July 2014 as an act of nationalist courage and a diplomatic victory. In reality, however, it was pointless posturing which has done us more harm than good. Significantly, no other underdeveloped country sided with India in its ‘heroic battle’.


Bare facts make it clear why India was isolated. The Trade Facilitation Agreement was the high point of the outcome of the meeting of trade ministers in Bali in December 2013. It was agreed that a Protocol of Amendment will be drawn up by a panel and passed by the General Council by July 31, 2014 so that the TFA could be inserted into the WTO agreement. But India refused to proceed with the Protocol of Amendment.


Now, the whole objective of the Trade Facilitation Agreement is to expedite clearance of shipments at every stage. According to estimates made by experts, the tariff equivalent of each day taken in transport or clearance is 0.8 per cent. Trade facilitation measures such as reducing delays at ports will benefit Indian exporters immensely by boosting our export prospects in developing countries. Moreover, obligations under the agreement are also none too onerous for India. In fact, the Indian government is, on its own, planning to improve port facilities and simplify customs procedures to reduce transaction costs for exporters and importers.


India has, therefore, no reason to oppose TFA on merit and has in fact not opposed it per se. It has opposed the protocol by linking it to another, far more vexatious issue of food security and agricultural subsidies. India would not allow TFA to be passed, said the government, until credible steps are taken to address its concerns on public stockholding for food security and agricultural subsidies, by December 2014.


This was rank opportunism. Trade ministers at Bali agreed to discuss food security and agricultural subsidies by way of reciprocity in trade negotiations: we discuss the issues important to you provided you agree to discuss the issues important to us. However, the two issues – trade facilitation and food security – were not at the same stage of discussion and the ministerial declaration did not envisage a parallel movement on them. A time frame of four years was agreed to arrive at a consensus on the vexed issue. What is relevant is that in these four years or until an agreement is hammered out, no country can take India to WTO dispute panel for having high subsidies.


We need to take a closer at the issue of food subsidies under WTO and food policies at home. WTO agreement on agriculture says that no country can spend on food subsidies more than 10 per cent of the value of its agricultural production. A subsidy higher than that is deemed to be distorting the global trade. What irks countries like India is the method of calculating subsidy. Per unit subsidy is computed as the difference between the minimum support price and the External Reference Price (ERP) reflecting the international price. However, the ERP is frozen at 1986-88 level but global prices have soared since then. So, even if India’s food subsidies are reasonable, given the artificially low ERP, these will appear too high.


India can certainly insist on revising ERP when the issue is discussed at WTO. Besides, it has other alternatives to protect its interests. It could suggest, for example, that price support operations at MSPs lower than the international prices should not be included in computing subsidies because they do not distort global trade. It could even suggest that increases in MSPs meant merely to neutralize inflation should not be regarded as breach of subsidy agreement.


In fact, in its own interest India needs to overhaul both its food security policies and apparatus to implement them. The current practice of FCI buying up unlimited quantities of food grains at MSPs and selling them at a lower price needs a through reexamination. It benefits only big farmers in states where FCI carries out price support operations, adds costs of FCI’s inefficiency to the food subsidy bill, artificially inflates open market food prices and creates distorted incentives for farmers. If we replace it with direct per-acre income support for every farmer in the country, it will slash subsidy bill, remove distortions and bring down open market prices. If we could supplement it with direct cash benefit for poor families, we could ensure food security at a much lower cost.


All this is true, you would say, but who the hell is WTO to tell us what we should with our food policies? The short answer is that India needs WTO. It is in the interests of all developing countries including India to have a multilateral body that works on the basis of consensus to regulate global trade. The alternative to WTO would be regional trade agreements or bilateral trade agreements with our trading partners where we could fare worse than under WTO.


In short, the WTO proposals are in sync with what India needs to do on its own. However, the UPA government has created such a strong rhetoric around food security and agricultural subsidy that even a Narendra Modi government finds it tough to break through it. That is a disappointment.   


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