INSIGHT

Crisis Time for India (Again) at the WTO

A Correspondent

The upcoming Bali ministerial conference of the World Trade Organisation threatens to constrain the National Food Security Act even before it is fully implemented. Outdated WTO provisions will severely limit the extent of food subsidy India can provide and the best the United States is willing to agree to is a two-year reprieve. More generally, Bali is also expected to see a very lopsided outcome with a US-led initiative succeeding in ramming an expensive trade facilitation agreement down developing countries throats and refusing to address long-standing issues in agriculture and rules of origin.

here is a parallel between the partial shutdown of the United States (US) federal government in early October and the negotiations at the Doha Round of the World Trade Organisation (WTO) ahead of the Bali ministerial in December. The backdown or shutdown strategy of a dominant faction of the Republican Party brought public ridicule at home and abroad. President Barack Obama has charged the Republicans for extorting concessions through the showdown. We cant make extortion as part of [our] democracy, he says. The Republican hawks are lampooned for their unreasonable demands, brinkmanship, incessant and intimidating threats, pressure exerted through powerful lobbies on the administration, and lack of give and take in negotiations. The criticisms heaped on the Republicans are echoed in the attitude of US trade negotiators at the WTO. The US remains determined to extract a multilateral agreement on trade facilitation as part of the Bali package at the ninth ministerial conference beginning in about six weeks. The US has also rejected the G -33 proposal tabled by Indonesia, India and China for either revising the methodology or updating the external reference price (ERP) of foodgrains, which is at the heart of a awed 1994 agriculture agreement that would limit the food subsidy India can provide. India therefore runs the serious risk of coming away from Bali without having its new and ambitious National Food Security Act (NFSA) kept outside future scrutiny by the Disputes Settlement Body (DSB) of the WTO. It seems that the best India can hope for is a temporary two-year reprieve from being taken to the DSB for exceeding WTO -decreed subsidies.

Washingtons negotiating positions in nalising the Bali package involving trade facilitation, some elements in agriculture, and development exibilities for the poorest countries are often likened to my way or high way approach. That the proposed Bali outcomes lack internal balance and appear heavily tilted in favour of a massive trade facilitation agreement is well known. The trade facilitation agreement is supposed to be about simplifying customs procedures in both the advanced and developing countries, but in essence it is about easing import procedures in only the developing and least-developed countries (LDCs). The US remains strongly opposed to nding legitimate solutions in other outstanding issues in agriculture and development that would benet the developing countries and create a balance in the Bali package with the outcome on trade facilitation. Almost like the extremists in the Grand Old Party (GOP) who brought about the shutdown because of the Affordable Care Act, also known as Obamacare, the US says no to longpending issues such as on enabling the developing and LDCs to secure an effective and enduring mechanism to continue with public stockholding programmes for food security. This was actually provided for earlier in a footnote to the 2008 revised draft WTO agreement on agriculture,1 but this is not something the US is now willing to consider. The US is also adamant about not implementing a deal to gradually phase out most tradedistorting export subsidies and export credits in agriculture, a process that was set out in the 2005 Hong Kong ministerial agreement. Likewise it has been unwilling to carry out the phasedelimination of non-preferential rules of origin as mandated in the 1994 Uruguay Round (UR) agreement, and introduce a duty-free and quota-free market access for the LDCs. Expensive Trade Facilitation A major gateway issue to facilitate trade, for example, is harmonising complex and burdensome non-preferential rules
31

Economic & Political Weekly

EPW

october 26, 2013

vol xlviii no 43

INSIGHT

of origin as well as enabling the LDCs to have simple and effective preferential rules for export to the advanced countries. The non-preferential rules ought to have been concluded in 1998. But negotiations remain perpetually blocked due to opposition from one member who is now supported by her neighbour Canada. But yet, as part of the trade facilitation agreement, the US and other industrialised and a few large developing countries want to harmonise their customs rules and disciplines for all members regardless of the costs and weak technical capacities to implement them. Actually, the biggest beneciary of the import liberalisation or trade facilitation measures is China more than the US. But China is silent on trade facilitation while the US takes the leadership for an ambitious agreement in this area because it will then have an expedited shipment process for its pharmaceutical and auto exports and be able to get advance rulings from the WTO and introduce penalty discipline if countries fail to provide the requisite infrastructure facilities for customs clearance. The draft trade facilitation agreement, which runs into some 30-odd pages, involves many amendments to the UR agreement. But when it comes to providing relief to developing countries for continuing with legitimate public stockholding programmes for food security, the constant refrain from Washington, which is supported by the European Union (EU), is that it would undermine the UR disciplines on agriculture. The UR agreement on agriculture is a special deal struck between the US and the EU (called the Blair House agreement of 1993) to shelter their respective farm subsidies from facing any trade disputes at the WTO. The resulting WTO agriculture agreement is a patchwork without legitimacy and coherence. No wonder then that the leading subsidisers continue to provide billions of dollars either through income support or income insurance or income loss compensation programmes in the supposedly non-distorting Green Box (exempt from reduction), and in the trade-distorting Amber Box, and Blue Box and also by way of export subsidies
32

and export credits. Surprisingly, there is an unholy pact between the leading farm subsidisers (the EU, Japan, Norway, Canada and Switzerland) and the champions of liberal farm trade (Australia, New Zealand and Chile), and the US in opposing any amendment to the disciplines on agriculture that are patently awed and outdated. While the developed countries managed to shield all their subsidies in the Green Box, which is protected from legal challenge and to which they are shifting their subsidies in a surreptitious manner, the minimum support price (MSP) programmes of developing countries are subjected to strict Amber Box disciplines. Constraints on India India, China, Indonesia, Philippines, Kenya, Nigeria and most other developing countries have no Amber Box or Blue Box subsidy entitlements. They can only provide de minimis support, which is a minuscule (2%) part of their value of production of a particular crop. The outlay on procurement through MSP that India incurs has to be within the limits of de minimis support and the method of calculating the subsidy is basically dependent on taking the difference between the current MSP and a xed ERP of as long ago as 1986-88. The ERP of rice notied by India is Rs 3.52 per kg while the current years MSP is Rs 19.65 per kg. Thus the Indian subsidy on rice per kg according to the existing UR agreement, at present, will come to a whopping Rs 16.13 per kg. By a rough calculation, using the same methodology, Indias entitlement to use MSP this year would be limited to 10 million tonnes, whereas its requirement for procurement is being projected by the government at around 34 million tonnes. The G -33 coalition of developing countries (including India, China and 43 others) has proposed either updating the ERP to reect current global prices or deating the current MSP to bring it to the 1986-88 levels, by using World Bank ination gures, so as to have some semblance of rationality restored to the calculations. However, all that the developed countries have offered so far as part of the Bali package is a Peace
october 26, 2013

Clause, which will provide temporary respite for no more than two years from legal challenge at the WTO for the NFSA breaching the de minimis support levels as decreed in the 1994 UR agreement.2 Another example of the lopsided priorities in the WTO in point is the approach to cotton subsidies which play havoc with millions of poor people in Africa. The 2005 Hong Kong Ministerial Declaration called on the trade-distorting members such as the US and the EU to address cotton ambitiously, expeditiously, and specically in the agriculture negotiations. It has long been established that the cotton subsidies are a blot on the global trading system and their pernicious effects are felt in various African countries. But the issue remains in cold storage because it is a red line for the heavily subsidised cotton farmers in one country. Little wonder that the charges hurled at the Tea Party cowboys are now reverberating at the Centre William Rappard in Geneva that houses what the Seattle protesters of 1999 called Whose Trade Organisation is it anyway? Indeed, the US Trade Representative (USTR) Michael Froman recently set out what his administration wants at the WTO. His clear demand issued at the WTO Public Forum in early October was: if Bali fails to deliver a binding trade facilitation agreement, then, it is the end of the road for the trade body. Make no mistake: The choice of scenario lies with those of you in this room, Froman told the participants at the meeting. The success or failures of negotiations in this room [in stitching a strong, binding trade facilitation agreement] over the next four weeks will write the future of this institutionEvery member of this institution has its hand on the pen, he not-sopolitely warned the negotiators.

available at

Uniquality
83, Janapath, Bapujee Bazar Bhubaneshwar 751 009 Orissa Ph: 2530064, 2530024
vol xlviii no 43
EPW Economic & Political Weekly

INSIGHT

After years of efforts to deliver on Dohas development mandate, we can reduce costs of trade for developing countries most of all, said Froman, even suggesting that other areas of reform in agriculture or rules in the Doha agenda are inconsequential compared to the gains from trade facilitation. By some estimates, a trade facilitation agreement is estimated to reduce costs for developed countries by 10%, but for developing countries by 14%, he has claimed. The USTR gave no guarantee that the US will focus all its energies on the WTO and multilateral trade liberalisation once there is an agreement on trade facilitation. Washingtons continued preoccupation with bilateral, regional, and plurilateral agreements will continue. The main attraction of plurilateral agreements, for many, is that they offer a way forward, Froman has emphasised. Like minded countries the coalition of the working [willing] can come to open markets, set high standards and introduce new disciplines for global trade, the USTR has added. But the USTR has remained silent on what the poorest countries want at Bali. The LDC group has pressed for favourable rules of origin, duty-free and quota-free mechanism for their industrial goods (which was agreed at the 2005 ministerial), a waiver from undertaking services commitments, and elimination of cotton subsidies. The group which is coordinated by Nepal at the WTO said unambiguously that trade facilitation is not their priority issue. They challenged the new director general Roberto Azevedo from Brazil to show that their concerns can be treated on a priority basis. US No to Food Programmes As regards the core issue of the members of G -33 farm coalition who are seeking an exemption for public stockholding programmes for food security from the awed WTO disciplines, the USTR says we support food security. But if countries [India, China, Indonesia, the Philippines] are going to take new steps in this area, we call on them to do so in a transparent manner and without distorting the global market in a way that
Economic & Political Weekly EPW

creates food insecurity for farmers and consumers in other countries, Froman has demanded. Effectively, India and other developing countries who are demanding an amendment in the agriculture agreement are being shut out. The USTR has not offered any reasons for why these developing countries with huge populations cannot get a binding mechanism to address food security at the Bali meeting, while a group of industrialised and some developing countries can stitch a brand new binding trade facilitation agreement that fails to address the complex rules of origin. Of course, the US and its allies have maintained repeatedly that the G -33 issue can only be addressed after the Bali meeting because of the paucity of time before the December meeting. It is somewhat puzzling that while there is no time to amend a awed provision in the 1994 agreement on agriculture concerning the ERP prevailing in 1986-88, which is at the core of the G -33 proposal to continue with the public stockholding programmes, there is enough time to remove around 400 square brackets (unresolved issues) in the draft trade facilitation text in the next four weeks. Is it any surprise, therefore, that the prospects for a fair and balanced agreement at Bali based on a give-andtake framework with which all the 159 members of the WTO can live with seems unlikely? The [Bali] Ministerial Conference must send an unequivocal message to the world: the WTO can negotiate and deliver multilateral trade deals, the director general said in a letter to ministers a fortnight ago. The best way to send this message is to have a successful negotiated outcome at Bali in December, Azevedo has argued. No Guarantees Is there a guarantee that after pocketing a binding trade facilitation agreement, the trade majors will address the unresolved reform of agriculture and other developmental concerns in the Doha Round? Why is it always difcult for the developing and poor countries to secure credible outcomes for any of their concerns at the WTO? More importantly, why is it that the big boys who are now
vol xlviii no 43

pursuing a plurilateral agreement in trade in services and an expanded agreement on informational technology products are not ready to have a similar plurilateral agreement in trade facilitation, giving developing countries the freedom to opt out since they have so many concerns? If the ongoing meetings convened by the WTO director general on three areas of the Bali package are any indication, it is clear the pendulum has already swung in favour of trade facilitation. The US has succeeded in bringing this pronounced shift towards trade facilitation which was never at the core of the Doha Round. The Doha negotiations which were launched 12 years ago were meant to address the historical inequities in global trade, particularly agriculture. The former Brazilian Foreign Minister Celso Amorim would often describe agriculture as the engine of the Doha talks. It is another matter that under the leadership of a former Brazilian trade ofcial, the WTO will have a multilateral trade agreement in Bali with little value for removing trade-distorting export subsidies and credits in agriculture or ensuring public stockholding programmes for food security for those living below a dollar a day. The ups and downs in Doha trade negotiations which are caught in a deathly cycle are largely due to the elephant in the room. There was a icker of hope that the round would turn the corner during the period between the Cancun ministerial in 2003 and the Hong Kong ministerial in 2005. But events over the last eight years, especially since 2010, have put paid to hopes that the Doha Round can be put back on the rails. Several factors are at work but chief among them is a concerted campaign carried by some dominant members to turn the Doha agenda upside down and cause a nal haemorrhage. Of course, they are happy to harvest in the organs of their choice from the Doha corpse. China, India, Brazil and South Africa and the other emerging economies have been portrayed as responsible in the last four years for the impasse in the Doha Round, because they did not offer market access at zero tariffs for industrial
33

october 26, 2013

INSIGHT

products. Although the Doha mandate did not provide an explicit mandate for sectoral tariff elimination, the trade majors took it on themselves to exert unprecedented pressure on the emerging economies. Subsequently, when it came to removing farm subsidies, the major subsidiser for cotton would always insist that China should remove its cotton subsidies and provide market access. The trust and condence among members was vitiated and ultimately, the oxygen was sucked out from what was called the Development Round. The plaint former director general Pascal Lamy played his part at the behest of the dominant powers and declared in 2009 that the Doha trade negotiations were at a grave impasse and could not be salvaged. Come the eighth WTO ministerial meeting in 2011, the contours of the blurring image of the Doha Round were further changed. Effectively, a signal was given to dominant powers to start negotiations in areas of their choice. After cobbling a plurilateral agreement in government procurement at the 2011 ministerial, the big boys chose to target their energies on trade facilitation. Both government procurement and trade facilitation were part of what in 1996 came to be called the Singapore issues that also included trade and investment and competition policy. Although the Singapore issues as a group died a violent death in 2003 Cancun, government procurement and trade facilitation were back on the agenda the former in its current form as a plurilateral agreement and the later as a multilateral trade agreement. Push to Plurilaterals And in a further blow to Doha, the trade elephants intensied negotiations on two plurilateral agreements involving the expansion of the Information Technology Agreement and Trade in Services Agreement (TISA). While the ITA-II is expected to be concluded at the Bali meeting, the TISA negotiations will spill over into next year. So, the WTO will become the hub for harvesting plurilateral agreements in coming months. The intensive consultations to tidy the Bali package by the director general
34

have brought into sharp focus the intransigent positions and the sharp differences in all three areas. In his letter to the trade ministers in early October, the director general has mentioned that a number of issues that are not yet converging in trade facilitation. According to the WTO director general customs cooperation, exibilities for developing countries and LDCs and implementation plans, customs brokers, pre-shipment inspection, consularisation, and certain transit issues were the most difcult issues in trade facilitation. Surprisingly, the letter is silent on differences on advanced rulings and various other issues raised by the US and other members of the so-called Colorado Group. The Colorado Group is the engine for trade facilitation agreement like the defunct G -20 coalition was for agriculture reform. Essentially, the trade facilitation negotiating mandate would involve new rules for Articles V, VIII and X of the General Agreement on Tariffs and Trade with the objective of expediting movement, release and clearance of goods without hurdles, including goods in transit. While the changes in Article V call for creating smooth transit movement of goods through the territory of other WTO members, Article VIII aims at harmonising border procedures, formalities, and charges. Changes in Article X call for creating prompt publication of trade laws and regulations and also uniform impartial and reasonable administration. The ultimate goal is to reduce trading costs and facilitate trade for exporters which, in turn, results in import facilitation in the destination market. As a sop for implementing the commitments which are proposed by the major industrialised and some developing countries in Section 1, the developing and poorest countries are promised technical and nancial assistance for capacity building. But the US and the EU along with their supporters of the Colorado Group who are propelling the negotiations on trade facilitation with binding commitments, are not willing to give binding commitments when it comes to providing technical and nancial assistance.
october 26, 2013

Conclusions In sum, it is back to the old system at the WTO, the advanced countries are pushing their agenda through a combination of plurilateral and multilateral agreements, without incorporating developing country concerns or, equally seriously, addressing long-pending issues in agriculture. New Delhi wants to be a big player and seems unable to stand up to Washingtons pressures in core areas. Going by current signals from New Delhi, the country will come back from Bali after accepting costly binding commitments to create new customs infrastructure at its major and minor ports in order to facilitate imports. A temporary Peace Clause deal for two years on public stockholding programmes will leave the NFSA marooned in no time, apart from seriously jeopardising the future of the food procurement programme, which has helped India achieve food self-sufciency and provides an important tool to provide price guarantees to our farmers.
Notes
1 The revised draft of a possible agriculture deal that was issued in December 2008, provided an explicit footnote to enable the developing countries to continue with their public stockholding programmes for food security programmes. The footnote was a result of sustained negotiations and a compromise solution between the key members such as the US, the European Union, India, Brazil, Australia and China. There was a peace clause in the 1994 WTO Agreement on Agriculture as well, but that was between the giant subsidisers the US and EU and it decreed that the subsidy programmes in the US and EU would not be taken to the DSB before end-2004 coinciding with the implementation period of the UR agreement. The idea being that in the intervening period the EU and the US would nd ways to reduce the subsidies. That did not happen and that peace clause also stood for as long as 10 years.

available at

NEBS
208, West High Court Road Dharampeth Nagpur 440 010 Maharashtra

vol xlviii no 43

EPW

Economic & Political Weekly