India’s Victory at the WTO

Deft yet forceful bargaining has ensured that India is now in a formidable position to negotiate the cap on agricultural subsidies and public stockpiling on its own terms— for what is good for the millions of our poor, without bothering about possible sanctions from other countries.

On November 27, 2014, the World Trade Organisation’s (WTO) General Council took a decision that “until a permanent solution is agreed and adopted, and provided that the conditions set out in paragraphs 3 to 6 of the Bali Decision are met, Members shall not challenge through the WTO Dispute Settlement Mechanism, compliance of a developing Member with its obligations under Articles 6.3 and 7.2(b) of the Agreement on Agriculture (AoA) in relation to support provided for traditional staple food crops in pursuance of public stockholding programmes for food security purposes ” (Emphasis added).

This decision was followed by two others, operationalizing the Trade Facilitation Agreement (TFA) and to engage constructively on the Bali Ministerial decisions, including the work programme on the remaining Doha Development Agenda issues.

There was relief all around. WTO Director General Roberto Azevedo declared that “this is a very important moment for the WTO”. Developed countries, which were anxious that TFA might not get through the multilateral process and they might be pulled into a prolonged exercise to rope in individual countries through bilateral and plurilateral processes, were naturally happy. Many developing countries that were hitherto unsure and too timid to stand up to the pressures from the developed world were stunned.

India has all the reasons to be jubilant. After a long time, it is being seen as a strong player and natural leader of the developing countries. While India was seen as politically strong a few decades ago, it was weak on other important fronts—technology and economy. However, the present India has already been put in a different bracket by the world with regard to its prowess in these two areas. This recent development in WTO has the potential to change perceptions about India with regard to it being conscious of the immense power it holds.

While the world realizes India’s potential victory and emergence, it seems that it’s we Indians who need to be told again and again about our strengths and achievements.

When I posted the WTO development in a WhatsApp group comprising mainly civil servants, a friend who is presently Additional Commissioner in Customs and Central Excise was unconvinced. “It is just a deadline extension, what is so big about it? Let us see if we withstand pressures which would increase in the coming days,” was his pessimistic reaction.

We need to realize that it is not another simple ‘extension’. Obtaining reprieve from the threat of sanctions for ever is not a simple thing. To understand this, we need to first comprehend the complexity and perils of the situation faced by us before this development and consider a bit of international trade history as well.

As most of us would be aware, WTO, which came into effect in 1995, was preceded by GATT, the General Agreement of Tariffs and Trade, which was of 1948 vintage. The primary aim of these is to ensure that trade flows across the world are as smooth, predictable and free as possible. This is achieved through reducing tariff and non-tariff trade barriers. Though many countries were involved, two played a major role in the process: the UK and USA.

What prompted these countries to pursue this noble objective? As happens with most charity, the purpose behind it was enlightened self-interest. It was the UK which first understood in the 19th century that reduction of trade barriers across the world would improve the prosperity of its citizens. Being a leader in industrial production and modern technologies, the UK was quite right in that conclusion. USA subsequently understood this after the Great Depression of the 1930s: its raising of tariff rates had resulted in retaliatory measures by other countries and when the barriers rose everywhere, it lost more.

Can we then say that liberalization in international trade works only to the benefit of a few developed countries, as we used to think in our college days? Definitely not! The smooth flow of international trade and the reduction of mutual mistrust and retaliatory measures by countries through a multilateral platform like WTO has definitely improved the lives of billions across the world as is evident from various studies on this issue by economists cutting across ideologies. There is nothing to gain by refusing to join a multilateral platform and cocooning oneself, and this wisdom has resulted in 160 countries which account for 96% of world trade now part of WTO. However, this is not the focus of this article, let’s come down to the main issue.

One of the most important but hotly contested aspects of improving international trade is agriculture trade. On the one hand were historical insecurities with regard to food security of countries which had to rely on import of food under humiliating conditions to feed its citizens. On the other, there were serious moves by countries which were net exporters of agricultural commodities to strengthen their position or to further enhance their reach (that is, market access). Despite all these pulls and pressures, the Agreement on Agriculture (AoA) was negotiated during the Uruguay round and came into force with the establishment of the WTO in 1995.

One of the three pillars of this AoA, which is of paramount importance to India, is ‘domestic support’, which means subsidies that ‘cause distortion of trade or production of agricultural commodities’ should be minimal. Similarly, in due course of time, attention also was given to the stockpiling of foodgrains by countries—this was considered harmful to farmers elsewhere. There was a peace clause in AoA which guaranteed that no disputes or challenges on agricultural subsidies would be raised for a particular time period.

But while these noble terms were floated, the hard fact is that India, which was a net importer of food once, is a net exporter now. India emerged as the biggest exporter of rice in 2013 and as per International Trade Statistics of 2013, India’s share in world agricultural trade during 2012 was 1.1% positive, that is, while its imports were $ 25.7 billion (1.5% of world agricultural trade), its exports were at US $ 42.4 billion(2.6%).

In pursuance of the Doha Development Agenda which commenced in 2001, agricultural negotiations, among other issues, have been going on for 13 years now without any result in sight. India’s concerns on agriculture were hitherto primarily on the OTDS (Overall Trade-distorting Domestic Support) as well as cuts or caps on individual categories of domestic support, referred to as Amber Box, Blue Box and Green Box support. These boxes denote the varied levels of acceptance for the domestic support extended by governments. While green denotes ‘go’, blue doesn’t involve any negative reaction as long as the de minimis norm of support, limited to 10% of the value of the product (for developing countries), is not breached. Amber Box contains support mechanisms extended by a government that are considered harmful to international trade and farmers elsewhere.

Bali changed the dynamics. In the ministerial conference there, India was forced to bargain for a peace clause on capping its domestic support for agricultural produce and public stockpiling of foodgrains due to the fact that India’s rice and wheat subsidies were already nearing the de minimis limits (around 9%). The bargaining chip was the TFA or Trade Facilitation Agreement which was aggressively lobbied for by developed nations.

The TFA ensures smooth flow of international trade by simplifying and automating the customs procedures through information technology tools like online filing systems through electronic data interfaces which improve predictability, cut down red tape in clearing goods at customs ports and so on. As such there is nothing wrong with TFA and it is a welcome move; ultimately, India also will gain out of it. But India, as an intelligent negotiator, used this TFA as a bargaining chip since the gains to developed countries from TFA would be more than for countries like India, and that if this opportunity was not taken, India wouldn’t have any other chip in hand to force developed countries to appreciate its concerns about food security for its poor.

Through the peace clause agreed to in Bali, India was assured of not being hauled up before WTO’s dispute settlement mechanism and the resultant threat of trade sanctions only till 2017, by which time India should come to an agreement on its support mechanism and stockpiling. The current government, when assumed charge in May, realized to its peril that in another three years, India has to cap its subsidies at 10% of the value of agricultural produce. And as the base period was 1986-88, despite no real rise in subsidies, the government would be approaching the WTO-set limits; this pressure could thwart genuine negotiations for an amicable settlement on the issue of subsidies.

All Indians face this real life situation often—you are in a hurry to get to the railway station or hospital, and hail an auto-rickshaw. If the auto-rickshaw wala realizes that you are racing against time, would he ever agree to the fare on your terms? No! Similarly, who would agree to our terms during negotiations when they realize that India has to come to an understanding by 2017? Now, with the peace clause in place for an indefinite period, India is in a formidable position to negotiate the cap on subsidies and public stockpiling on its own terms—terms that would not put the Food Security Act in peril, terms that would not force us to reconsider subsidies under the threat of trade sanctions by other countries, terms that would not make us kneel before others.

Like many Indians, I believe we need to review our policies on food subsidies and stockpiling. Not only the quantum, but also the manner in which these are administered. We must relook at the policies in an atmosphere of empathy for our poor brethren, and to curb wastage and corruption.

Countries negotiate from different positions, with different objectives in WTO, though the words used may portray something very different. Others are bothered about their agricultural companies, the amount they have spent on R&D on developing agricultural products, and the prosperity of their farmers. But for us, it is a question of bread , if not butter, for our poor. This is the main reason why India went back on its Bali commitment and renegotiated the peace clause.

Recently I organized an online interaction with the MBA students of Amrita School of Business, Coimbatore, with a friend of mine and a senior colleague, at UNESCAP. Most of the students were concerned about the economic wellbeing of the country with the subsidies and the problems in food storage. My colleague was answering queries of students from Bangkok through Skype. He paused and asked them simple questions: Do you think that our poor need foodgrains at affordable prices? Do you realize that the poor citizen would be exploited by traders without a government mechanism to give foodgrains at administered prices? Do you realize the problem we could face if the government does not have sufficient stocks? The students unanimously answered yes.

The recent decision by WTO to indefinitely extend the peace clause has ensured all these. It has enabled India to negotiate the future of our agriculture subsidies and stockpiling with confidence, on our own terms—for what is good for the millions of our poor, without bothering about possible sanctions. These are some significant aspects of the victory that the Government of India has achieved for its people.