Why India stonewalled rich nations in WTO trade talks, and what happens next
India withstood mounting pressure to ratify a trade pact from the developed countries, which blamed India's hard bargain strategy for the eventual collapse of the talks. India's refusal to sign pact sends wrong signal: KerryUpdated: Aug 02, 2014 15:17 IST
Plans to kickstart a global initiative to ease customs rules across nations came unstuck on Thursday as India stood firm on its stand not to support the World Trade Organization's (WTO's) trade facilitation agreement (TFA) if it weren't bundled with a roadmap for rules on food subsidies.
WTO director general Roberto Azevêdo told ambassadors late on Thursday that despite intensive consultations, "we have not been able to find a solution that would allow us to bridge the gap" on the adoption of the protocol on the TFA. He urged members "to reflect long and hard on the ramifications of this setback".
"I have been exploring whether there are any possible ways that we might find convergence. However, I am very sorry to report that despite these efforts I do not have the necessary elements that would lead to me to conclude that a breakthrough is possible. We got closer - significantly closer - but not quite there," Azevedo said.
At the Bali ministerial in December last year, the WTO member countries had agreed to make trade easier, faster and cheaper by making systems transparent and reducing red tape by agreeing to adopt the TFA from July 31.
India, however, withstood mounting pressure to ratify the TFA from the developed countries including the United States which blamed India's hard bargain strategy for the eventual collapse of the talks putting the WTO's future on "uncertain ground."
In a statement, the US has regretted that "India and handful of (WTO) members" decided not to adhere to their commitment to implement the TFA consistent with the Bali agreement.
"The US is fully committed to the multilateral trading system embodied in the WTO. But the WTO system relies on its members to implement the commitments to which they have agreed," US trade representative Mike Froman said in a statement.
New Delhi, however, is of the view that without a permanent solution on food subsidies, India's public stockholding programmes such a buffer stock of food-grains will be hampered by the present ceiling on subsidy to farmers.
"This is a good enough time to think about our follow up action. Obviously our proposal is there on the table and we will pursue our proposal," Rajeev Kher, commerce secretary told PTI.
Existing rules cap the value of food subsidies at 10% of the value of production. But the way the support is calculated at prices of more than two decades earlier means many countries would find it difficult to stay within the limit, potentially attracting strong penalties from the trade body.
This will affect India's food security programme and food grain procurement through the minimum support prices (MSP).
"The MSP policy acts as a means to keep farmers engaged in cultivation and if this comes into question, the livelihood of half of India's population would be in jeopardy. More than 90% of India's farmers are resource-poor, who own less than 10 hectares of unirrigated land," a source said.
According to Indian trade negotiators, developed countries have pressed for early adoption of the TFA that will give them enhanced market access but have avoided discussions on other issues.
India also made a strong pitch for deciding on a roadmap with clear timelines for different stages till finding a solution by December31, 2014 and reviewing the progress by the WTO's General Council in October this year.
Not opposed to TFA
"India has no problem implementing the TFA. However, given the resistance to taking forward other decisions, the concern is that once the TFA is implemented, none of the developed countries is likely to come back to the negotiating table to discuss the food subsidy issue or any of the other non-binding outcomes of the Bali ministerial conference," a top government official told HT, requesting anonymity.
According to the official, India is already close to breaching the permissible levels of subsidies for rice and wheat offered through the MSP driven food-grain procurement system. "The only way to force action on the other decisions was to slow down the implementation of the decision on trade facilitation and the only time to do it was before the General Council adopted the protocol of amendment," the official said.
"Once the TFA is implemented, India would have lost the bargaining space for an outcome on food security," the source said.
Back to the drawing board
Azevedo indicated that it was back to the drawing board for the WTO. "The fact we do not have a conclusion means that we are entering a new phase in our work - a phase which strikes me as being full of uncertainties," the WTO director general said.
"We have a natural hiatus in our calendar as people leave for the summer break in the coming days," he said. "So I invite you all to use this time to think carefully about what the next steps might be. I urge you to reflect long and hard on the ramifications of this setback." "I think we should take the time to reflect and come back in September."
This stance to brazen it out, however, carries the risk of pushing India into a corner if the WTO decides to adopt the TFA by a simple majority. Besides, pressure from developed countries could adversely affect bilateral trade ties.
What's at stake?
The WTO's 160 member nations failed to adopt the trade facilitation agreement (TFA) by the July 31 deadline.
At the Bali ministerial in December last year, the WTO member countries had agreed to make trade easier, faster and cheaper by making systems transparent and reducing red tape by adopting the TFA by July 31.
What led to the collapse of the talks?
India made it clear that it would not support the TFA if it did not come together with a timeframe for food subsidies.
What's the deal with food subsidies?
- Existing rules place a cap on food subsidies at 10% of the value of production
- Calculated at a price of the mid-1990s, India and other countries would breach the permissible limit
- This will affect India's food security programme and food grain procurement through the minimum support prices (MSP)
What is India's stand?
- Not opposed to TFA, but wants it bundled with a permanent solution on food subsidies
- Wants deadline for adopting TFA pushed to December 31, 2014 from July 31
- Wants an institutionalsed mechanism to discuss food subsidies
- Wants a clear timeline on permanent solution to food subsidies by December 31, 2014
- Review of progress by the WTO general council in October 2014
Member nations will meet again in September at the WTO headquarters in Geneva to work a way out.
What are the risks for India?
- The WTO can adopt the TFA by a simple majority and isolate India
- Pressure from developed countries could adversely affect bilateral trade ties