Raise the pitch

WTO ministerial conferences always raise high levels of expectations. Trade experts expect a breakthrough at every ministerial. The Hong Kong ministerial was, however, an exception.

WTO ministerial conferences always raise high levels of expectations. Trade experts expect a breakthrough at every ministerial. The Hong Kong ministerial was, however, an exception. The level of ambition was modest. It was at best a way-station en route to a final agreement that may take place at Geneva or at the next ministerial.

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India entered the Hong Kong ministerial from a position of strength. Significant changes have taken place in India’s position at the WTO. India, at Doha in 2001, had displayed grit and determination, even if it meant going it alone. It could no longer be ignored at the WTO. The WTO, which has been primarily US and EU driven, underwent a change in its balance of power at Cancun. The developing G-20 alliance on agriculture corrected the imbalance. Cancun altered the agenda for agricultural negotiations. Market access was no longer at the core of agricultural negotiations. Reduction and elimination of trade distorting subsidies prior to market access in agriculture being granted, occupied centrestage of the negotiations.

It is customary after each ministerial to either allege a sell-out by the government or for the government to claim a victory. Such a response in the context of the Hong Kong meet would not be a mature analysis. My purpose is to analyse where we stand after the Hong Kong ministerial.

The major decision taken is the elimination of export subsidies and other forms of export support by the end of 2013. The Doha declaration in 2001 itself had promised the phasing out and elimination of all export subsidies. The Doha round for the developed countries was to end export subsidies by about 2013. The decision, therefore, is in consonance with the Doha declaration itself. The elimination of export subsidies could not have gone much beyond 2013 since that appears to be among the last dates for implementation of the Doha development agenda. The Hong Kong ministerial merely fixed the last possible date with some element of front loading for elimination of the export subsidies. To call it a victory would be an exaggeration.

In any case, all forms of export subsidies and export support occupy merely 3 per cent of the total subsidy budget that the US and EU provide for their farmers. Our real concern has to be on elimination of the balance 97 per cent. Where do we stand on that after Hong Kong?

The domestic support subsidies, which occupied a major chunk of the subsidy bill, has been dealt with by the July framework agreement adopted in Geneva by the General Council on August 1, 2004. The draft is unhappily worded from the point of view of non-subsidising nations. The Geneva framework draft has given to developed countries a reasonable comfort level on the issue of subsidy reduction. It has legitimised the blue box. The blue box deals with production limiting subsidies.

The Geneva draft, which Hong Kong reaffirms, leaves scope for expanding the blue box since it speaks of additional criteria to be added to it. It accepts the principle that the green box, which deals with subsidising farmers for environmental and livestock protection, would be outside the reduction commitment. It hails the effectiveness of the green box. The Geneva draft provided for first expanding the blue box and then placing the green box outside the discipline and reducing the entire subsidy bill (excluding green box) to 80 per cent of the levels on an identified date. This marginal reduction with an ample scope for changing the scope of subsidies would continue to enrich the European and American farmers.

If domestic support subsidies are not substantially reduced and the mandate of Geneva is to ensure substantial reduction in agricultural tariffs, developing countries would be at a disadvantage. The subsidised products from developed countries would surge into developing and least developing countries. Even if we prevent that, our surplus products would not be able to compete in the global market with subsidised products. The rules of fair play have to remove trade distortions first. The Geneva draft does not provide that. Hong Kong merely incorporates the spirit of Geneva.

In India, we have 692 agricultural tariff lines. Of these, a substantial reduction in tariffs may push several products below the danger mark. If a surge of export agri-products commences in each tariff line, it has the potential to drive a few million farmers to destitution. Further reductions would be a fatal blow to our farmers.

Designation of unidentified products as special products and a special safeguard mechanism to be triggered off on price or volume triggers can never be a consolation. This can only be our third line of defence. The first line of defence is to negotiate all subsidy elimination. This will make our products competitive and renders it uneconomical for European and American products to enter our markets. The second line of defence is to keep our level of tariffs at a reasonable level of comfort. This will prevent a surge of subsidised products into India. It is only when these two mechanisms fail and a surge begins that we have to resort to the desperation of declaring some self-selected products as special products and trigger off a special safeguard mechanism. The number of products to be declared as special products are yet to be negotiated. Any expert trade negotiator would concentrate on the first two lines of defence. He would never leave his flanks uncovered on the first two lines of defence.

A serious concern arises about India’s negotiation strategy. Having agreed to give developed countries a comfort level in marginal subsidy reduction, we left our own defensive in terms of tariff reduction to be negotiated later. The two should not have been de-linked. This reduces our leverage to negotiate a high comfort level of tariff reduction.

The paragraphs in the Hong Kong declaration with regard to NAMA also raise several questions. We have agreed to the Swiss formula in tariff reduction. This entails that countries with higher tariffs will reduce more. The eventual level of reduction will be determined on the basis of multiple coefficients which are agreed upon. Having conceded to the acceptability of the Swiss formula we now have to struggle to negotiate favourable coefficients.

On an overall stage of health of the Indian economy, we can afford to be reasonably aggressive on the services negotiations. India’s manpower and knowledge resources are both on the rise. We provide services cheaper than any country in the world. The essence of international trade is that people will buy services or goods from wherever they can get quality at the lowest cost. The services negotiations are being delayed, to disadvantage. Even bilateral and pluri-lateral offers and requests need to be expedited. Our interests in services must be substantially offensive.

In the manufacturing sector, our interests present a mixed bag. Along with economies like China, we have a long-term advantage of low cost economy. Our products are going to be cheaper than those of the developed world. We, therefore, have much greater flexibility on NAMA.

Let it not be forgotten that trade negotiations are all about economic nationalism. You have to protect your own country’s national interest. The WTO is a big bazaar. It does not respond to political or moral appeal. You have to pay a price for concession that you get. You have to charge a price for the concessions that you give. A comfort level for subsidy reduction being conceded at Geneva should have had a modest tariff reduction simultaneously negotiated. The fact that we did not do so should be a lesson for us in the future.

The writer is Rajya Sabha MP