Crisis Time for India Again at the WTO

8/13/2019 Crisis Time for India Again at the WTO

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Economic & PoliticalWeekly EPW october 26, 2013 vol xlviii no 43 31

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 Outdated WTO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.

There is a parallel between the par-

tial shutdown of the United States

(US) federal government in early

October and the negotiations at the

Doha Round of the World Trade Organi-

sation (WTO) ahead of the Bali mini-

sterial 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 conces-

sions through the showdown. We cant

make extortion as part of [our] democ-

racy, 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 Republi-

cans are echoed in the attitude of UStrade negotiators at the WTO. The US

remains determined to extract a multi-

lateral agreement on trade facilitation as

part of the Bali package at the ninth

ministerial conference beginning in

about six weeks.

The UShas also rejected the G-33 pro-

posal tabled by Indonesia, India and

China for either revising the methodol-

ogy or updating the external reference

price (ERP) of foodgrains, which is at the

heart of a flawed 1994 agriculture agree-

ment 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 ambi-

tious National Food Security Act (NFSA)

kept outside future scrutiny by the Dis-

putes 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

finalising the Bali package involving

trade facilitation, some elements in agri-

culture, and development flexibilities

for the poorest countries are often lik-

ened 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 facili-

tation agreement is well known. The

trade facilitation agreement is supposed

to be about simplifying customs proce-

dures in both the advanced and deve-

loping countries, but in essence it is

about easing import procedures in only

the developing and least-developed

countries (LDCs).

The US remains strongly opposed tofinding legitimate solutions in other out-

standing issues in agriculture and devel-

opment that would benefit the develop-

ing 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 long-

pending issues such as on enabling the

developing and LDCsto secure an effec-

tive and enduring mechanism to con-tinue with public stockholding progra-

mmes for food security. This was actu-

ally provided for earlier in a footnote to

the 2008 revised draft WTOagreement

on agriculture,1but this is not something

the USis now willing to consider. The US

is also adamant about not implementing

a deal to gradually phase out most trade-

distorting export subsidies and export

credits in agriculture, a process that was

set out in the 2005 Hong Kong mini-

sterial agreement. Likewise it has

been unwilling to carry out the phased-

elimination 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


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october 26, 2013 vol xlviii no 43 EPW Economic & PoliticalWeekly32

of origin as well as enabling the LDCsto

have simple and effective preferential

rules for export to the advanced coun-

tries. The non-preferential rules ought

to have been concluded in 1998. But

negotiations remain perpetually bloc-

ked due to opposition from one member

who is now supported by her neighbour

Canada. But yet, as part of the trade

facilitation agreement, the USand other

industrialised and a few large deve-

loping 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 beneficiary of the

import liberalisation or trade facilitation

measures is China more than the US. But

China is silent on trade facilitation whilethe UStakes the leadership for an ambi-

tious 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 pro-

vide the requisite infrastructure facili-

ties for customs clearance. The draft

trade facilitation agreement, which runs

into some 30-odd pages, involves many

amendments to the URagreement.

But when it comes to providing reliefto developing countries for continuing

with legitimate public stockholding pro-

grammes for food security, the constant

refrain from Washington, which is sup-

ported by the European Union (EU), is

that it would undermine the UR disci-

plines on agriculture. The URagreement

on agriculture is a special deal struck

between the USand the EU(called the

Blair House agreement of 1993) to shel-

ter their respective farm subsidies from

facing any trade disputes at the WTO.

The resulting WTO agriculture agree-

ment 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

and export credits. Surprisingly, there is

an unholy pact between the leading

farm subsidisers (the EU, Japan, Norway,

Canada and Switzerland) and the cham-

pions of liberal farm trade (Australia,

New Zealand and Chile), and the USin

opposing any amendment to the disci-

plines on agriculture that are patently

flawed and outdated. While the devel-

oped 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 devel-

oping countries are subjected to strict

Amber Box disciplines.

Constraints on India

India, China, Indonesia, Philippines,Kenya, Nigeria and most other develop-

ing 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 out-

lay 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 MSPand a fixed ERP

of as long ago as 1986-88. The ERPof ricenotified by India is Rs 3.52 per kg while

the current years MSPis Rs 19.65 per kg.

Thus the Indian subsidy on rice per kg

according to the existing URagreement,

at present, will come to a whopping

Rs 16.13 per kg. By a rough calculation,

using the same methodology, Indias

entitlement to use MSPthis 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 reflect current global prices or

deflating the current MSPto bring it to

the 1986-88 levels, by using World Bank

inflation figures, 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

Clause, which will provide temporary

respite for no more than two years from

legal challenge at the WTOfor the NFSA

breaching the de minimis support levels

as decreed in the 1994 UR agreement.2

Another example of the lopsided pri-

orities in the WTOin point is the approach

to cotton subsidies which play havoc

with millions of poor people in Africa.

The 2005 Hong Kong Ministerial Decla-

ration called on the trade-distorting

members such as the USand the EU to

address cotton ambitiously, expedi-

tiously, and specifically in the agricul-

ture negotiations. It has long been estab-

lished 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 forthe heavily subsidised cotton farmers in

one country.

Little wonder that the charges hurled

at the Tea Party cowboys are now rever-

berating at the Centre William Rappard

in Geneva that houses what the Seattle

protesters of 1999 called Whose Trade

Organisation is it anyway? Indeed, the

USTrade Representative (USTR) Michael

Froman recently set out what his admini-

stration wants at the WTO. His clear

demand issued at the WTOPublic Forum

in early October was: if Bali fails to delivera 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 partici-

pants at the meeting. The success or

failures of negotiations in this room [in

stitching a strong, binding trade facili-

tation agreement] over the next four

weeks will write the future of this insti-

tutionEvery member of this institu-

tion has its hand on the pen, he not-so-

politely warned the negotiators.

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Economic & PoliticalWeekly EPW october 26, 2013 vol xlviii no 43 33

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 USTRgave no guarantee that the

USwill focus all its energies on the WTO

and multilateral trade liberalisation

once there is an agreement on trade

facilitation. Washingtons continued pre-

occupation with bilateral, regional, and

plurilateral agreements will continue.

The main attraction of plurilateralagreements, for many, is that they offer

a way forward, Froman has empha-

sised. Like minded countries the coa-

lition of the working [willing] can

come to open markets, set high stand-

ards and introduce new disciplines for

global trade, the USTRhas added.

But the USTRhas 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 indus-

trial goods (which was agreed at the2005 ministerial), a waiver from under-

taking services commitments, and elim-

ination 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 gen-

eral 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

flawed 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 dis-

torting the global market in a way that

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 agri-

culture agreement are being shut out.

The USTRhas 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 indus-

trialised 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 USand 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 issomewhat puzzling that while there is

no time to amend a flawed provision in

the 1994 agreement on agriculture con-

cerning the ERPprevailing 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-and-take framework with which all the 159

members of the WTOcan live with seems

unlikely? The [Bali] Ministerial Confer-

ence must send an unequivocal message

to the world: the WTOcan negotiate and

deliver multilateral trade deals, the

director general said in a letter to minis-

ters a fortnight ago. The best way to

send this message is to have a successful

negotiated outcome at Bali in Decem-

ber, Azevedo has argued.

No Guarantees

Is there a guarantee that after pocketing

a binding trade facilitation agreement,

the trade majors will address the unre-

solved reform of agriculture and other

developmental concerns in the Doha

Round? Why is it always difficult for the

developing and poor countries to secure

credible outcomes for any of their con-

cerns at the WTO? More importantly,

why is it that the big boys who are now

pursuing a plurilateral agreement in

trade in services and an expanded agree-

ment on informational technology prod-

ucts are not ready to have a similar

plurilateral agreement in trade facilita-

tion, giving developing countries the

freedom to opt out since they have so

many concerns?

If the ongoing meetings convened by

the WTOdirector 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 UShas

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 glo-

bal trade, particularly agriculture. Theformer Brazilian Foreign Minister Celso

Amorim would often describe agricul-

ture as the engine of the Doha talks. It is

another matter that under the leader-

ship of a former Brazilian trade official,

the WTOwill have a multilateral trade

agreement in Bali with little value for

removing trade-distorting export subsi-

dies and credits in agriculture or ensur-

ing public stockholding programmes for

food security for those living below a

dollar a day.

The ups and downs in Doha tradenegotiations which are caught in a

deathly cycle are largely due to the ele-

phant in the room. There was a flicker of

hope that the round would turn the cor-

ner during the period between the Can-

cun 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 final 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 mar-

ket access at zero tariffs for industrial


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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 emerg-

ing economies. Subsequently, when it

came to removing farm subsidies, the

major subsidiser for cotton would always

insist that China should remove its cot-

ton subsidies and provide market access.

The trust and confidence 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 WTOmin-isterial meeting in 2011, the contours of

the blurring image of the Doha Round

were further changed. Effectively, a sig-

nal 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 investmentand competition policy. Although the

Singapore issues as a group died a vio-

lent 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 intensified negotiations on

two plurilateral agreements involving

the expansion of the Information Tech-

nology Agreement and Trade in Services

Agreement (TISA). While the ITA-II is

expected to be concluded at the Bali

meeting, the TISAnegotiations will spill

over into next year. So, the WTO will

become the hub for harvesting plurilat-

eral agreements in coming months.

The intensive consultations to tidy the

Bali package by the director general

have brought into sharp focus the intran-

sigent positions and the sharp differ-

ences 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 con-

verging in trade facilitation. According

to the WTO director general customs

cooperation, flexibilities for developing

countries and LDCsand implementation

plans, customs brokers, pre-shipment

inspection, consularisation, and cer-

tain transit issues were the most diffi-

cult issues in trade facilitation. Surpris-

ingly, the letter is silent on differences

on advanced rulings and various other

issues raised by the USand other mem-

bers of the so-called Colorado Group.

The Colorado Group is the engine for

trade facilitation agreement like thedefunct G-20 coalition was for agricul-

ture reform.

Essentially, the trade facilitation nego-

tiating mandate would involve new

rules for Articles V, VIII and X of the

General Agreement on Tariffs and Trade

with the objective of expediting move-

ment, release and clearance of goods

without hurdles, including goods in

transit. While the changes in Article V

call for creating smooth transit move-

ment of goods through the territory of

other WTOmembers, ArticleVIIIaims atharmonising border procedures, forma-

lities, and charges. Changes in Article X

call for creating prompt publication of

trade laws and regulations and also uni-

form impartial and reasonable adminis-

tration. 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 com-

mitments which are proposed by the

major industrialised and some develop-

ing countries in Section 1, the develop-

ing and poorest countries are promised

technical and financial assistance for

capacity building. But the USand 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 finan-

cial assistance.

Conclusions

In sum, it is back to the old system at the

WTO, the advanced countries are push-

ing their agenda through a combination

of plurilateral and multilateral agree-

ments, without incorporating develop-

ing country concerns or, equally seri-

ously, 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 com-

mitments to create new customs infra-

structure at its major and minor ports in

order to facilitate imports. A temporary

Peace Clause deal for two years on pub-

lic stockholding programmes will leavethe NFSA marooned in no time, apart

from seriously jeopardising the future of

the food procurement programme,

which has helped India achieve food

self-sufficiency and provides an impor-

tant tool to provide price guarantees to

our farmers.

Notes

1 The revised draft of a possible agriculture dealthat was issued in December 2008, provided anexplicit footnote to enable the developingcountries to continue with their public stock-

holding programmes for food security progra-mmes. The footnote was a result of sustainednegotiations and a compromise solution bet-ween the key members such as the US, theEuropean Union, India, Brazil, Australia andChina.

2 There was a peace clause in the 1994 WTOAgreement on Agriculture as well, but thatwas between the giant subsidisers the US andEU and it decreed that the subsidy pro-grammes in the US and EU would not betaken to the DSB before end-2004 coincidingwith the implementat ion period of the URagreement. The idea being that in the inter-vening period the EU and the US would findways to reduce the subsidies. That did nothappen and that peace clause also stood for aslong as 10 years.

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Crisis Time for India Again at the WTO