Pursuing Politics or Perfection?

The agreement reached in Bali at the World Trade Organization ministerial meeting relied on a draft proposal from India, permitting temporary price supports and famer subsidies until WTO rules are reformed. Critics agree that intentions behind such food guarantees are well-meaning, but India’s program is riddled with inefficiencies, distorting what farmers choose to grow. The Bali agreement is built on the Doha Round, initiated in 2001 after the 9/11 attacks as an effort to revise trade rules on agriculture and end ongoing subsidies from wealthy nations that block poor nations, which depend on agriculture, from competing in global markets. Near breakdown in pre-negotiations made agreement seem unlikely, as suggested by Nayan Chanda, YaleGlobal editor, in his column for Businessworld, published just prior to the announcement that surprised many observers. However, the Bali package is built on promises, and these admonitions and others will undoubtedly be repeated in years ahead. The bottom line for Chanda: A fair rule-based trading, set up by WTO, without strange subsidies and loopholes, benefits all. – YaleGlobal

Pursuing Politics or Perfection?

India stands to gain from the WTO agreement in Bali, but only if trade rules are reformed and subsidies and loopholes end
Nayan Chanda
Wednesday, December 11, 2013

In the aftermath of the terrorist attacks of September 11, the World Trade Organisation (WTO) ministers met in Doha to launch a new trade agenda and there was a great sense of urgency. The world body wanted to adopt policies to help curb the anger by reducing the enormous gap between the rich and the developing world. But in the dozen years since, the urgency has diminished though the rich-poor gap has not. The Doha agenda is dead, and with the breakdown of the preparatory negotiations, Geneva’s 10th WTO ministerial meeting in Bali this week too is in danger. This is a failure that would not be in India’s interest and the country should not be party to bringing about the collapse of the talks.

The Bali meeting’s very limited agenda of trade facilitation — reform to reduce the transaction costs and remove a plethora of non-tariff barriers costing hundreds of millions of dollars — has run into headwind from bureaucrats and vested interests. For its self-interest the low export performer India should support the agreement. The other issues threatening the agreement include India’s efforts to get a free pass to give unlimited agricultural subsidy which runs up against the WTO cap. 

India’s Food Security Act, which entitles 700 million people to inexpensive food, would require a highly subsidised delivery of food grains that would be in breach of WTO’s cap of 10 per cent of total value. As a compromise, India has been offered a four year waiver under a “peace clause”. 

The WTO has also agreed to the Indian demand to seek a permanent solution before 11th ministerial meeting in 2017. This should have been a reasonable deal to accept, but political demagogy, six months before the election, has brought obligatory denunciation of surrender to the world body. The government’s announced plan to fight for a better deal is laudable, but one hopes that the search for the perfect deal does not become the enemy of the good. 

There are no dearth of politicians who will rejoice at the collapse of WTO talks but they should remember that it would mean that without the four-year waiver India would be in violation of existing rules and thus subject to sanctions.

When Indian Parliament adopted the Food Security Act there were voices that questioned the wisdom of such a gigantic food subsidy plan. The question is not about the urgent need to feed the hungry in a country self-sufficient in food and a top food exporter. The issue is of efficacy of a system to funnel 62 million  tonne of food grain through the corruption-ridden public distribution system. Subsidised government procurement has already distorted the economies of agriculture, encouraging farmers to grow grain rather than cash crops and has led to massive wastage in overflowing warehouses. 

The current system of subsidies through fertiliser and electricity supply have also proved to be most inefficient and have burdened the country with unsustainable deficit. Yet, there are alternative ways to end hunger. This would be the time to use the Unique Identification Aadhaar card that reaches over 430 million Indians and can be linked to a bank account to implement direct cash transfers to the needy. It would not only be effective, but also fully WTO compliant, falling into the so-called “green box” of allowable subsidies. 

Even if one discounts the claim of the International Chamber of Commerce that the Bali deal would add $960 billion to the world economy and create 18 million new jobs in developing countries, the value of the WTO, even in its weakened state, is beyond question. 

India would not be where it is today without the benefits of rule-based trading set up by WTO.  

The author is editor-in-chief of YaleGlobal Online, published by the MacMillan Center, Yale University.

Copyright © 2013

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