The Doha Round of global trade talks is supposed to help alleviate problems, such as today’s food crisis, through freer trade. For developed and developing countries alike, a trade deal would open up new markets and provide new sources of income for farmers. A successful deal would correct trade distortions caused by subsidies, break down market access barriers and take into account the subsistence nature of agriculture in most developing countries.
Illustration: Jayachandran / Mint
Unfortunately, the new agricultural text circulated last month in Geneva falls far short of this vision. The impasse is largely due to the reluctance of the major subsidizers among developed countries — such as the US and the European Union (EU) — to make meaningful offers regarding subsidy reductions, as well as their demands for compensation to reduce their subsidies.
Clearly, more political will is needed. The EU cannot yet negotiate beyond the boundaries of its Common Agricultural Policy (CAP). EU agriculture commissioner Mariann Fischer Boel announced a “health check” on CAP last year, but recently, European governments which are big recipients of CAP funding have started making noises about opposing reforms. In the US, President George W. Bush rightly vetoed the Congress’ $300 billion pork-laden farm bill late last month — but the Congress passed it anyway. The US has exacerbated the crisis by diverting crops into ethanol production with the help of substantial subsidies.
For the US and EU, Doha has always been about greater market access for developed countries, rather than rebalancing global trade in favour of development. For us, Doha is as much about fair trade as it is about freeing trade.
The major subsidizers insist they can’t cut these subsidies unless developing countries such as India increase market access for their agricultural businesses. In the context of increasing liberalization in world trade, there was never any justification for such developed-country subsidies in the first place.
To demand compensation for reducing subsidies simply adds insult to injury.
Developing countries aren’t opposed to free trade. But conditions for free trade have to be created. Developing countries cannot be expected to subject their subsistence farmers to competition from hugely subsidized agricultural products. I have said several times that we are ready to compete with any farmer in the world, but not with their treasury departments. To enable our farmers to be competitive, the huge investment deficit in agriculture in developing countries has to be addressed.
Clearly, we can no longer rely on multilateral institutions to bridge that financing gap. Overall, only 2.9% of international development assistance goes to agriculture at present. In real terms, the World Bank’s lending in agriculture presently is one-fourth of what it was in the 1980s.
Under these circumstances, developing countries can’t throw open their markets immediately without great cost to their poorest citizens. Additionally, the current investment surge into agricultural commodity futures — a type of insurance against unstable currencies — has added a new element of volatility and unpredictability into our food markets.
This has serious implications for food security in developing countries. Policymakers will obviously need to insulate their vulnerable populations from such market volatility.
It is for these reasons that several developing countries, including India, have asked for a separate dispensation for tariff liberalization for their especially sensitive agricultural products. This dispensation, which was agreed to by ministers in July 2004 and in the Hong Kong ministerial conference, is a bedrock of the Doha mandate.
The twin instruments of “special products” and the “special safeguards mechanism” allow developing countries to take lower or no cuts on such products. It also enables them to invoke safeguard measures against import surges or sudden price declines that could hurt subsistence farmers.
It is essential that these demands are fully addressed in the Doha negotiations to provide a secure environment for increased food production in developing countries. If ever there was a time for developed countries to recognize the importance of the Doha Round flexibilities, it is now, when the increasing vulnerability of millions of people is so obvious.
At the World Trade Organization, there may be a temptation to use the food prices crisis to whip up momentum for a quick deal, which is unlikely to solve the current crisis but would risk a further weakening of developing countries’ agricultural systems. Clearly, this would be unacceptable. Negotiations must be concluded properly, based on the Doha mandate, with development at the heart of the trade round. Developing countries should not be forced to aim for an ever-diminishing “landing zone” for Doha, one which is largely defined by developed countries and which goes against our national interests and the right of our people to food security and development. The Doha Round provides us a historic opportunity to correct structural flaws in the global trading system, not perpetuate them.
While the food crisis poses a serious challenge to the world community, it is also an opportunity. High food prices mean high incomes for farmers in developed countries. This should make it easier for developed country policymakers to withdraw the unnecessary crutch of subsidies and to open up their markets. It is only by allowing markets to work properly, and without distortions, that we can find sustainable solutions to today’s crisis.
The Wall Street Journal
Kamal Nath is minister for commerce and industry. Comment at email@example.com