Illustration by Shyamal Banerjee/Mint
Illustration by Shyamal Banerjee/Mint

India’s fiction of victory at Bali

By giving in to pressure from the US and EU, India has landed itself and the developing world in a bad trade deal

The stenographic cacophony in the Indian media had a singular triumphalist message from the ninth World Trade Organization (WTO) ministerial meet in Bali: India had secured a major victory by safeguarding its food security programme and stood its ground against the US and the European Union (EU). And in doing so, we had also managed to facilitate a historic deal that not only saved the WTO but will also result in windfall gains in increase in global trade due to enhanced trade of upto $1 trillion and more than 18 million new jobs created in developing countries. Nothing could be further from the truth.

The three main pillars of the agreement reached at Bali between the 159 trade ministers who had gathered there were: trade facilitation, agriculture including the G-33 (group of developing countries) proposal on public stock holding for food security purposes and a package for the least developed countries (LDCs).

By conceding to an early harvest package, where all three of these were clubbed together, India and the G-33 had already lost the plot by giving a major concession to the developed countries by agreeing to negotiate on trade facilitation as part of the Doha development round when it had been all along a part of the Singapore issues that included more contentious issues of investment, government procurement and competition policy. All of these had been kept out of the Doha round of negotiations in the interests of the developing countries.

On trade facilitation, India and the developing world agreed to binding commitments to improve infrastructure at ports, put in place systems to facilitate faster custom clearances and invest in automation, computerization and homogenous documentation to facilitate faster movement of goods. The gains of this will mostly be to Western corporations and as the excellent review by Jeronim Capaldo shows, the figure of $1 trillion increase in international trade is largely fictional. It does not account for the costs that developing countries will have to incur to implement the trade facilitation deal.

As for the 18 million jobs being created, the assumptions are even more flawed, as Capaldo notes, since they neither factor in the loss of jobs that developing countries will incur as economies open up to international trade nor the higher unemployment that liberalization entails by tilting income distribution in favour of workers in the exporting sectors.

The trade facilitation deal was thus a major concession to the US and the EU and far less to the developing world. Investments to ensure trade facilitation in the LDCs will be at the cost of the infrastructure development in health, education and social safety nets. No financial commitments were made binding on developed countries to support LDCs in creating the systems for trade facilitation. The equality for all principle of the WTO reminds one of Anatole France’s dictum: “The law in its majestic equality forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread."

The LDC package, which was used as a wedge to divide the developing nations, did not, even in the opinion of commerce minister Anand Sharma, go beyond “pious intent". It remains to be seen if any benefit at all accrues to the LDCs because of the Bali package. While there was unanimity in global civil society and most governments in the developing world that the LDC package needed to be strengthened, the Bali package failed to deliver that.

The victory on the food security front that India claimed is by far the most galling of the three main pillars of the Bali package because it exemplifies the majesty of the hypocrisy of the US and the EU, and indeed the foundational basis of the WTO. The seeds of this inequity were sown in the Uruguay Round and codified in the agreement on agriculture (AoA). The US and the EU got away with very high agriculture subsidies simply because they provided much higher subsidies to their farmers when the ink dried on the agreement in 1994. This allowed $19 billion (currently) in trade distorting subsidies to the US and none for 61 of the 71 countries such as India. This was because these countries had none of these subsidies.

US academic Timothy A. Wise rightly notes that much of the US subsidies are for crops such as wheat, soybean, cotton and corn, which are exported and are, therefore, trade distorting while much of India’s subsidies are in reality non-trade distorting since they are mostly for domestic consumption. (see: http://www.globalpost.com/dispatches/globalpost-blogs/global-pulse/obama-administration-food-security-act).

The argument that the minimum support price (MSP) mechanism offered to Indian farmers by the government distorts global trade found only one vocal supporter in the developing world—Pakistan—which alleged that the MSP paid was adversely affecting Pakistani exports of rice and were therefore trade distorting. The fallaciousness of this claim has been thoroughly exposed by Jacques Berthelot of the French organization Solidarité, since India does not provide a MSP for Basmati rice, which forms 40% of Pakistani rice exports in value terms. If anything, Berthelot shows that the export competitiveness of Pakistani Basmati is decreasing precisely because of the fact that Pakistan is not investing adequately in its agricultural sector.

The G-33 proposal that India had led from the front during the run-up to Bali in the negotiations at Geneva dealt precisely with this hypocrisy of the developed world. It was backed not only by global civil society but also by the UN Special Rapporteur on the Right to Food, Olivier de Schutter, who had urged the world to adopt the G-33 proposal on food security (see: http://www.srfood.org/en/bali-package-must-allow-ambitious-food-security-policies-un-expert-on-wto-summit). Doing so would have virtually sounded the death knell of the AoA and ensured that no country could drag India to the dispute settlement mechanism of the WTO either under the AoA or the agreement on subsidies and countervailing measures (ASCM).

It is to be noted here that a large number of developing countries, including India, have either exceeded or are on the verge of exceeding their quota of 10% of agricultural production as subsidies that was agreed under the AoA. This agreement that subsidies be based on an external reference price of 1986-88 that has since not been updated. India’s initial argument was not even for a dramatic revisit of the AoA, it was merely the updating of this price to current prices which would ensure that subsidies were under the unfair limit imposed by the AoA. The peace clause, which was part of the G-33’s supplementary October proposal guaranteed an indefinite period until a permanent solution was reached for the non-invocation of the dispute settlement mechanism both under the AoA and the ASCM.

At Bali, India agreed to the constructive ambiguity of the text which inserted the word interim to the peace clause, which implies that it will be in place till a permanent solution is found and accommodated the US position by agreeing to a resolution in four years until the 11th ministerial meeting that is four years ahead.

So far so good.

The peace clause agreed to by India guarantees that no country can be dragged to the dispute settlement mechanism under the AoA but remains silent on the ASCM, which still leaves developing countries vulnerable to hostile litigation from the US and the European Union, even though it seems unlikely that they will do so.

The most damaging part of the agreement on public stock holding is that it will be “in pursuance of public stockholding programmes for food security purposes existing as of the date of this agreement". While this protects India to some extent, since the National Food Security Act (NFSA) is already in place, as is the MSP, it will not allow other developing countries to adopt similar programmes. It is also clear that the exemption will not cover non-staples.

Arguably, even India now stands constrained from expanding the NFSA and the MSP mechanism, even though it is a subjective interpretation of the text. That subjectivity is further deepened when read with Para (4) of the text, which also adds that countries “shall ensure that stocks procured under such programmes do not distort trade or adversely affect the food security of other members".

India has also agreed to very onerous data requirements that will now have to be provided to reflect the basis of all subsidy calculations. Even with its robust statistical infrastructure, it will be an uphill task for India, and for some developing countries, a near-impossible one.

The agreed text in the Bali meeting is a long walk from a much-needed rewriting of the AoA, which both the US and the EU vehemently oppose since it was written with extensive inputs from their agricultural export corporations and thus tilted in their favour.

It is in these details, that India has not only let itself down but also the G-33 and the entire developing world, by first championing a collective draft that would have led to fairer rules and then bilaterally modifying the text with the US, in complicity with the WTO Secretariat which, as the WTO director-general Roberto Azevêdo noted, “Put the WTO back in business."

If the developing world expected India to take a moral position vis-a-vis the US and the EU, Sharma chose the missionary position instead. And no prizes for guessing who was on top. To be triumphalist with a claim of victory gives masochism a bad name.

Biraj Patnaik is the principal adviser to the Commissioners of the Supreme Court in the Right to Food case. Comments are welcome at theirview@livemint.com

Close