Is WTO working for India and China?

A view of the plenary meeting of the 11th ministerial conference of the World Trade Organization in Buenos Aires, Argentina. Photo: AFP

Every two years or so the world’s trade ministers meet in a great location (Buenos Aires this year) and promptly proceed to lock horns over the most intractable trade issues facing the world, the rich world on one side, the poor and middle-income on the other. These ‘ministerial conferences’ are the World Trade Organization’s “topmost decision-making body”. No, really—that’s what the WTO says. It’s just that these meetings—Buenos Aires was the 11th since 1996 —never actually seem to take any decisions at all. Rather, they have become famous for what we journalists derisively call a “collapse.”

An exception in this long and inglorious list seemed to be Bali (Indonesia) in 2013, where, after protracted directionless negotiations on food security, quite suddenly there appeared an agreement. Just like that, India said it would sign on to something that the US and other rich nations had been clamouring for, a trade facilitation agreement (TFA), which basically aims to harmonise customs rules and regulations across the world. (The idea is to cut red tape: the United Nations Conference on Trade and Development estimates that your average customs transaction involves 20–30 different parties, 40 documents, 200 data elements, 30 of which are repeated at least 30 times, and the re-keying of 60-70 per cent of all data at least once.)

In return for this gesture, the US and other developed nations apparently promised not to block proposals for food stockholdings made by India, China and other developing nations. The proposal concerns a WTO rule on countries’ public stockholding programmes for food security—for instance, India’s procurement of foodgrains for its subsidized food supply programme or the minimum support prices it offers to farmers as a cushion against falling commodity prices. The cost of these programmes—basically a country’s food subsidy bill—says the WTO, must not exceed 10% of the value of production based on the reference price of 1986-88.

The reason is a fear, articulated by net food importing countries, that a massive food procurement project might end up distorting global commodity prices. On the other hand, a country like India is home to a large population for whom subsidized food supplies are the difference between life and death. It is also a country with a history of famine under colonial rule, and is not likely to compromise on its freedom to roll out domestic policies aimed at ensuring food security, something that indeed is guaranteed by the Right to Food Act. The Act, the last great package of entitlements signed off by the previous government led by Manmohan Singh, aims to provide subsidized food grains to around two-thirds of India’s population, described by the agriculture ministry at the time as the “biggest ever experiment in the world for distributing highly subsidized food by any government through a ‘rights based’ approach.”

After considering some options (such as changing the value of total production, or even the base year), the Bali meeting decided to seek a permanent solution to the problem, so that developing countries like India, with their large poor populations to support, could never be hauled up to the WTO for breaching the ceiling.

In Buenos Aires, the US told a meeting of key nations involved in negotiating the matter that it could not agree to a permanent solution—not in Buenos Aires at any rate. In a strong statement, India said it is “surprised and deeply disappointed that despite an overwhelming majority of members reiterating it, a major member country has reneged on a commitment made two years ago to deliver a solution of critical importance for addressing hunger in some of the poorest countries of the world.”

India wasn’t tilting at the windmills in a lonesome noble mission. The proposal has the full backing of the Africa Group as well as important nations such as China. The rich nations are on a sticky wicket and their renege calls into question how much they value the multilateral system as also how much they can be trusted by developing countries in the future.

On the other hand, developing countries have good reasons to confront the US on this matter. All WTO members are signed up to the principle of ‘special and differential treatment’, provisions that accord developing countries special flexibilities, including longer time periods for implementing agreements and commitments as well as measures to increase trading opportunities for developing countries.

“For countries like India, the development objective of trade is all-important,” said Jill Atieno Juma, policy analyst at CUTS, the international non-governmental body that specializes in global trade issues. “It is my understanding that developing countries cannot be referred to the WTO’s dispute resolution mechanism for breaches” of the public stockholding provision.

“On legal and tech grounds you cannot. However, in case of breaches, countries need to give prior notification.” Atieno Juma, however, argued that from a policy perspective, “having an indefinite moratorium places you in a dicey situation. It becomes a never-ending argument. What would be better would an outcome that takes care of the national interest of the developing and least developed countries, so that their farmers get a good payoff.”

There can be no equivalence between the developed and developing worlds on matters of such sensitivity as food security. And the reasons for the US to dig its heels in the negotiations can only be strategic—the matter of principle involved in the US posture is hard to detect.

The UN’s State of Food Security and Nutrition in the World 2017 report says the number of undernourished people in the world increased to an estimated 815 million in 2016, up from 777 million in 2015. India alone is home to 190.7 million of them—a 14.5% prevalence of hunger vis-a-vis its total population.

Guaranteed minimum farm prices are key to the survival of predominantly agricultural societies, and India is one despite massive strides in manufacturing and services.

Robert Reich, the academic and former labour secretary in US president Bill Clinton’s government notes: “Fewer than 2 percent of Americans even work on a farm. Yet about half the population of the developing world depends on farming for their livelihoods. But they can’t earn what the global market would otherwise pay them, because America’s subsidized farm exports keep prices artificially low.”

The US posture in Buenos Aires, while protecting its own farm subsidies worth billions of dollars, combined with its withdrawal from the climate change agreement, risks compromising the shared prosperity that global trade is supposed to bring for developing countries such as India as well as rich ones like the US.