Trade-off

Tags: Policy

India’s Bali win comes with an onerous reporting clause, huge trade facilitation cost

Trade-off
Negotiating a world trade agreement is like a gold fish reasoning with a hungry school of piranhas. India should know. It has been the minnow in the middle of the negotiations with the mighty economic powers right from the very start of global efforts to forge a trade agreement equitable to all countries.

President Pranab Mukherjee was India’s commerce minister in 1994. In that year he signed the agreement at a Gatt ministerial meeting in Marrakesh, which led to the formation of the World Trade Organisation (WTO) on New Year’s Day the following year.

He came back home to a volley of protests. In Parliament he faced accusations from opposition parties of having signed away India’s trade interests. In his typical forthright manner, Mukherjee stood up in the Rajya Sabha and gave it back to the opposition. “We cannot do trade in Sahara. We will have to trade with the US and the European Union. In any global trade agreement there has to be some give and take,” he told the House.

He couldn’t have better described the state of India’s global trade at the time.

From India’s perspective, the creation of WTO was a crossover moment. The years before were marked by high tariff and other kinds of severe trade barriers. With WTO, these barriers and duties began to be lowered gradually. The result has been there for all to see: in the mid-1990s India’s two-way trade with the rest of the world was worth just $25-30 billion a year. Today, inclusive of services it is worth nearly $1 trillion.

Global trade negotiations have always been dog-eat-dog, with each of the 160 member-countries working feverishly to protect its interests. But broadly it was a war of words and statistics between the developed economies and the developing ones.

The industrialised nations, given to flexing their bargaining muscle, invariably pressure the emerging economics for more concessions and easier access to their markets which hunger for sophisticated finished goods and technology. It goes to India’s credit that it has always stood for protecting the interests of the developing countries even at the cost of being isolated at times.

Any deal struck in WTO has to be through consensus. Sometimes a deal does not materialise because a country objects to a technical issue, as Cuba attempted do at the 11th hour at Bali.

At these negotiations, which seek to establish a rule-based global trading system, advanced countries always behave like they are more equal than the others. The Doha development agenda has specifically aimed to end the condescending attitude of the US and the European Union.

So, when the Indian economy started growing in strength, India too began to act tough, sending out the message that it could no longer be taken for granted in global talks, especially on farm trade. At the Bali meeting India’s position was well articulated by trade minister Anand Sharma.

Agreement on agriculture is a tricky proposition and liberalising farm trade is easier than done. In the developed economies the farm lobby is very powerful and use any means to force their governments to toe their line. In emerging economies like India agriculture and food security are a question of life and death; half of India’s 1.2 billion population is poor and depends on their small farm holdings for livelihood.

At the Uruguay round of trade talks two decades ago, India and the other developing countries had paid the price for trade liberalisation in agriculture. But in 2001 India stood its ground. It goes to the credit of the commerce and industry minister of the time, the late Murasoli Maran, who ensured that the emerging economies did not pay the price a second time. They refused to succumb to US pressure when the Doha development round was agreed upon.

Sharma has carried forward the flag of successive trade ministers who came after Maran like Arun Jaitley and Kamal Nath. At the Bali meeting Sharma, despite intense pressure from the US and at times even from countries like China and host Indonesia (two countries that had earlier gone along with India’s stance), did not yield. The ‘give’ in this is an interim arrangement in which India has made sure that an unfair limit on food subsidies is not imposed on the developing nations. The arrangement will continue until a permanent solution is found in four years or more.

The interim arrangement is as follows: there will be protection to public stockholding programmes for food security purposes in developing countries even if an earlier prescribed 10 per cent limit is exceeded. (The limit pertains to the food subsidy payable on the basis of prices prevailing in 1986-88.) This protection will be available till the members agree on a permanent solution for adoption by the 11th ministerial in four years from now.

Called the ‘peace clause’, this helps India in implementing its food security plan smoothly without curtailing subsidy payments for grain procurement.

India’s other interest, an agreement on trade facilitation that was reached at Bali, will help eliminate red tape and bureaucratic hurdles for goods shipped around the globe. India’s port and other infrastructure are still inadequate in both capacity and efficiency. The agreement will help remove bottlenecks, helping two-way trade enormously.

The Bali agreement is the first multilateral trade accord in the 20-year history of WTO. It should help increase global growth, create jobs and reduce poverty. Or at least that’s what world leaders hope. Trade facilitation is expected to increase customs efficiency and collection of revenue. Besides, measures like transparency in customs practices, reduction of documentary requirements, and processing of documents before goods arrival are expected to encourage small businesses to look closer at and seize export opportunities.

There is a view that India and the other developing countries may have fended off the challenge to food security programmes, but the final agreement may turn the tables on them. Countries with such programmes will not be protected by the four-year peace clause. The onerous reporting requirements put the onus on the developing countries to prove that its stockholding programme is not ‘trade distorting.’

So while the supposed protection itself is suspect, derived in return for a vague package of reforms for the least developed countries, the trade facilitation measure could benefit only some of the developing countries. Some of them could face demands for more trade facilitation measures than they can prudently grant.

The facilitation package comes with binding commitments on the developing countries to streamline customs and other trade systems. Though the timetable is flexible, the developed countries have not promised funding to support such improvements, critics say.

A cash-strapped government could end up or be forced to give priority to improving port computer systems over public health or education. The critics say the Bali deal is nothing great for emerging economies like India though there are several positives in food security and trade facilitation.

In the end, the main beneficiaries of trade facilitation are the transnational firms best placed to export and import and which always look for easier access to developing markets. This is the never-ending story of WTO. The Bali package does not deviate from the script.

The right to food is worthy of the lofty development ideals of the Doha round, according to the Global Development and Environment Institute, Tuffs University. But instead of a ‘special and differentiated treatment’ for the developing countries, India gets special and differentiated punishment in the garb of the peace clause, Timothy A Wise, director of the research and policy programme of the institute, said in a post.

He said the US opposition to India’s food security programme exposed its hypocrisy. India’s food security and stockholding programme would use precisely the same policies that the US had used in its early farm policy coming out of the Great Depression of the 1930s.

Price support, food reserves, administered markets and subsidies in India are similar to what the US did at that time and they worked. “India and other countries should be allowed to use them because they work,” he said. Also, WTO’s ‘green box,’ meant to hold non-trade-distorting subsidies, was now home to about $120 billion of the $130 billion US nutrition programme and farm supports. “This dwarfs India’s commitments,” Wise said.

Nevertheless, the Bali accord is still a landmark decision because India succeeded in getting a commitment from the member-countries, particularly the US, to undertake a work programme for finding a permanent solution and let India be with its food programme in the interim period, according to commerce ministry officials.

A point of note is that if the work programme is not completed by the 11th WTO ministerial conference, possibly in 2017, the interim provisions will continue to apply. This will safeguard the interests of India beyond 2017 if a permanent solution is not found by then.

Politically, the Congress party can claim the WTO deal as its major victory that will help roll out UPA’s food security programme ahead of the 2014 general elections. In addition, it will help blunt the BJP argument that India has given up its right to negotiate food security on a permanent basis by agreeing to the peace clause.

The Bali package is the first success in the Doha round of negotiations aimed at helping the developing and poor countries. For India the victory is particularly sweet, as it has had its way despite other major players like China and Brazil disagreeing with it. South Africa, and large African countries like Kenya and Nigeria, besides Argentina stood by India.

India has still not exceeded the 10 per cent subsidy limit, but higher minimum support prices and increased purchases are pushing up the domestic subsidy level. Civil society groups, however, point out that developing countries can still be dragged to WTO and penalised for violation of the rules on subsidies. The Indian government does not agree though. Sharma also said there were no restrictions on launching new food security schemes.

The Bali deal ensures that the minimum support price given by governments will not be called into question internationally – at least not until a permanent solution is found. This is a notable contribution to the democratisation of WTO.

The trade facilitation agreement will require changes in Indian laws (especially the Customs Act), a quicker transition to electronic payments across ports and a special set of rules to speed up courier flow at airports. Once implemented, this will go a long way in fostering a secure, predictable and efficient system for movement of goods.

An Unctad study estimates that in India the 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. With the gradual reduction in tariffs across the globe, the customs compliance cost at times exceeds in many instances the cost of payable duties.

If these problems are fixed as part of trade facilitation, there will be 3-4 per cent saving in costs, making India’s exports that much more competitive.

krsudhaman@mydigitalfc.com

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • Amit Shah deserved to be crowned President of India, some say

    The Bharatiya Janata Party is now firmly in the hands of Modi’s alter ego, which in plain English means ‘another side of oneself, a second self’

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

Arun Nigavekar

Necessary yet inadequate boost to education

The finance minister, in the very first minutes of his ...

Zehra Naqvi

We must overcome the fear of death

It is the biggest irony that the only thing that’s ...

Dharmendra Khandal

Jawai leopards and locals can coexist peacefully

At first glance, the Jawai landscape seems like a large ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture