GS-3, Indian Economy

WTO Talk Explained!

The meeting is in Nairobi, but everyone is talking about the Doha round of negotiations. Why?
Formed in 1995, the WTO has 162 member countries. In 1999, violent protests by activists shut down the WTO meeting in Seattle, US, forcing the organisation to restart the new round in 2001 in Doha, the capital of Qatar. This round focused on the problems of developing countries, aiming to provide them a level playing field in the global trading system that critics say is tilted in favour of the rich nations, specially the US and EU.

The bloc of rich nations, critics say, has successfully stonewalled efforts to reform their trade-distorting farm subsidies that have derailed export competitiveness in agriculture. At the same time, they have pushed through issues of importance to their interests, such as the Trade Facilitation Agreement that will further open up markets to their goods and services.

This agreement was pushed through in Bali, where the last ministerial was held in December 2013, even as India’s food stockpiling policy was held up. More on this policy later.

Why is this round of talks important?
The Nairobi ministerial will define the future direction of WTO and the multilateral trading system. In the face of dogged opposition from activists, the developed world has taken to signing regional trade pacts such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership.

These agreements, which bring together the rich countries in a secretive pact with emerging economies, hit at the very heart of a free and fair multilateral system. The club of the elite can bypass the rules enshrined in WTO and also exclude the majority of the world’s developing countries from a very large chunk of trade. Both China and India are excluded from these trade agreements.

Further, the rich nations are asking for the Doha round of negotiations to be junked, claiming it has delivered very little so far. This has set up a clash with two sides staking out hardline positions on the basic question: should the focus be on implementing the development agenda of the Doha Round as the developing countries insist or should it be junked as the rich countries demand.

What are the major sticking points?
The major sticking point is the elimination of agriculture subsidies of the rich countries to spur export competition in global agriculture. Under a 2006 ministerial agreement, these were to be eliminated by 2013. This did not happen. In fact, new policies, such as the US Farm Bill of 2014 have ensured that there will be no cut in their export subsidies.

All attempts by developing countries to reach a compromise have failed over the years. In the latest attempt in November, just weeks before the Nairobi conference, Brazil, Argentina and some other members came up with a compromise proposal that would see developed countries getting rid of their export subsidies by 2018. But this, too, was cold-shouldered.

The developed countries have refused to acknowledge that agriculture subsidies have been the single biggest stumbling block to a more equitable trade order.

Is it just about agriculture?
No. In recent rounds, the rich nations have been pretty brazen in pushing negotiations on new issues such as a second Information Technology Agreement and elimination of tariffs for environmental products under the Environmental Goods Agreement. 

Analysts point out that India has already paid a huge price for entering into such agreements. The first Information Technology Agreement, which India signed in 1996, forced it to eliminate tariffs on more than 200 IT products, virtually decimating its hardware industry.

India is under tremendous pressure to join the second Information Technology Agreement and the Environmental Good Agreement. But experts say if the country is keen to establish indigenous industrial capabilities and create employment as Prime Minister Modi’s pet project Make in India envisages, signing these agreements would preclude such possibilities.

Who are India’s allies at the meeting?
This is where it gets tricky. The developed countries have been pushing what they calls the “new approach”, part of which entails the categorisation of China and India as part of the developed bloc. Both countries have resisted the notion that developing nations should be redefined on the basis of growth rates. To strengthen their position, they have put together a seemingly strong coalition of the BRICS nations (Brazil, Russia, India, China, South Africa), other developing countries and the least developed countries.

Unlike in Bali when it was not able to bring the least developed countries on board, this time, India has this time around aligned itself firmly with the issues of interest to the poorest nations. But not everyone is convinced this alignment will work.

For one, Brazil now is clearly in the camp of rich nations ever since its ambassador Roberto Azevedo took over as WTO Director General two years ago.

Two, India itself is pursuing closer ties with the US. “We know that India is interested in reinforcing its economic relations with the US and is talking of how we should not be left out of the regional trade agreements that are being discussed,” said Dinesh Abrol, a professor at the Institute for Studies in Industrial Development. “If New Delhi thinks it is better to join the mega trade agreements then how do you expect India to resist the US and EU on the new issues of investment, government procurement, competition, environment, energy security, labour and regulatory coherence?”

So what could happen in Nairobi?
Developing countries face a hard bargain since developed countries are determined to fast track the trade liberalisation agenda while brushing aside the development dimension, says Biswajit Dhar, professor at Jawaharlal Nehru University’s Centre for Economic Studies and Planning.

As such, “the demise of the Doha agenda is a highly probable scenario,” predicts Dhar, one of the foremost trade analysts in the country. “The argument will be that if Doha Round has not progressed satisfactorily in 14 years, it has very little chance to move forward. No questions are likely to be asked as to who stalled the progress in the negotiations.”

What stand has the Indian government taken?
Commerce Minister Nirmala Sitharaman has been trying to exude optimism. She has repeatedly said that India will not budge from its stand on agricultural issues including the country’s contentious public stockholding of food crops which came under attack in the last ministerial in Bali. India pays its farmers above market price for their grain harvests, which the US and EU countries have argued amounts to giving them an unfair advantage over foreign producers, thus violating WTO rules. India, however, maintains this is essential for its food security.

The minister has also made clear that India does not intend to yield on the Special Safeguard Mechanism which allows countries to temporarily raise tariffs to deal with surging imports and subsequent price falls.

But how long India will be able to withstand the pressure tactics of developed nations to drop the Doha agenda is a big question

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