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Saturday, 02 August 2014 00:00
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India puts its faith in bilateral basket, not multilateral

While the government is projecting the collapse of WTO talks on the Trade Facilitation Agreement (TFA) as a sign of its unwavering commitment to food subsidies for the poor, some supporters of its stance have begun to argue that the US has no moral authority to criticise India given its use of laws like Special and Super 301 and their use to get Japan, for instance, to accept voluntary export restraints in the past. The US being an active party in the dialogue on the Trans-Pacific Partnership (TPP) is seen as yet more evidence of how the US wants to bypass the WTO system. Seductive as the arguments seem, they are largely irrelevant. For one, as this newspaper has pointed out before, the WTO is not concerned about food subsidies, it is only concerned about the distortionary impact on trade. This distortion takes place when, after the Food Corporation of India pushes very subsidised grain through the ration shop system, a large part of it finds its way to export markets, thereby distorting global trade.

While there are several solutions that can be proposed to fix such distortions, the most viable one is cash support to farmers and to individual families, all of which are permissible under even current WTO rules. To the extent the WTO revises its two-decade old external reference price, India gets more room on food subsidies, but the current regime isn’t hurting India either. Given the four-year peace clause agreed to at Bali, India had plenty of time to either get the WTO rules changed or to get its direct benefits transfer scheme in place. Once this is done, and the poor are given food subsidies in cash, the outgo falls to a third or a fourth of what it is today. And given that all farmers could be provided a cash subsidy, this is infinitely superior to the current system where only richer farmers who sell their produce to FCI get any form of income support, and this is restricted to the few states that FCI operates in.

That the US/Europe have abused their dominant position is a fact of life, what India needs to worry about is what its options are in a world where WTO rules don’t apply. In a situation where the TPP takes off, a large chunk of global trade in goods and services will take place on preferred terms and India may not get to be a part of this—certainly, the obligations under a TPP cannot be less onerous than those under WTO. Given how global trade is slowing, it is in India’s interests to do whatever it takes to keep WTO going, not to prevent even routine trade deals—while the TFA had to be ratified by July 31, India had a 4-year window for settling the food subsidies issue. What is ironical is that while, like the US and others, India also goes about working on bilateral trade deals to get preferential trading terms in case the WTO process gets stuck, two wings of the same ministry are fighting it out on whether free trade pacts are hurting or benefiting the country.


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