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Wednesday, 09 December 2015 00:58
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More flexibility is called for, not more rigidity


Predictably, commerce minister Nirmala Sitharaman has dug in her heels ahead of the Nairobi WTO ministerial meeting, and talked of how many of the issues agreed to in earlier rounds need to be addressed before any new issues are brought up. Sitharaman is right in opposing the attempt by developed countries to wind up the 14-year-old Doha Round, but why oppose negotiation on investments—they are being done on a plurilateral basis and, in any case, India is welcoming of FDI in most areas. And why insist on a permanent solution to the food-stocking-by-FCI issue since India has been given a permanent ceasefire on this by the US anyway? Besides, trade negotiations are a tricky business, and take place in a world where relations are constantly realigning—no WTO strategy can afford not to pay close attention to large trade pacts that are being stitched up like the Trans-Pacific Partnership between countries that account for a fourth of India’s exports. That India does not want to be part of a TPP-type trade pact is obvious since it will have to dilute its stand on patents and also significantly dilute market access barriers/duties. But, it is precisely because multilateral fora like the WTO protect India’s interests that India needs to show more flexibility.

Also, while several WTO positions—on food security and food subsidies—appear unfair, they are in India’s long-term interest. The WTO definition of aggregate measure of support (AMS) at 1986-88 prices needs to be updated for inflation—several experts argue this is actually allowed under WTO rules—but there are easier ways around this. If India was to give fertiliser subsidies by way of cash transfers to farmers, and fashion them as US-style ‘income-support’, India could be within even the unfair WTO rules; if cash transfers were made to the poor instead of the elaborate FCI-led procurement-cum-PDS system, this would reduce the AMS since the FCI-payments are considered to be subsidies in the WTO system. That India would save by having much lower buffer stocks, and could use this money to pay for crop insurance and much more is an additional bonus. Similarly, countries should be allowed to stock foodgrain or other items for distribution to the poor, but WTO members have a point when they say this cannot be allowed to distort trade. There is a nuanced argument even here since, while FCI clears its stock at a discount and some part of this finds its way into export markets, that’s because FCI is inefficient—in the case of paddy, while FCI procured it at Rs 1,310 per quintal last year, the economic costs ended up at around Rs 2,210-2,396. So when the stock is cleared, it has to be sold at below the economic cost, but there is no real subsidy involved—all that is being done is to ensure FCI’s inefficiency is not passed on to private buyers. But if FCI was to buy less grain—it buys anywhere between 2-3 times what is required—and food subsidies were given by way of cash transfers, there would be no need to then offload grain in the market at what looks like a subsidy.

Another reality that needs to be kept in mind is that as India signs more bilateral pacts with countries in the EU, for instance, it will have to lower import duties and grant higher market access. So far, the dominant view in the government is that India has not benefited as much as its trade partners have. The primary reason for this is that, in many areas, India is simply not competitive enough. Given that India is most competitive in areas where import duties are the lowest and where there is greater market access/competition, the solution is to unilaterally cut duties and lower market access barriers. That will also give a big fillip to the WTO process since, if India doesn’t thwart it, the WTO can march ahead—let’s not forget, when the US lowers tariffs bilaterally instead of plurilaterally, it also incurs losses as it is no longer sourcing from the cheapest country.


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