By Sudipta Bhowmik, KIIT School Of Law, Bhubaneswar.
Behind the extremely technical debate within the WTO, what is at stake above all are models of agricultural development.[1] -Dr. Bruno Losch
“Trade can be a powerful force for growth and poverty reduction. Countries that have increased the share of trade in their GDP have grown faster and reduced poverty more rapidly”[2]–Nicholas Stern
INTRODUCTION
The establishment of World Trade Organization (WTO) is a drift towards globalization of world economy. Except agriculture, WTO advances its wing to every sector. Controversies and misconceptions are entangled with the issues of agriculture subsidy and trade facilitation, while developed countries like USA and EU have championed the cause of ‘free-trade’, on the other hand, developing countries like India have adhered to agricultural subsidies. India’s stand at Bali approved it again how agriculture subsidy is a burning issue for a developing country and it cannot be set aside as ‘evil’ at the cost of trade facilitation. Before WTO, eight trade negotiations were materialized by General Agreement on Trade and Tariffs(GATT) and in those rounds, developed countries steered the directions of trade and developing countries were ignored.[3] But, now the developing countries are demanding for revision of the agriculture policies taken by developed countries.
Agricultural subsidies are paid, to the farmers and the agribusinesses to supplement their income, manage the supply of agricultural commodities, and influence the cost and supply of such commodities in international markets. These are designed to minimize the costs of production by providing organic fertilizers, seeds, pesticides at lower price than the market price.[4] Whereas, WTO defines the term trade facilitation as: ‘the simplification and harmonisation of international trade procedures’ which means ‘activities, practices and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade.’[5] Hence, it seems there are no contradictions to each part and they are mutually congenial to each other. But, the clash of contention is that while subsidies give an unfair advantage to the farmers in the developed countries to sell their goods at a lower price, the countries in South do not have enough resources to subsidize their farmers in a similar fashion. Their main protection is using tariffs to keep out products from other countries. But the use of tariffs is under attack at the WTO as this is against the trade ethics.[6]
BEWILDERMENT AT BALI: INDIA, A REFRACTORY CHILD
The WTO Inter ministerial Conference which had recently concluded in December 2013 at Bali (Indonesia) has assumed the status of a significant trade facilitation agreement. The noteworthy feature of the agreement is in the form of multilateral deal to simplify the customs procedures by reducing costs and improving their speed and efficiency. Bali package has three main components or pillars: trade facilitation, agriculture, and a package for least developed country Members (LDC). The recently held WTO ministerial conference, in December 2013 at Bali, Indonesia witnessed the ministers from 160 countries concluded the first multilateral agreement ever negotiated under the auspices of the WTO.
Some developing countries, like India, have said that a trade facilitation draft must have adequate special and differential treatment for developing countries, LDCs, and small and vulnerable economies (SVEs), as well as provide adequate technical and financial support so those economies can benefit from trade facilitation.[7] It has asked WTO to amend the norms for calculating agricultural subsidies in order to procure food grains from farmers at minimum support price and sell that to poor at cheaper rates. The current WTO norms limit the value of food subsidies at 10% of the total value of food grain production. However, the support is calculated at the prices that are over two decades old. India is asking for a change in the base year (1986-88) for calculating the food subsidies as the value of currency has witnessed a drastic change.
PROTECTIONISM PUDDING WHAT INDIA IS EATING
Protectionism means policy of protecting domestic industries against foreign competition by means of tariffs, subsidies, import quotas, or other restrictions or handicaps placed on the imports of foreign competitors.[8] In many of the countries where industrialization that took place in the late 20th century, tariffs and various quantitative restrictions on manufactured goods were high, but the effective rates of protection were often even higher, because the goods tended to be highly fabricated and the proportion of value added in production after importation was low. [9] In India there are some following protectionism policies:
Foreign Direct Investment:
The FDI allows the host country access to resources which would otherwise be unavailable to it, and enables the host country to benefit from the increased levels of technology which often accompany FDI. The active trade barriers combined with a general disregard for private property rights by the Indian government was the main impetus in foreign company’s wholesale avoidance of India for the last half century. This can be seen in the effects of 40 years of trade protectionism, in that India(1991) was only able to attract $100 million measured in current U.S. $) in FDI versus over $11 billion for China.[10]
Tariff Rates:
The next significant statistic is her average tariff rates reflect protectionism character. In fact India supported average tariff rates of between 150-300% throughout much of the 1950s-90s, while at the same time other least developed countries in South Asia, like China were supporting average tariff rates of roughly 45%, Nepal (18%) or Bangladesh (22%).[11] This is, without a doubt, the most important statistic when it comes to explaining India’s economic misfortunes, as it acted as the linchpin of the country’s trade policy from 1947 to 1991, and drives many of the other important economic indicators.
POLITICAL OR PATRIARCHAL?
From a general point of view, in ninth ministerial Bali Summit, 2013 India played a role of spoilsport[12], whereas India’s stance at WTO has been protruded by the media as a triumph of India’s food security needs[13]. This India’s position at WTO can be justified by Rodrik’s Trilemma. According to Rodrik, “economic globalisation, political democracy, and national determination are mutually irreconcilable. One can have at most two at one time. Democracy is compatible with national sovereignty only if we restrict globalisation. If we push for globalisation while retaining the nation state, we must jettison democracy. And if we want democracy along with globalisation, we must shove the nation state aside and strive for greater international governance.”[14]
There are two decisions that have proved contentious here: 1) the Ministerial Decision for an agreement on trade facilitation (TFA) and the Ministerial Decision on public stockholding for food security purposes.
2)The present WTO ceiling on domestic support is pegged at a mere 10 per cent of the value of production, which is itself calculated at fixed reference prices of the 1986-88 period. This is ridiculously low, and not just to India but to many other nations with a large farm sector.
Paragraph 47 of the Doha Ministerial Declaration is abundantly clear on a “single undertaking,” which means that all agreements come into force — together as a package. Thus, India is absolutely right in insisting that the TFA can be agreed to — if and only if there is an agreement on subsidies on account of public stockholding for food security purposes.[15] There are two outstanding facts about the situation regarding food subsidies and the WTO. One, that the U.S. and the European Union currently provide four to ten times the agricultural subsidy per person compared to that provided by India. And two, that India faces a real crisis of hunger and malnutrition among a very large number of its people. In such a situation, it is only natural that a sovereign democratically elected government will seek to protect the interests of its citizens, rather than be subject to palpably unfair trade agreements[16].
CONCLUSION
Trade facilitation has become a feature in WTO negotiations regarding capacity building and customs modernisation programs. It seeks to find improvements within the trade and customs environment and reduce transaction costs between business and government. Hence if the core objective of WTO i.e. fostering the multilateral trading system is to fulfil, then the concerns of developing countries must go hand in hand with the developed countries. Economic theories such as David Ricardo’s work on comparative advantage, as well as Hechscher, Ohlin and Sammuelson’s work regarding the importance of taking advantage of a nation’s relative factor endowments, in regards to the production and subsequent trade of goods, reassure us that it can be in the best interests of a nation to partake in international trade. India chose to avoid this advice and forge her own path towards industrialization and economic development by way of Protectionist trade policies (Import Substitution, elevated Government regulation and quotas, etc…).Thus, there is a dire need of combined, consistent and concentrated effort from all countries which are a member of WTO to harmoniously construe the interest of Developed, Developing and the Least Developed Countries if we wish to see the multilateral trading system flourishing.
[1]http://www.policyinnovations.org/ideas/policy_library/data/01402/_res/id=sa_File1/Ag%20Subsidies%20and%20Trade%20Issues.pdf
[2] Nicholas Stern, World Bank Chief Economist and Senior Vice President for Development Economics. http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20072144~men uPK:34463~pagePK:34370~piPK:34424~theSitePK:4607,00.html, 2003-02-06.
[3] Satya Ranjan Swain, ‘Trade Externalities of Agricultural Subsidies and World Trade Organization’, 1 American Journal of Economic and Business Administration (2009), p.226
[4] Satya Ranjan Swain, ‘Trade Externalities of Agricultural Subsidies and World Trade Organization’, 1 American Journal of Economic and Business Administration (2009), p.225
[5] Andrew Grainger, ‘Customs And Trade Facilitation: From Concepts To Implementation’, 2 World Customs Journal (2007) p.20
[6] Supra 3
[7] http://www.stewartlaw.com/Article/ViewArticle/961
[8] http://www.britannica.com/EBchecked/topic/479643/protectionism
[9] http://www.britannica.com/EBchecked/topic/291349/international-trade/61699/Nontariff-barriers#61700
[10] Kishore G. Kulkarni, ‘Trouble With Import Substitution And Protectionism: A Case Of Indian Economy’, Indian Journal of Economics and Business, 2009
[11] Id.
[12] C.R.L Narsimhan, ‘India plays spoilsport at WTO’, THE HINDU 3rd August 2014 available at http://www.thehindu.com/opinion/columns/C_R_L__Narasimhan/india-plays-spoilsport-at-wto/article6277656.ece (last visited on 2nd Dec. 2014)
[13] Abhirup Bhunia and Geethanjali Nataraj, ‘Indian food security and the WTO deal’ EAST ASIA FORUM 25th January 2014 available at http://www.eastasiaforum.org/2014/01/25/indian-food-security-and-the-wto-deal/print/(last visited on 1st Dec. 2014)
[14] Mihir Shah, ‘Food Security and Rodrik’s Trilemma’ THE HINDU 14th August 2014 available at http://www.thehindu.com/opinion/op-ed/food-security-and-rodriks-trilemma/article6313910.ece?css=print(last visited on 3rd Dec., 2014)
[15] Id.
[16] Id.