Obituaries for the Doha Development Round (DDR) have been written. There are some who are now recommending that it should be allowed to rest in peace. Others have tried to refute the charge of India being responsible for the breakdown at Potsdam and show how it is still the US that is primarily responsible for it. I think a deal is still possible, and mutual recriminations don?t take us anywhere in any case. Saving the DDR is important because otherwise, the WTO?s credibility will suffer, anti-globalisation forces will get stronger and the multilateral trading regime itself could come under threat. So, ?DDR RIP? is not a workable option.
A deal can be made if we drop the interpretation of ?less than full reciprocity? as one that implies less than equal reduction in percentage of tariff cuts in NAMA, on the one hand, and the developed countries agree in principle that agriculture subsidies have to be eliminated eventually and not kept disguised in different coloured boxes. Let me explain. The coefficient for the Swiss formula, which should be applied only to bound tariffs and not applied ones, can be agreed to be at 10 for developed economies and at 20 for India and other developing countries. What will be the outcome? Tariff peaks in developed economy markets, which are most detrimental to our exports, will all come down to below 10%, and average industrial tariffs will range from zero to 2.5%. This implies a significant increase in market access for our exporters.
Indian industry will still remain protected because a coefficient of 20 will imply bound tariffs of about 12% if our bound tariffs currently are about 40%. This is still above the currently applied peak tariffs of 10% (announced in the last Budget). True, some of the unbound rates will be sharply brought down to the new peak of 12%, but that will be undoubtedly a good outcome. I cannot see India raising its industrial tariffs to higher than 12% in the coming years as we are publicly and otherwise committed to bring them down to Asean levels of about 5%. Thus, by accepting a coefficient of 20, India will still retain the policy space to raise tariffs by 20% (making them 12 over the current 10) if so required, and this space will increase as we progressively move to 5%, as we should. Indian industry, which has already accepted zero tariffs in the two FTAs that we have signed, should be prepared to give more space to its negotiators.
But the issue is what India can get in return for this offer in NAMA. This can be matched by two offers from developed economies. One is to improve the offers on temporary relocation of service providers that is clearly of significant interest to us. Although it must be said that technological advance is making Mode 4 less interesting for developing economies, as the same services can now be offered through Mode 1. However, the main sticking point is reducing agriculture subsidies, especially in the US. The EU had apparently already agreed to a cut of 70% in its agriculture tariffs but has rolled it back to 55% because of lack of agreement. Currently, agriculture production subsidies in the US are bound at $19 billion but the actual level is closer to $11 billion. So, the US can and should agree to a bound level of $14 billion, which will give it sufficient policy space of being able to raise actual levels by nearly 30% if the need so arises. In the context of a commitment to eliminate production subsidies in future, and make agriculture an integral part of free global trade, this bound level should suffice. In the context of rising demand of biofuels and higher demand for food from developing economies, international prices of agriculture commodities can be expected to remain firm, and so subsidies can be expected to remain at moderate levels.
India will also be asked to reduce its agriculture tariffs by about 40% under such a deal. This should not be a problem for two reasons. First, India will likely remain an importer of food that is generally land-intensive and so not really in line with our comparative advantage. So, higher duties, even if these are in place, will not be imposed, to keep down food prices. And this may encourage a shift to high valued-added products where we have a comparative advantage. Second, fears of our market being flooded by cheap subsidised exports of foodgrain and other necessities can be fully addressed by putting about 15% of our agriculture tariff lines under special product categories. For these goods, we are allowed to retain the existing non-tariff barriers for maintaining livelihoods and ensuring food security. So, our small and marginal farmers will be protected.
A deal is possible. Should India care and make the extra effort? I think so. Because it will demonstrate that we care about the WTO and for the multilateral trading regime that alone can take us forward in opening difficult sectors like agriculture. But what if the US and EU simply cannot come up with reasonable cuts in their subsidies and industrial tariff peaks? We can then occupy the high moral ground and give more attention to addressing the binding domestic constraints on our exports.
?The author is director and chief executive, Icrier.
Email: rkumar@icrier.res.in
