Column: Not quite, Mr Subramanian

By: and |
Updated: March 9, 2016 12:40:24 AM

The authors argue the Economic Survey got it wrong on recalibrating India’s stance at the WTO

It is not often that an official publication from one arm of the government significantly undermines the publicly stated positions of another department in international negotiations. By relying on selective use of facts, innuendo and conjecture, the recently released Economic Survey pulls the rug from under the feet of India’s trade negotiators at the WTO and raises doubts in the minds of stakeholders. As the document is read by people around the globe, the section on trade policy in the first chapter of the Economic Survey would surely be music to the ears of trade negotiators from the developed countries. It can be faulted on at least seven other counts as well.

First, the Economic Survey questions the rationale for India seeking the flexibility to impose additional tariffs, popularly called special safeguard mechanism (SSM), to counter import surges and low priced imports in agricultural products. It sermonises that India should call for a discussion of SSM “not as a generic issue but as a pragmatic negotiating objective covering a small part of agriculture tariffs”.

India’s need for SSM arises from pragmatic considerations and not due to any “lofty theologizing about freedom and sovereignty needs”, as contended in the Economic Survey. Further, unlike the assertion in the Economic Survey, India’s need for SSM must not be confined only to those products in which the tariff bindings are in the range of 10-40%. It should also include products with higher bindings, but in which the applied tariffs have been close to the bound rates in some of the past few years, e.g., rice, wheat, olive oil and poultry products.

India’s requirement of SSM is further strengthened by the fact that the developed countries have been reluctant, if not hostile, to comply with the commitments they made during the negotiations in 2008 to cut their farm support and accept product-specific subsidy ceilings. Consequently, Indian farmers are perpetually threatened by highly subsidised and unfair exports, especially of the developed countries. Domestic subsidies of the developed countries have been particularly high compared to the value of production in the following products: United States – canola (61%), dairy (30%), rice (82%) and sugar (66%); and European Union – apples (68%), butter (71%), rice (66%), wheat (22%), olive oil (76%) and white sugar (116%). Given these subsidy levels in the developed countries, SSM would be an important policy instrument for India to protect its farmers from unfair trade, if the developed countries wriggle out of agriculture subsidy cuts in the WTO negotiations. The Economic Survey has chosen to remain silent on this crucial aspect.

Second, the Economic Survey acknowledges that India must have the freedom to provide support to its farmers. However, in the same breath it makes the following intriguing assertion: “The particular policies which are being defended are those that India intends to move out”. As is well known, the main agriculture support programme being defended by India at the WTO is its minimum support price (MSP) scheme. Is the Economic Survey hinting that the MSP will be withdrawn? Further, have the implications of withdrawal of MSP on domestic availability of rice and wheat been carefully examined? The Economic Survey provides no answers to these questions.

Third, the Economic Survey claims that the government is “committed to providing direct income support to farmers and crop insurance which will not be restricted by WTO rules”. Under the WTO rules an income support scheme that is not restricted by a monetary ceiling has to comply with stringent conditions. To illustrate, the amount of support shall not be dependent upon what the farmer produces, or the volume of production or the current price of his produce. Given the sheer number of farmers, it would be extremely difficult to implement such a scheme in India. The Economic Survey provides no details of any such scheme that may be contemplated by the government.

Fourth, the Economic Survey suggests that India should offer reducing its “very high tariff bindings and instead seek to provide higher levels of domestic support”. This goes against the grain of the negotiations and is an extremely dangerous and impractical suggestion. While this suggestion may be well suited for a few developed countries with deep pockets, it is totally inappropriate for India. The reality of negotiations is that no country is going to agree to raise the level of agriculture domestic support for anyone else.

Far from being in a position to secure higher subsidy limits, India is already under considerable pressure to curtail the existing elbow room available to it for providing farm support. Thus, securing higher subsidy limits in negotiations should be completely ruled out. If India were ever to tread on this path, it will end up with reduced tariffs and no gains on the subsidy front.

Fifth, in order to buttress the argument for a change in India’s negotiating approach in favour of seeking higher subsidy limits and lowering its tariffs, the Economic Survey contends that this would be especially true for pulses. It is unfortunately wrong. A back-of-the envelope calculation shows that the government can increase the procured quantity of pulses by at least 5-6 times compared to the current level and continue to remain within the subsidy limits mandated by the WTO Agreement on Agriculture. If still higher levels of procurement are required in future and at higher procurement prices, then India could seek recourse to the peace clause agreed to by the WTO members at Bali in 2013 and in Geneva in November 2014. Enhancing support for pulses cannot be an excuse for adopting the “tariff for subsidy approach” in the WTO negotiations.

Sixth, the Economic Survey puts the onus on India and other emerging economies for “making it attractive for trading partners to engage in the WTO”. It suggests that India, China and similar other countries must offer to open up their markets and undertake greater commitments in future WTO negotiations. This approach is deeply flawed and risky. It almost absolves the developed countries from making any commitments in the negotiations and implicitly supports their constant back-sliding on earlier commitments in the Doha Round. In addition, given the penchant of the developed countries to keep on asking for more from the developing countries, without themselves making credible offers, the approach suggested in the Economic Survey will result in an unbalanced negotiating outcome. India would end up making significant concessions, without securing anything tangible in return.

Also, what offers would be attractive for the developed countries? Would it be total elimination of tariffs on agricultural and industrial products or conceding to negotiate rules on the so-called new issues such as investment, competition, government procurement, labour, environment standards etc? All these “attractive offers” are at significant divergence from the government’s publicly stated negotiating approach.

Seventh, on the Trans-Pacific Partnership Agreement (TPP), the Economic Survey asserts that as India was excluded, hence the agreement does not take into account India’s interest. It refers to the rules on intellectual property rights (IPRs) as an illustration. The logical conclusion to be drawn from this illustration is that if India had engaged in the TPP negotiation, its interest in IPRs would have been protected. One of the objectives of the US in TPP is to extend the monopoly protection of IPRs enjoyed by its pharmaceutical MNCs. While India has been resisting this in bilateral and multilateral talks, the extent to which it could have influenced the final outcome on IPRs in the TPP is at best a matter of wild speculation.

Overall, one is left wondering whether the government has jettisoned the carefully-crafted negotiating approach that had evolved over the tenures of several governments, after successive rounds of consultations with different groups of stakeholders and instead has now embraced the new vision articulated in the Economic Survey. If the government does not clear the confusion created by the Economic Survey, it would seriously increase the odds against the department of commerce at the WTO negotiations.

Das is head, Centre for WTO Studies, IIFT, and Dasgupta is a former ambassador of India to the WTO.

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