India and the WTO Deadlock

Opening plenary session, 11 December 2017
Commerce minister Suresh Prabhu at the 11th ministerial conference of the World Trade Organisation (WTO) in Buenos Aires. Image Credit: WTO/ Cuika Foto via Flickr CC BY-SA 2.0

As expected, the three-day ministerial conference of the World Trade Organisation in Buenos Aires ended on Wednesday with next to nothing to show for it. India’s own stance on finding a permanent solution to the issue of food subsidies brought it into direct confrontation with the United States, which under the Trump administration, has done little to veil its hostility towards the WTO.

The Indian delegation led by commerce minister Suresh Prabhu demanded the organisation come to a permanent agreement on food and agricultural subsidies to replace the so-called peace clause, an interim agreement that was struck during a previous WTO meeting in Bali in 2013.

China reportedly joined India in its demand for reworking food subsidy rules, though it’s not clear how much support Beijing actually provided and how much it chose to free-ride on the Indian initiative.

At present, India provides two types of subsidies to its farmers. One is the subsidy on inputs like fertilizers, seeds, and electricity. The other is the minimum support price (MSP) for farm output.

Under WTO rules, a developing country like India can give its farmers support up to 10% of the value of agricultural output.

Until about a decade ago, the MSP given to farmers was less than the international reference price, which was, absurdly, set at 1986-88 levels. But in the years since, MSPs steadily crept upwards and India realised it was going to breach the 10% limit.

This lead to the 2013 ‘peace clause’ which allowed developing countries to breach the 10% limit. In return, those countries would submit data on food subsidies, stocks etc.

Any permanent solution for this problem would likely involve updating the three-decades-old reference price and excluding the poorest of farmers from the calculation of subsidies. However, the Indian side met strong opposition from the Americans at Buenos Aires.

In an official statement on Wednesday, the government all but blamed the US for the failure of the talks. ‘Unfortunately, the strong position of one member against agricultural reform based on current WTO mandates and rules, led to a deadlock without any outcome on agriculture or even a work programme for the next two years,’ it said.

India also retaliated by refusing to make concessions on other issues discussed during the three-day meeting, like e-commerce and investment facilitation. By the end of the meet, there wasn’t even the usual joint Ministerial Declaration.

This was despite a ‘last-minute call’ from Argentine President Mauricio Macri to Prabhu to convince, according to Mint.

‘No ministerial declaration is better than a bad one,’ the paper quoted an anonymous commerce ministry official as saying.

Prabhu had good reasons to take on wealthy nations. While both developing and developed countries have to limit their so-called ‘Amber Box’ subsidies that are believed to distort trade, rich nations have transferred most of their subsidies in to the so-called ‘Green Box’, which is ostensibly not price distorting.

This gaming of the system has allowed the US and the EU to channel vast sums of money to their farmers while technically remaining in compliance with WTO rules. Jayshree Sengupta, a senior fellow at the Delhi-based think tank ORF, quotes some revealing statistics: In 2013, the EU’s per capita subsidy for farmers was $12,384, while the US spent $68,910 per farmer. Contrast that with India, which in 2010-11, spent an average of just $306 on each farmer.

The result of this sort of distortion was pointed out a decade ago by American economist Robert Reich: ‘Fewer than 2 percent of Americans even work on a farm. Yet about half the population of the developing world depends on farming for their livelihoods. But they can’t earn what the global market would otherwise pay them, because America’s subsidized farm exports keep prices artificially low.’

America’s long retreat from multilateralism   

This week’s confrontation at the WTO came in the backdrop of growing American disengagement from the WTO. In a speech during the meet on Monday, the US trade representative Robert Lighthizer accused the WTO of spending too much time on adjudicating legal challenges.

‘We are concerned that the WTO is losing its essential focus and becoming a litigation-focused organization,’ he said. ‘Too often members seem to believe they can get concessions through lawsuits that they can never get at the negotiating table’.

In concordance with Lighthizer’s statements, the Trump administration has been blocking the appointment of two judges to the seven-member appellate body of the WTO that handles disputes between countries. The body needs at least four judges to deal with cases, but its slated to lose two of its current five members by next September, rendering it unable to function.

There’s also the matter of proposed American tax laws that might flout WTO rules by providing exemptions for the overseas earnings of local companies.

US President Donald Trump has been especially egregious in withdrawing from international agreements, but America’s retreat from multilateral deals has deeper roots. Trump’s predecessor, Barack Obama, did the bare minimum at the WTO. And while it was Trump who formally withdrew from the Trans-Pacific Partnership, his Democratic rivals Hillary Clinton and Bernie Sanders were opposed to the deal as well.

In short, American politicians are responding to the preferences of key constituencies. And there’s no reason to believe that’s going to stop in the immediate future. Unfortunately, that’s not good news for the WTO. A little over two decades after its inception, the 164-member body may be facing the prospect of growing irrelevance.

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