UPA squandered away its
initial advantage in WTO negotiations
By Arun Jaitley

The WTO Ministerial Conference at Hongkong was initially aimed at not a very level of ambition. Developing countries, particularly India, had entered negotiations both pre Hongkong and at Hongkong at a relative position of strength. India's grit and determination as a Trade Negotiator was demonstrated in the Doha Ministerial Conference in the year 2001. India, along with Brazil had been instrumental in forming an alliance of developing countries in Cancun in 2003 on the issue of agricultural negotiations. The significant change that Doha and Cancun had brought to India's negotiating position was that firstly, India could no longer be ignored as a Trade Negotiator and secondly, the developing countries by forming the G 20 alliance had corrected the imbalance in the WTO which earlier had been entirely driven by the USA and the European Union. Cancun marked a distinct advantage to developing countries, like India, where large population is dependent on agriculture for livelihood and survival. Agenda of the WTO negotiations was radically changed. Market access and tariff cuts were now a secondary agenda which the developed world had earlier tried to push. The principal agenda was that unless the developed countries substantially reduced and eventually eliminated the trade distorting subsidies, the countries like India could not be expected to cut tariffs.

The UPA Government entered the WTO negotiations from this position of advantage. This advantage was substantially squandered at Geneva when the declaration of Ist August 2004 was approved by the General Council. The objections to the Geneva draft declaration by the BJP were as under:

1) There was no specific commitment on the date of elimination of export subsidies and export support.

2) The draft sought to expand the Blue Box subsidies before reducing the subsidies contained in the Blue Box. The Blue Box subsidies are incentives to the farmers to restrict his production. The Geneva draft declaration recognized "the role of the Blue Box in promoting agricultural reforms."

3) The Geneva draft, while recognizing the role of the Blue Box in promoting agricultural reforms, treated the Green Box (ostensibly intended to subsidies for environment and livestock) as non trade distorting. The draft referred to the "effectiveness of the Green Box".

4) The Geneva Draft fell into the trap of ambiguity by stating that "as the first instalment of the overall cut in the first year and throughout the implementation period the sum of trade distorting support will not exceed 80 percent". It, thus, left scope and ambiguity for the Blue Box to be first expanded and the trade distorting amber subsidies to be added to it and the entire amount of this trade distorting subsidies were to be 80 percent throughout the period of Doha round.

5) The Geneva draft even provided for reduction of de minimis support by the developing countries.

The BJP had strongly voiced its opposition to the Geneva Agricultural draft. Sadly enough, the Hongkong draft incorporates the Geneva draft as the eventual mantra for global agricultural trade. We are now struck with it and all future negotiations for determining reduction in tariffs as also reduction in trade distorting domestic support subsidies will be on the basis of highly objectionable Geneva daft of August, 2004.

The Left Parties, and several other independent observers have already criticized the Government for its eulogizing the Hongkong draft and the gains for India in Agriculture. The BJP has reserved its comments in order to enable it to carefully study the draft and then offer its well considered reaction.

The Hongkong draft declaration on agriculture is disappointing. It does not advance the cause of Indian farmers. The Government has yesterday released a 4 point gains for the agriculture from the Hongkong draft. We deal with each of these points.

1) De-minimis Subsidy : It is the Government's case that it has been able to secure an agreement that WTO will not come in way of domestic support given to farmers in developing countries like India. The domestic support is given to farmers of India as a transport subsidy. This is no achievement negotiated at Hongkong. Article 9.4 of the Agreement on Agriculture already protects this as a de minimis subsidy given by developing countries to its farmers. The upper cap of this subsidy is 10% but India on account of its domestic constraints is not able to provide even 3 per cent subsidy. The quantum of this de minimis subsidy was fully protected even in the Cancun draft where the talks broke down. The Cancun draft in para 7.1 had mentioned "developing countries shall be exempt from the requirement to reduce de minimis support". However, the Geneva text of Ist August,2004 diluted this position to now read in para 11 "developing countries that allocate all de minimis program for subsistence and all resource farmers will be exempt". Even the Hongkong draft provides that developing countries with AMS (Aggregate Measurement of Support) commitments can be asked for reduction in de minimis subsidies. Is it a great achievement that the Government is boasting of.?

2) Special Products : The Government has claimed that developing countries can now declare appropriate number of special products on a self selection basis. The declaration of certain number of unspecified products as special products has been part of negotiations at Cancun, Geneva and Hongkong. What was expected was that the number of special products should have been fixed in terms of percentage either at Geneva or Hongkong. This could have been a quid pro quo for the letting off developed countries lightly on the issue of subsidy reduction. However, even today we are in the dark as to how many products can be declared as special products. Mere reaffirmation of the expected position is hardly an achievement in agriculture.

3) Special Safeguard Mechanism: The special safeguard mechanism is not new to the agricultural negotiations. It has been a part of the failed declaration at Cancun and the declaration at Geneva. It is a defensive mechanism. The Government is claiming that it has created a defensive mechanism to prevent an import surge but the question is why do we fear an import surge ? We fear an import surge because in the event of substantial reduction in tariffs which we have agreed in the Geneva draft, reaffirmed in the Hongkong draft, a defensive shield is required. We have first created a problem for ourselves and are now trying to find solutions to it.

4) Export subsidies : The elimination of export subsidies by 2013 appears to be the only major achievement which the Government is claiming in the Hongkong draft. The Government has forgotten that the very basis of the Doha declaration in 2001 dealt with the elimination of export subsidies. The Doha declaration mentioned that "Building on the work carried out and without pre judging the outcome of the negotiations, we commit ourselves to comprehensive negotiations aimed at substantially improved market access, reduction of export subsidies with a view to phasing out of all forms of subsidies and substantial reduction in trade distorting support". Thus, the elimination of export subsidies by reduction and eventually phasing out is a part of the Doha declaration. For elimination of export subsidies, developing countries have already paid the price at Doha. What was to be agreed upon was the only potential date of elimination of export subsidies. The life of the Doha round is expected to last till about 2013. The export subsidies had to be eliminated during the lifetime of the Doha round. We have now agreed to their elimination at the fag end of the Doha round virtually taking it to the last date. The elimination of export subsidies could not have been postponed more under the Doha declaration. Agreeing to the worst possible date for elimination of export subsidies, a fact which had been agreed upon at Doha, can hardly be an achievement. In any case, export subsidies at about 4 billion dollars are a miniscule percentage of the overall trade support and trade package that the European Union and the USA gives to their farmers. Is it the Government's case that no commitments have been made for reducing 97% of the subsidies at Hongkong and the last date possible for elimination of export subsidies constituting only one percent of the basket has been agreed upon ?

On the Non Agricultural market access (Industrial Products)

We have agreed to the adoption of a Swiss formula with unidentified coefficients for reduction of industrial tariffs. The basis of the Swiss formula is that those with higher tariffs will reduce more. This inherently means that countries like India with higher industrial tariffs have to reduce more as compared to what our counterparts have to reduce. But the Swiss formula amongst the developing countries hurts India more and perhaps helps countries like Brazil. The Government claims that the concept of "less than full reciprocity in reduction commitments" is a major Hongkong gain. The Government is conveniently forgetting that this was one of the achievements of Doha where the declaration said "the negotiations usually take fully into account the special needs and interests of the developing and lean country participants including through less than full reciprocity in reduction commitments".

There is a somewhat curious paragraph 24 of the Hongkong declaration. It mentions a high level of ambition for market access for agriculture and NAMA. It provides that the ambition is to be achieved in a balanced and proportionate manner. India can have aggressive interest in the Services. We can have a relatively more aggressive interest in industrial products which has to be blended in several cases keeping our domestic concerns in mind. Obviously, we cannot have aggressive interest in agriculture. Our interest in agriculture has to at best a defensive one. How can we agree for the same level of ambition of the two sectors. The declaration at Hongkong overlooks this.

The Government appears to be keen to market the Hongkong declaration as a spectacular achievement. The reality is that Hongkong was never expected to be spectacular result producing declaration. The oral pronouncements prior to Hongkong as also at Hongkong created a comfort level in the country that India's interest would be saved at Hongkong. There is, however, a visible disconnect between the oral pronouncements and the draft declaration to which India is a party. This indeed is a matter of serious concern.