FROM BUSINESS WORLD OF 10 JULY 2006
Bad temper as
trade policy
The strong
statement made by Kamal Nath as minister of commerce on his return from Geneva
is consistent with the position he has taken in the talks directed towards the
beginning of a new round of negotiations. So is his decision to leave the
meeting two days early.
The basic issue
in the Geneva meeting – as it was in the Hong Kong and Doha meetings before it
– is that as a precondition for agreeing to a fresh round, developing countries
and developed ones are seeking minimum prior commitments to reduce trade
barriers. This is a perfectly sensible course; there is no point in trade
ministers spending endless days holding meetings in expensive resorts and
evenings lavishly entertaining one another unless there is going to be some positive
outcome.
The dispute is
about the quantum of prior commitments. They are not meant to be precise, but a
range is sought to be defined at this stage. The draft on agricultural products
is relatively more advanced. It proposes that tariffs would be reduced and
tariff quotas expanded subject to exceptions confined in the case of each
country to a list of sensitive products. On market access in non-agricultural
goods, however, there was no advance towards an agreement at all. The chairman
of the the relevant group simply listed the position reached at the time of the
Hong Kong ministerial declaration in 2004 with his own comments, but in effect
threw up his hands in depair on June 22. Thus there was really nothing further
to be achieved, and it would appear that the Commerce Minister was right to
abandon a futile meeting and come back to do something more useful.
That would have
been the correct impression if the minister had kept quiet. His statements,
however, raise the question – indeed, they are intended to force the conclusion
– that the breakdown of the negotiations was partly, if not largely due to him.
He has said repeatedly –and made sure no one missed the point – that he was not
prepared to negotiate on the ‘livelihood and food security interests of
millions of India’s subsistence farmers’. This is a politician’s way of saying
that the government would not open agriculture to imports.
The negotiating
parties in the Uruguay Round were divided between industrial countries which
protected their extremely inefficient agriculture with import bans and
subsidies, and the Cairns group of efficient agricultural exporters who wanted
this protection to be dismantled. The former group bought India’s support by
promising to abandon the Multi-fibre Agreement and opening its textile markets
to imports from India and other developing countries. In the bargain, it
managed to retain its agricultural protection.
Now India has
joined the group that wants those industrial countries with inefficient
agriculture to open up their markets. But that does not mean that India has
joined the efficient agricultural producers. On the contrary, it wants to keep
its own agricultural markets closed. In other words, India wants something for
nothing.
On its own, it
is a pretty unreasonable position to take; no country would be prepared to
negotiate with India on that basis. That is why Kamal Nath takes shelter behind
millions of subsistence farmers, who he knows will not have anything to say on
the subject.
Fortunately, the
negotiations are multilateral, and India is only one player. In previous
rounds, India got away with equally unreasonable positions by taking shelter
behind a cabal of developing countries. And industrial countries let it get
away because it was an insignificant player in international trade. Earlier
negotiations were basically amongst industrial countries with India sitting on
the sidelines and enjoying the reductions other countries made in their trade
barriers.
That happy
situation is nearing its end. A quarter century of decent growth has made
India’s a significant economy; and its high trade barriers have made it a
target in trade negotiations.
It is also
reaching a break point in its agricultural policy. The green revolution made
India self-sufficient in agriculture. There were occasional surpluses of rice
and sugar, but the government got rid of them by exporting at a loss. Edible
oil was the only major commodity of which India was short; the government made
huge profits by levying duties on its imports.
But now India is
on the verge of an agricultural deficit. If it keeps its agricultural prices
much above the international level, it will have to give large subsidies to
imports. There is a very simple way of avoiding the subsidies: open agriculture
to international trade at as zero duties. That way, we will import some
products and export others. Imports will prevent domestic shortages, and
exports will make farmers rich. The country will be better off on balance.
