Calcutta Notebook


India had won a substantial victory at Bali. The developed countries had agreed that developing countries may continue to pay high prices for food procured under the Minimum Support Price mechanism and provide subsidized food to the poor for the next four years. It was provided that in this period a permanent solution to the problem of food subsidies will be found. In return, developing countries have agreed to implement Trade Facilitation measures such as computerization of customs systems and improvement of foreign trade infrastructure such as roads and ports. The developed countries led by the United States were much interested in Trade Facilitation. They believed that these measures would help them increase their exports to the developing countries. Thus, these were often called 'Import Facilitation Measures' by the developing countries. The Bali agreement, therefore, was projected as a happy give-and-take.

Actually, the Bali agreement was mainly in third world's favour except for the caveat of finding a permanent solution to the food subsidies. The principle hitherto was that food security of the people should be secured through foreign trade; and not through domestic production. That was good as long as the global prices were low. But this became a curse when global prices spiked. Many developing countries found themselves in trouble. They had allowed their domestic production systems such as canals to fall into disrepair as they were getting cheaper food via imports. But food prices have spiked in the last 2-3 years. Now they had to continue to import expensive food because their domestic production systems had since become dilapidated. This has led to food riots in many countries. This principle was diluted at Bali. Developing countries were permitted both to pay higher price to their farmers and also supply subsidized food to the poor.

This principle will be equally applicable to the developed countries. They will now have a moral anchor to continue to pay subsidies to their farmers. In turn, this will cancel the possible gains to the farmers of developing countries that may have occurred from the dismantling of subsidies given by the developed countries to their farmers. One should accept this potential loss. Be that as it may, this agreement spelled a death of global trade in essential food products which is as it should be. The developed countries are providing huge subsidies to their farmers to ensure their food security. India, China and other countries should demand and get the same.

In return the developing countries had agreed to implement Trade Facilitation measures. Immediately, this will be more beneficial for the developed countries because the standards are likely to follow the practices followed by them. But the picture in the long run will be exactly the opposite. Harmonization of customs procedures with global standards will equally benefit Indian exporters. Domestic quality standards will become consistent with global standards. Presently Indian producers face much difficulty in exports because quality is not at par with the requirements of the global market. They will get adjusted to these global standards. This will help the developing countries push their exports. However, Trade Facilitation will not help the developed countries reduce their trade deficit. The US' trade deficit has risen from USD 166 billion in 1995 to 741 billion in 2012 despite the many measures implemented by the WTO to facilitate global trade. Fact is that the developed countries are losing their competitiveness. Developing countries can produce at low cost because wage rates are low and they also have access to frontline technologies. Trade facilitation will only worsen the plight of the developed countries.

The Modi Government appears to have made a fundamental change in its stance recently. India, along with 45 other developing countries, is now demanding that a permanent solution to the problem of food subsidies be found before the trade facilitation agreement would be signed by them. In other words India is effectively backtracking from the Bali accord. This is wholly welcome. The problem with Bali accord was that the Trade Facilitation Agreement was a permanent agreement to be signed upfront while the peace clause on food subsidies was provided only for four years. There was no guarantee that an acceptable solution to the food subsidy problem would actually be found. It is good that the Government has decided to break the Bali accord if permanent solution to food subsidies is not found upfront. While signing the original WTO Agreement in 1995 the developed countries had agreed to work towards phasing out the subsidies being given by them to their farmers. No progress is made on that front. Therefore, it is entirely possible that the developed countries will backtrack on the food subsidies and a permanent solution will not be found within the stipulated four years.

Backtracking from Bali Agreement comes along with the risk of the developed countries also backtracking from the four-year-peace clause. In other words, the food subsidies being given in India will become contra the WTO agreement and in retaliation the developed countries will be entitled to impose punitive import duties on Indian imports. This is a risk India must take. It is better to face the problem of food subsidies without a Trade Facilitation Agreement by rubbishing the Bali Agreement; than facing the problem of food subsidies with a Trade Facilitation Agreement by honouring the Bali Agreement.

Vol. 47, No. 6, Aug 17 - 23, 2014