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Does failure of WTO talks matter?

The failure of talks on the WTO Doha Round at Potsdam in the third week of June made front page news in many newspapers. But it did not send the markets spinning, and thus was not an earth-shaking event.

A friend, in the engineering business asked me as to what it means for India, and how will it affect him. His business has been doing well in a buoyant Indian economy, which includes exports to other developing countries. Being a complex situation, one could only tell him that if the talks do not succeed, then it would hurt the global economy, and may affect his business to some extent.

The impasse can create some bumps on the road. It would certainly affect many of our exports to the rich world, where newer barriers will be erected to hinder them.

Coming down to some expert speak, the talks among the four members of the new quad: the US, Europe, Brazil and India broke down mainly over farm subsidies. Alas, the blame is being attributed to India to a large extent in this geopolitical circus. Is it right? The simple answer is No. The demand on reducing farm tariffs in our own tariff regime was not amenable to our political managers. They have to get elected again.

The western media have parroted the views of the US that their offer on farm subsidies was linked to our reduction in industrial tariffs. For us to reduce our tariffs on manufactured goods is not as much a problem as is being made out in this mud slinging game. The issue of greater concern for us was about reducing our protection to farm goods imports. “We cannot bargain the livelihoods of 650 million farmers in India”, said Kamal Nath, the commerce and industry minister, when he walked out of the Potsdam meeting.

Of course, every trade deal comprises a quid pro quo, i.e., we have to give something to get something. However, one has to travel in history to understand how trade-offs have been an intrinsic aspect of negotiations. One vital example is our acceptance of the agreement on trade-related intellectual property rights (TRIPs) as a bargain to get textiles and clothing on board in the Uruguay Round. Even in that we were cheated, as most textile quotas expired at the end of the 10 year period in 2005.

The Uruguay Round itself was a Herculean task which took over seven gruelling years. The demands of rich countries have always been pretty one-sided, seeking greater market access for their goods and services. Thus whatever could not be sorted out then was added as an in-built agenda for future resolution. Agriculture was pushed as a negotiating agenda in the Uruguay Round by the net agricultural exporting countries, comprising a heterogeneous group of developed and developing countries, where farming is efficient without depending upon artificial support.

Agriculture continued to remain on the front burner, and was included in the Doha Round, which was launched in 2001. One great impetus for this was to send a signal to the world that the 9/11 disaster in New York has not pushed the world into some kind of depression. The intent was right, but how to get developing countries on board, which had till now not been able to digest the complex and unfair deal derived from the Uruguay Round. This round had launched the WTO in 1995.

Thus the Doha Round was christened as the Doha Development Agenda, while many are still puzzled about the outcomes for development in the framework deal. One major issue to achieve development in poor countries is to cut down protection to farm goods in the west. In fact, agriculture has always been the deal breaker in trade talks, and it was a sense of déjà vu when the Potsdam talks failed.

Frankly, it was difficult for the US to move forward because firstly, the fast-track authority to the President to negotiate trade deals was expiring end-June. Besides that, the Republican government led by George Bush now has a Democrat-dominated Congress, and the United Progressive Alliance (UPA) government led by Manmohan Singh in India, has faced a series of debacles in state elections. In the given situation, it is unlikely to expect any creative thinking from the two nations which may have greater economic logic but politically unviable. There will be a new President in the US by November, 2008 and a new government in India by 2009.

The government, which comes to power in India in 2009, will have a similar approach to the Doha round. We would want the rich to put money where their mouth is, i.e., deliver on development promises. This is our commitment to the developing world, to whom we have a responsibility. As ever, agriculture will be a key issue.

As far as domestic agriculture is concerned, we have offensive interest in third country markets, and there is a great potential. As it is, we are today a net agriculture exporting country. But our exports to third countries are not competitive due to subsidies in the west. Among the potential high growth areas, rice (not basmati alone), dairy products, fruits and vegetables are some of them. However, we need to address some domestic issues to realise the full potential.

Other than expanding agriculture investment, we need to improve infrastructure and establish a good supply chain management system. Here, opening up our retailing sector to large companies will be of great help, as they can create the enabling environment, which will capture economies of scale to improve the whole supply chain system. Consequently, farmers would also benefit by getting higher farm gate prices and consumers would benefit by getting quality products at lower prices.

Our manufacturing sector is progressing pretty fast, and to support that we have been unilaterally liberalising our tariff regime and promoting special economic zones. On industrial products, the tariff is on an average 11.2%. This helps both our small-scale and large-scale sectors by enabling them to get intermediates and inputs from the best source and at the lowest cost. In services too, we have been liberalising unilaterally, which is helping us to improve our competitiveness. Pundits have analysed our gains of a completed Doha Round to be in the range of $3.5 billion; for China, $1.3 billion and for Brazil, $3.9 billion. Given these small gains, it will hardly matter much whether the Doha Round is completed now or later.

Published in The Economic Times - JULY 05, 2007, New Delhi,curpg-2.cms