Trade diplomacy is altogether a different ball game. In their quest to perpetuate their domination of the global economy, the developed countries have sought to rope in and subdue the developing and the least developed countries under a multi-lateral trade arrangement. After years of concerted efforts they succeeded in their effort through the Marrakesh Agreement, leading to the setting up of the World Trade Organisation (WTO) in 1995, replacing the earlier arrangement – General Agreement on Tariffs and Trade (GATT).
The draft of the former Director General of GATT Arthur Dunkel in 1991 was a historic turning point in the negotiations for the Marrakesh Agreement. Dunkel’s deep understanding of the technical issues, combined with his shrewd diplomacy, transformed hundreds of thousands of pages of diverse, often conflicting, proposals into a manageable single document of some 500 pages, distilling the essence of the future WTO. The developing and the least developed countries fell an easy prey to Dunkel’s diplomacy and allurement for a bright economic future under the so-called free and fair trade regime.
The Dunkel draft and the Marrakesh Agreement were heavily loaded in favour of the developed countries as it allowed them to protect their interests, particularly in agriculture. It allowed them to continue with their high subsidy regime which the poor countries in the Third World could ill afford. They were allowed to maintain high tariff and several non-tariff barriers under different pretexts. These resulted in unfair trade practices, effectively denying the Third World a level playing field.
The Third World countries have finally woken up to the implications of this skewered trade regime. After extensive negotiations at the 4th WTO Ministerial in Doha in Qatar in November 2001, the Doha Development Agenda (DDA) was devised for improving the trading prospects of the developing countries. Since then four WTO Ministerial Conferences were held, but were unable to undo the wrongs done to the Third World. A level playing field in global trade remains a distant dream as the developed countries are unwilling to implement the DDA.
Double-speak
The United States and the European Union have recently objected to India’s food subsidy and public stockholding of food meant to feed millions of hungry mouths. But the hypocrisy of such an injunction is evident: people who live in glass houses should not throw stones at others.
This double-speak is borne out by statistics. The EU gives massive subsidy to only 5% of its citizens engaged in farming, which generates just 1.6% of its GDP. The EU’s Common Agriculture Policy (CAP) accounts for more than 40% of its annual budget. In 2013 the budget for direct payments to farmers as subsidy and rural development – the twin pillars of CAP – is 57 billion euros or 49 billion pounds, out of the total EU budget of 132.8 billion euros – amounting to 43% of the total. Strangely, subsidies are also given for keeping the land fallow, and have been justified on account of environmental reasons.
At present direct payments and price support account for more than 70% of the CAP budget, while rural development gets less than a quarter. Direct payments account for more than half of the farmers’ income in EU. The average annual subsidy per farm is about 12,200 euro or 10,374 pound. Large agri-business and big landowners get more from CAP than Europe’s small farmers who rely on traditional methods and local markets. About 80% of the assistance goes to about a quarter of EU farmers with large landholdings like the British royal family and European aristocrats with big inherited estates. The older 15 EU members benefit more than the new members.
Milk quotas protect the income of dairy farmers. Though the EU had promised to phase out this trade distorting measure by 2015, it is raising the quota by one per cent each year so that a high level is reached before phasing out begins. The sugar industry is adequately protected by high guaranteed price.
The US appears to be playing the same game. The US food stamp programme is pegged at $60 to 70 billion every year. The support given to farmers in the US is less transparent than that in the EU. The 2013 US Farm Bill gives unlimited crop insurance subsidy. Some policyholders get more than $1 million annually in premium support and more than 10,000 policyholders receive more than $100,000 in subsidies. As there is no cap on crop insurance subsidies, the largest one per cent policyholders get about $227,000 annually while the bottom 80% receive about $5,000. Crop insurance subsidies flows largely to agri-business corporations and farmers with large landholdings.
Unlike other farm subsidies, crop insurance subsidies are not subject to means testing or payment limits and farmers are not required to adopt basic environmental protects. The crop insurance scheme cost the taxpayers about $9 billion a year.
Don’t blame it on India
Compared to the massive trade distorting subsidies given by the US and the EU, India’s subsidy under the new food security programme is only Rs 90,000 crore or around $30 billion (as per budget estimate which also includes administrative expenses, stocking, transportation and purchase from farmers). This scheme is designed to feed 75% of the rural poor and 50% of the urban poor at subsidized rates. This gigantic scheme needs public stockholding. Public stockholding will mean purchase from farmers at minimum support prices (MSPs) which is necessary to give support to farmers. India’s programme is not trade distorting in any way. It is meant to cater to the poor, which is line with the UN Millennium Development Goals.
Trade-distorting subsidies
Negotiations in the WTO reached a deadlock due to the unwillingness of the developed counties to forego their high trade distorting farm subsidies, which has placed the farmers in the developing countries at a serious disadvantage. The developing countries have long been demanding a level playing field in global trade, but of no avail. The new WTO Director General, Roberto Azevedo, has rightly remarked that the multilateral trade body since its inception in 1995 has not been able to produce a single agreed multilateral text.
Instead of reforming their policies for facilitating free and fair trade, the developed countries have become more protectionist in trade since the collapse of Lehman Brothers in the US in August-September 2008, leading to global financial crisis which was further aggravated by the sovereign debt crisis in the European Union and the Fukushima disaster in Japan. The developed countries imposed high non-tariff and technical barriers to trade including stringent and politically motivated sanitary and phytosanitary measures (SPS) to keep off exports from the Third World. The developing countries with export-dependant development strategies like India suffered with increased current account and fiscal deficits, sluggish growth, growing joblessness and wage deflation.
Rising oil and commodity prices at the global level have caused price inflation problems in the developing countries. Though South-South trade has increased, but it has its own limitations. The developed countries also restricted the movement of professionals from the Third World.
The unconventional monetary expansion policies in the EU and in the US added to the problems of the developing countries. A single announcement by the Chairman of the US central bank, Ben Bernanke, in May that the US may start to roll back its $85 billion-a-month bond-buying programme which would release cheap money into the system sent the Indian rupee, Brazilian rial, Indonesian rupiah and South African rand in a downward spin. It also caused the flight of hot capital from India. The multinational companies operating in the country began evading tax payments by citing their operations elsewhere.
With the recent shutdown crisis in the US, the situation may turn out to be worse for India and other developing countries. The G-20 summit is over; and so also is the 68th UNGA Summit. No solution in in sight. The expansion of the UN Security Council remains embroiled in interminable delays. The promised reform in the IMF for increase in quota and voting rights of developing countries remain a distant dream. Negotiations on climate change for moving toward common but differentiated responsibilities on emission cuts remain deadlocked. What remains is the forthcoming WTO Ministerial at Bali.
India’s choices
In Bali India and the developing countries should stress on separate Food Subsidy Box to accommodate food subsidy for the poor instead of bringing back the controversial Peace Clause which helped the developed countries to hide their trade-distorting subsidies. The Third World should demand phasing out of all trade-distorting subsidies and practices of the developed world.
The 68th UNGA has noted that the UN Millennium Development Goals will not be met by 2015, leaving the world’s one billion poor in distress. The developed countries have not met their commitments under the Monterrey Consensus and Doha Declaration on Financing for Development. They are lagging behind their commitment of financing under ODA to the extent of 0.7% Gross National Income.
According to the World Bank India now has a greater share of the world’s poorest than it did 30 years ago. The State of the World’s Mother Report-2013 says that India has the highest number of deaths of newborns on the first day of life, estimated at 309,000. The UNICEF report says India has 43% of underweight children in the age group 0-5 years, which is much less than the average in sub-Saharan Africa at 21%.
According to official estimates about 56,000 maternal deaths were recorded in 2008 and 11.64 lakh infant deaths occurred in 2011. Neo-natal mortality rate was 31 per 1000 live births in 2011 indicating deaths of 3.1% new-borns babies within first month of their birth.
Among other items on the agenda for negotiations at the 9th WTO Ministerial in Bali is trade facilitation by removing delays in custom and port clearances. The developing countries have sought technical and financial assistance from the developed world and grace period for implementation. Other items are tariff rate quota (TRQ) administration, export competition and special consideration for goods least developed countries (LDCs) by slashing custom duties. The negotiations are bound to be intricate and labyrinthine. But one has to address basic issues before there is any tangible movement forward. The vision of a free and fair trade and development will remain a distant dream till a level playing field for the Third World is not ensured and food security for the poor is not given the top priority.
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