The Hindu Business Line : Doha talks collapse: A chance for India?

As the Doha Round talks collapsed, basically, due to the US/EU squabbling over agricultural subsidies, India has reaped an indirect gain. It can now continue with its protectionist agricultural policies.

The World Trade Organisation's Doha Development Round talks have collapsed, and may take a while to resume again, given the impending elections in France and the US.

So, there are two main questions now: One, to what extent has India lost or gained from the postponement of the talks? Two, what should be India's next move?

`No deal' better than bad deal

Some analysts believe that a no deal is better than a bad deal. Sceptics point out that the magnitude of gains from further multilateral trade liberalisation is not clear in any case — the estimates vary widely depending on the model used.

Moreover, India has been enjoying a high growth rate of GDP over the past few years, without any further trade liberalisation. Therefore, India need not bother about any new agreement.

Specifically, as the talks collapsed basically due to the US and the EU squabbling over reduction of agricultural subsidies, India reaped an indirect gain. It can now continue with its protectionist agricultural policies under which it provides tariffs between 50 per cent and 100 per cent on many agricultural products. India cannot afford to reduce the level of protection on most of its agricultural products, when farmer suicides have become a major political and humanitarian issue.

God-send?

Unless some new rules are agreed upon in the current round of WTO talks, India is under no compulsion to cut down its tariffs. During the WTO talks, India was already facing pressures from even other developing countries such as Brazil to lower its agricultural tariffs. Thus, for the Government it is a god-send to get a respite from multilateral pressures to soften its protectionist agricultural policy.

But what of the gains for India from a possible reduction in agricultural subsidies by the US and the EU had the WTO talks succeeded? Here, analysts are quite sceptical.

First, the chances of any significant breakthroughs in cutting agricultural subsidies on a multilateral level are low as the developed countries are reclassifying thesubsidies to put more and more of these in the non-trade-distorting categories (Green and Blue Boxes).

Overall subsidies

In fact, they are increasing their overall level of subsidies while professing that they are cutting down trade-distorting subsidies, to keep their powerful farm lobbies in good humour. Researchers have repeatedly pointed out that the so-called non-trade-distorting subsidies, such as direct income support to farmers or counter cyclical income supplements, not related to level of production, encourage more domestic production by reducing the risks associated with agricultural production.

Second, more than 80 per cent of current agricultural subsidies are on beef, dairy products and cereals. Even if the subsidies are significantly reduced in these areas, India is unlikely to gain. Export of beef products is of no concern for India. Despite the so-called "white revolution", India is not in a position to increase its dairy exports due to various internal constraints such as unsatisfied domestic demand.

Importing wheat

At the moment, India is importing wheat, instead of exporting. Basmati rice is possibly the only cereal in which India (along with Pakistan) has significant export interest. But it is a highly specialised product, which is not usually grown in the US or the EU and hence the subsidy policy in the West has little significance for such exports from India.

The most important gain coming out of the Uruguay Round was the removal of export quotas on textiles (institutionalised under MFA - the Multi-Fibre Agreement) from January 1, 2005.

India could have gained more if tariffs on textiles (ranging between 15 per cent and 25 per cent, against the average of 3-4 per cent on other manufactured imports) by the developed countries could come down as a result of Doha talks on NAMA (non agricultural market access). For the moment the status quo remains with no change for India's export prospects in textiles.

Comparative advantage

Though India is generally recognised to have comparative advantage in the export of many services, most of the issues (especially the movement of natural persons which is so essential for delivering some of the services in an efficient and cost-effective manner) connected with service exports have not been taken up so far in the Doha Round.

So were non-tariff barriers and anti-dumping duties, which are considered more important constraints on India's export of both agricultural and industrial products than standard tariffs.

Thus, India had little to gain in these areas from the Doha Round, as it has been proceeding so far. Some feel that India has better chances of liberalising services trade through bilateral or regional agreements with selected countries (like the one with Singapore) than through multilateral talks involving some 150 countries at different levels of development and diverse agendas.

To the extent the breakdown of WTO talks forces India and some other countries to explore liberalising services trade among themselves, India would be a gainer.

However, the process of working out mutually beneficial bilateral or regional trading arrangements is not easy, especially if it has to be done with a large number of countries under separate free trade area (FTA) negotiations.

First, India would face enormous administrative problems in ensuring that the relevant rules are being followed when goods would be coming into the country from many different countries with different applicable tariff rates and exemptions. Quite significantly, almost simultaneously with the suspension of WTO talks, Asean countries have suspended the ongoing talks with India over the proposed India-Asean FTA.

Protectionist policy

It seems that India's protective agricultural policy, which has been incorporated in a huge list of sensitive products (where the existing tariffs would be maintained for the time being) is becoming a stumbling block in regional trade liberalisation initiatives too.

So, it is not very clear as to the extent to which India will succeed in clinching bilateral or regional deals as an alternative to multilateral agreements, unless it modifies its agricultural protection to a significant extent. If India wants to have market access in services, it will have to give something in return.

Finally, if the WTO talks fail, the US Congress would like to go back to the earlier days when the US administration used to take unilateral actions against trading partners with the help of domestic legislation such as Super 301.

Of course, if India feels unjustly treated, India can take the US to the WTO `court'. Here the problem is that if the US does not abide by WTO ruling, India can at most impose compensatory import duties on its products coming into India. There is no provision of monetary compensation under WTO rules.

Self-goal?

In many cases, by imposing duties, India will only be hurting itself by making essential US products more expensive. Besides, India may not be a big buyer of the US product to inflict a damage large enough to force a change in US policy.

So, the best policy for India will be to ensuretariffs and subsidies come down on a multilateral basis under the auspices of WTO, even if it takes a long time. The earlier rounds of talks such as the Tokyo and the Uruguay Rounds took six-seven years to get completed. So, there is still time for the Doha Round.

Meanwhile, India should also pursueother avenues of trade liberalisation, leveraging its status as one of the two fastest growing big economies of the world.

(The author is a former Professor of Economics, Indian Institute of Management, Calcutta. He can be contacted at alokr@iimcal.ac.in)