Why India needed to stand up to WTO

India’s tough stance at the World Trade Organisation over public stockpiling of food grain and its dispute resolution with the US is being portrayed as another instance of the trade brinkmanship. With the signing of the indefinite “peace clause”, India can continue with its food subsidy programme pending a permanent settlement of the issue. But is it right to look upon this as brinkmanship?

While India seems to have won this round, South Asia security affairs expert Teresita Schaffer suggests that the incident may strengthen and vindicate India’s stance to use ‘brinkmanship tactics’ in trade negotiations, in turn souring relations with Washington.

Earlier too, Western commentators had criticised the Government’s refusal to play ball with regard to the Trade Facilitation Agreement (TFA).

India’s stance was seen as compromising the consensus-based approach of the WTO, threatening the credibility and the very future of the WTO. But the reality is more complex.

It is true that the earlier UPA government had agreed upon the TFA and a reversal of stance by the new government in July may have raised questions on the credibility of India’s political system.

Equally, India’s refusal to approve the TFA in July had only a handful of supporters among the 160 WTO members. That India had a point however, was amply demonstrated in the few voices that spoke out in support.

Thus, South Africa in a strong statement to the General Council on the issue, said: “Repeated failure to deliver meaningful outcomes on issues of interest to the poorest members… can equally be characterised as harming the credibility of our organisation”.

Developed countries oppose developing country food security programmes based on the contention that they represent implicit subsidies under the WTO’s Agreement on Agriculture (AoA).

India’s national food security programme — which involves government procurement of food grain at administered prices and their distribution to the target sections either free or at subsidised rates — was seen as one such subsidy.

The difference between the (higher) administered prices and current market prices represented a subsidy under AoA, which, it was alleged, could be used to build food surpluses that could be dumped into international markets.

These allegations of implicit subsidies were problematic. One, the ‘subsidies’ appeared larger on account of the AoA’s selection of international prices in 1986-88 as the reference point. The food price changes since then render this base outdated. A more recent base year is called for to accurately assess the real value of the subsidy.

More importantly, a deeper analysis of the economics of the food security row reveals the hypocrisy of developed countries — especially the US and the European Union — with their larger food support programmes.

US domestic support in 2010 under the AoA, for instance, amounted to $120.5 billion, as opposed to India’s $12 billion in food subsidy.

The two major food grain distributed under India’s food security programme are wheat and rice. A perusal of Reserve Bank of India (RBI) data indicates that for the period 2000-01 to 2013-14, the government’s procurement of rice and wheat went up by 47 per cent and 53 per cent, respectively.

The Government’s additions to stocks of rice over the period were of the order of 31 per cent. In the case of wheat, paradoxically, stocks fell by 17 per cent over the period.

These numbers are not significant enough to suggest that the Government influenced international food grain availability and prices, through official stocks.

Perusal of export data presents a different picture. Indian exports of rice are mainly of two types — the aromatic Basmati and the non-Basmati rice varieties.

While the quantity of basmati rice exports increased by 316 per cent, that of non-Basmati exports rose by 862 per cent over 2000-01 to 2012-13; the quantum of wheat exports rose by 279 per cent.

More staggering is the increase in the value of rice and wheat exports in US dollar terms.

Thus, while the value of rice exports over the period increased by 670 per cent, that of wheat exports increased by a whopping 2029 per cent.

Which means the food security row seems to have little to do with increased government procurement and release in the form of export surpluses.

At the heart of the row are the growing Indian exports of food grains, and their potential effects on global food grain prices.

The TFA sought easier market access for developed countries through improvements of ports and other trade infrastructure such as customs regulations of developing countries.

This involved additional capital costs for developing countries together with opportunity costs in terms of developmental expenditure foregone.

Moreover, the TFA was only one element of the Bali package; food security and policies to support least developed countries constituted the remaining two elements.

The latter two, however, had vague commitments and distant deadlines and compromised the “single undertaking” principle governing the package.

By ‘reneging’ on its ‘commitment’ to implement the TFA, India seemed to have used trade brinkmanship to threaten, “the first global trade reform since WTO was set up in 19 years”.

However, even a suggestion of such a nature represents a failure to understand the true economics of the food security row, as also a genuine concern of developing country needs.

The writer teaches Economics at the SP Jain Institute of Management & Research, Mumbai. The views are personal

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