From Cancun to Geneva News Archive News

A strange event took place on the road from Cancun to Geneva. Not commented upon in India, it is still important, because the issues have be...

Written by Yoginder K. Alagh

April 7, 2004 12:00 AM IST

5 min read

A strange event took place on the road from Cancun to Geneva. Not commented upon in India, it is still important, because the issues have been the subject of much vexed debate in this country. European Union Trade Commissioner Pascal Lamy, one of the most powerful men in global trade negotiations, lambasted Supachai Panitchpakadi, none other than the director general of the World Trade Organisation, for engaging in 8220;dangerous polemic8221; on farm subsidies. In more sanguine times, this kind of language at this level was unthinkable but trade negotiations are no longer cricket, alas!

Panitchpakadi had earlier in a speech in Costa Rica repeated the OECD based figure that the industrialised countries spent 300 billion on farm subsidies. Lamy called these numbers 8220;misleading8221;, 8220;contestable8221; and employing 8220;ideology based arguments8221;. He wanted actual budget numbers to be used. But budgets with a clever finance minister can be dressed up and a tariff can be an equivalent sum as compared to a subsidy, as introductory trade textbooks teach us. 8220;Should I remind you that this figure does not in any way correspond to budgetary outlays?8221; Lamy says and goes on moralising: 8220;The honest figure would be around 100 billion and less than 45 billion a year in the EU.8221;

I remember when we once rejected a political 8220;favourite8221; project in the Planning Commission, bringing out how it leads to negative value added, the concerned minister also moralised, saying tell me what happens in ordinary prices. We did bringing out the profit it would make, but simultaneously the tax loss to the government with its misdeeds. As the developing world takes the moral high ground, because we are no longer scared of markets and know our strengths in competitive games, the arguments on the other side resemble political kitsch. In India this argument has been going on for some time. It has been argued that in view of the Aggregate Measure of Support AMS to agriculture in India being less than 10 per cent, and in fact substantially negative till recently at least, it is exempt from undertaking any reduction commitment. But I had shown that this emerged from the use of the late eighties as a base for such calculations. India was estimated to have a negative Aggregate Measure of Support for Agriculture. This was estimated in a well known set of studies done for the WB by Gary Purcell with the help of Ashok Gulati. This was then the argument for a policy of taxing agriculture. These estimates were used in the Agreement On Agriculture AOA.

In 1996, in a published report, the World Bank released new estimates. 8220;Accelerating a trend in the mid-1980s, the 1991 economy-wide reforms virtually eliminated the anti-agricultural bias implicit in the trade and foreign exchange regimes.8221; These are the kind of concepts Panitchpakadi has used. As Jagadish Bhagwati has been arguing, the WTO does not do much study itself and has to rely on the World Bank or OECD kind of organisations for its concepts. The World Bank makes this point somewhat emphatically for India which we repeat, since some commentators deny this conclusion: 8220;The estimated mild protection of agricultural price policies contrasts with earlier studies which indicated much higher levels of relative price discrimination8221;.

Another argument sometimes given is that the AMS has a 1988 price base. When the AOA is up for discussion, the base year will certainly come up for scrutiny as it already has. It has already been proposed in the negotiations that Scheduled Total AMS commitments may be expressed in national currency, a foreign currency or a basket of currencies. In case a foreign currency or a basket of currencies is used and the final bound Total AMS in a Member8217;s Schedule is expressed in national currency or another foreign currency and a participant wants to avail itself of this option, the final bound Total AMS shall be converted, using the average exchange rates as reported by the IMF for the year at issue. So obviously the base year will change, because the conversion will be at current rates.

There is no way that that issue of subsidy can be avoided, most certainly not the large ones given by the EU at economic prices. Also India will have to negotiate its own interests. The EU, the US, New Zealand and other countries have been sharply raising these issues in the discussions on India8217;s Trade Policy Review, and more is sure to come. The debate between Lamy and the director general of the WTO will have to be understood in India.

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