A post-WTO world

India needs to think of its place in it, as it flexes its muscles and stalls trade treaties

By: Express News Service | Published: August 2, 2014 12:05:19 am

While many in the government, and outside, have viewed the stalling of the WTO’s trade facilitation agreement (TFA) as legitimate muscle-flexing by India, and deemed it appropriate, given how countries like the US use unilateral tools like Super and Special 301, the real issue is quite different. For one, as this newspaper has argued before, though the WTO’s external reference price for calculating food subsidies is nearly two decades out of date, there is nothing in even the current rules that in any way limits India’s ability to dole out subsidies. The WTO is concerned only with trade distortions, and the problem here is that if too much wheat/ rice is procured by the FCI and the hugely subsidised grain finds its way out of ration shops into the export market, as it invariably does, it distorts trade.

The solution to this is not just simple, it is economical, and helps India achieve its policy goals. Instead of spending upwards of Rs 1.5 lakh crore a year on the FCI-based subsidy system, let the poor buy grain in the open market, but give them cash subsidies to ensure the costs of grain are Rs 2-3 per kg as envisaged in the Food Security Act. This will bring costs down to around Rs 40,000 crore. Use what is left, and more if you like from the Rs 75,000 crore fertiliser subsidy, to make direct payments to small and marginal farmers — this will ensure that just the rich farmers who sell wheat/ rice to the FCI don’t corner all the benefits.

More importantly, the issue is not whether the US/ Europe gets to play the heavy — getting Japan to agree to voluntary export restraints is an oft-cited example. This is about India’s position in a post-WTO world. If the Trans Pacific Partnership for trade in goods and services takes off, the terms for TPP members will be better than they are for countries like India. Nor can it be the case that if India gets to be part of the TPP, the conditions imposed on it will be more liberal than the WTO ones India says it finds onerous. Despite the recent BRICS bonhomie, similarly, it seems unlikely India will get a more liberal treatment than it gets from multilateral institutions like the IMF and the World Bank. And whatever the political-bureaucratic defence may be, it cannot be denied that India had got a four-year window at Bali in which to resolve the food subsidy issue. It’s clear India saw the trade facilitation deadline as an attempt to force the issue and behaved in an opportunistic manner.

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