Back to ResearchThough the world was quite shocked, India’s decision to hold the World Trade Organisation’s trade facilitation agreement to ransom was not a complete surprise.
Yes, the Narendra Modi government was planning to reduce the minimum support price and shift to a cash-based subsidy system and would, therefore, have been in complete compliance with the new WTO norms on subsidies. Many emerging economies, like Egypt, made the shift to a new subsidy structure because they could see the writing on the wall.
My sense is that Modi concluded that given that the deadline for the TFA was just a few weeks after he had been elected, that the previous government had done no policy prep for a new subsidy regime and that parliament was in session and the government wanted to avoid the anti-small farmers tag it would be better to hold the TFA hostage for a month or two. The government in any case has been whittling away at the diesel subsidy and so wouldn’t minded some song and dance to make it look like it is fighting for the Indian farmer.
The real big issue in all this is the future of the WTO.
The WTO has been struggling the past few years. Its one country, one vote, system has all but left the trade body paralysed. The biggest trading nations, the United States and the European Union, want multilateral trade talks to keep up pace with the nature of world trade which has a lot more regulatory, intangible wealth issues than in the past.
But with the WTO freezing up so often, the main trading States sans China have begun setting up a new generation of trade arrangements like the Trans Pacific Partnership and the Transatlantic Trade and Investment Partnership. The third leg, the EU-Japan agreement is the third leg that’s already done. These three agreements would cover about 80% of international trade, setting what ex-WTO chief Pascal Lamy called the “golden standard” for global trade. No wonder China has signaled its intention to consider TPP membership.
But India is nowhere in all these agreements. It wouldn’t be eligible for TPP membership anyway as a member should be first a member of the Asia Pacific Economic Cooperation agreement (APEC) and India missed that boat many years ago.
If these new trading agreements come together, they would effectively set rules that India — with its paltry one per cent share of world trade — would have to follow. Some of the glimpses of the TPP negotiations indicate intellectual property rights will be among the more onerous facets of the new agreement. But there is plenty of other things, and India will have no say in these.
The TFA debacle has only underlined the ineffectiveness of the WTO. The Western trading states only need the TFA and the environmental services agreement and after that the WTO really has no utility for them. It will remain in situ, neither advancing trade nor reversing it. The script will be written and read out at other global stages.
India can do what it wants on subsidies, but what it really needs to be doing is asking how is it preparing for a post-WTO world. That question I fear has barely been given thought to.
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