TRADE: Spat Over Farm Subsidies Sours Indo-US Ties

By IPS Correspondents Reprint | | Print |

Paranjoy Guha Thakurta

NEW DELHI, Aug 20 2006 (IPS) - While Indo-United States relations have been on an unprecedented high, taking in a civilian nuclear deal signed over a year ago, trade ties between the world’s two largest democracies have steadily deteriorated with India heaping blame on the U.S. for a breakdown in trade negotiations at the World Trade Organization(WTO).

It has not helped that seven major Indian states have either banned or placed severe restrictions on the sale of soft drinks manufactured by U.S. beverage giants Coca-Cola and Pepsi Co after a non-government organization (NGO) in New Delhi, the Centre for Science and Environment, alleged that these beverages contained excessively high residues of pesticides.

The U.S. now threatens to withdraw the benefits of a three-decades-old generalised scheme of preferences (GSP) that allowed duty-free access to certain Indian goods and media reports suggest that Washington is sitting on applications filed by three Indian banks to open branches in America.

As India’s principal trade negotiator publicly blamed the intransigence of the U.S. for the impasse in the Doha Round of talks at the WTO, analysts here argue that any movement forward on international trade negotiations is contingent on Washington first agreeing to cut farm subsidies before developing countries start opening their markets to non-agricultural products from the West.

Speaking at a public function organized by the Confederation of Indian Industry (CII) on the weekend, Gopal K. Pillai, special secretary to the federal ministry of commerce and industry pointed out that farmers comprised barely two percent of the U.S. population and agriculture accounted for a similar proportion of the gross domestic product of the world’s biggest economy.

By seeking to increase subsidies to this small section of less than six million people, the US administration had pitted their interests against those of nearly 90 percent of world’s population, many of whom are small farmers living in developing countries, he added, thereby “holding to ransom” the Doha Round of negotiations at the WTO.

Pillai said only 10 percent of world trade was in agricultural commodities. “Close to 70 percent of the value of agricultural produce in the U.S. does not benefit from disbursement of government subsidies that are given to certain crops like cotton, soybean, corn, wheat, rice and a few dairy products,” he told IPS in an interview on the sidelines of the CII conference that was titled “Doha Collapse: The Road Ahead”.

According to Pillai, 70 percent of the farm subsidies in the U.S. are cornered by a clutch of large agri-business corporations like Cargill. During negotiations in Geneva in late-June and early-July, the position of the U.S. government was that instead of cutting “trade distorting” subsidies it would in fact increase agricultural subsidies from 19 billion dollars to 23 billion dollars. In exchange, the U.S. was asking developing countries to cut tariffs on imported non-agricultural products by as much as 90 percent. “It was not possible to negotiate,” he said.

India’s commerce and industry minister Kamal Nath had walked out of the Geneva talks in a huff saying “no deal was better than a bad deal”. When asked about the state of the Doha Round of talks, Nath famously remarked that it was “between the intensive care unit and the crematorium”. After the stalemate in Geneva, even staunch U.S. allies in Europe criticised the stance adopted at the WTO by the Bush administration.

The Trade Commissioner of the European Union Peter Mandelson has been quoted as saying that Washington was asking “too much from others in exchange for doing too little themselvesàthis is not my definition of leadership”. The U.S. countered these allegations by describing them as “false” and “misleading”.

Many in India are clearly unconvinced by American protestations. Pillai, a normally-reticent career bureaucrat went to the extent of sarcastically stating that the 149-member WTO was after all “the World Trade Organization and not the U.S. Trade Organization”.

He said nearly three years had been spent at the WTO debating the “most frivolous issue” of how specific duties should be converted into ad valorem duties. (Specific duties are levied per unit volume of a commodity whereas ad valorem taxes are a proportion of the transacted value and are considered less trade-distorting.) “Ninety percent of the duties on agricultural produce in developed countries are specific whereas 90 percent of similar duties in developing countries are ad valorem,” Pillai pointed out..

Deputy Director General of the WTO Harsha V. Singh said the problems in the Doha Round were “political” in nature and had less to do with “substantive trade issues”. He optimistically believed that there is a “reasonable and feasible landing zone” for the both developed and developing nations to resolve their differences.

Quoting the WTO director general Pascal Lamy, Singh (a former bureaucrat with the government) said that in the “landing zone there would be real cuts in subsidies and real gains in trade through market access”. “Both developed and developing countries are uneasy about the present situation and I believe the costs that would have to be incurred would be more than compensated for by future benefits,” Singh said, adding that political posturing during trade negotiations was inevitable.

There is concern too that there is an attempt to rush the negotiations. Biswajit Dhar, who heads the Centre for WTO Studies at the Indian Institute of Foreign Trade told IPS that the original “three year time frame for concluding the Doha Round was unrealistically short”. He felt the complex negotiations that had started at Doha in 2003 “cannot be concluded by setting artificial deadlines” given the fact that two earlier rounds of trade negotiations, the Tokyo Round and the Uruguay Round, had taken six years and more than seven years respectively.

Author of a recently released volume ‘The WTO: A Discordant Orchestra’, T. K. Bhaumik said there were two problems with the so-called landing zone. “The first problem is that the aircraft has three pilots (meaning the US, Europe and the developing world) and the second is that no one is sure where exactly on the landing zone the aircraft should land,” he quipped.

“It is important to complete the unfinished agenda because the imbalances of the Uruguay Round are still waiting to be corrected,” said Bhaumik, who has attended all but one of the ministerial conferences that have taken place in the eleven-year existence of the WTO. “There are outstanding issues related to WTO rules, trade facilitation and injecting transparency by reforming the way the WTO functions.”

Dhar says the developing countries realized at the end of the Uruguay Round that they got a “patently unequal deal”. “The playing field is not level. Developed countries want access to the markets of developing countries by any means, fair or foul, but they don’t want to give access to qualified professionals from developing countries.”

Yet, there is considerable consensus in India on the government’s position at the WTO. Arun Jaitley, former federal commerce minister and currently general secretary of the Bharatiya Janata Party, the principal opposition party in India, said “the real story in the WTO is not about agriculture but the fact that there has been no progress on NAMA (non-agricultural market access) and trade in services over the last five years”.

He said the US and Europe had realized that low-cost manufacturing was now happening only in developing countries. “More importantly, the developing world is more united than ever before,” Jaitley said, observing that five members of the Group of 20 – China, India, South Africa, Brazil and Argentina – together accounted for more than half the world’s population.

Jaitley, Pillai and others believe that trade negotiations at the WTO can resume only if the U.S. backs down from its rigid position on agricultural subsidies. ”The U.S. as well as the EU cannot continue to refuse to realize or acknowledge the emergence of the new group of developing countries in the WTO,” said Jaitley.