Pressure on less developed countries from an increasingly belligerent US has caused the recent WTO gathering in Buenos Aires to end in an impasse.
The 164-member organisation’s 11th ministerial conference (MC11) failed to reach consensus on several controversial issues but US interventions were especially concentrated on questions raised by India, China, and other developing countries.
In succumbing to pressure from the rich world, the Geneva-based body appears increasingly toothless, although it remains the primary forum for governance of a rules-based multilateral trade system.
US Trade Representative Robert Lighthizer said the WTO was losing its essential focus on trade negotiations by becoming a litigation-centred organisation. There is some truth to this: Trading arrangements increasingly bypass the WTO and member countries formulate their own agreements.
A change favoured by the US would be the special and differential treatment given in the past to developing countries like India, which gave them more leeway to comply with WTO rules, being dialled down. Such conventions are now under threat because the US sees emerging economies like India and China in terms of their giant populations and higher GDP figures. India’s Commerce Minister Suresh Prabhu rightly pointed out that India has to be treated differently because 600 million people, close to half the population, still struggle for economic security.
The agenda in Buenos Aires
Several issues came to the fore in Buenos Aires. Most important to India was a permanent solution to the issue of public stockholding. The interim solution agreed at the Bali Ministerial of 2013, in accordance with which India maintains stockholding of food grains equal to 10% of the value of total crop production, was intended to protect developing countries against subjection to the WTO Dispute Settlement Mechanism in order to ensure food security. But a promised permanent solution could not be found in Buenos Aires, mainly due to US obstruction.
Public stockholding is essential for India’s food security. If the issue is not resolved, India may have to roll back its Food Security Act, compromising food provision for the poor. Although India can continue its support price programme for the meantime, there will have to be a permanent solution to how the Minimum Support Price (MSP) is fixed at some point. According to the WTO’s Agreement on Agriculture, the MSP should be calculated on the basis of 1986-88 food-grain prices and the total subsidy should be below 10% of the total value of production. India has strongly opposed this formula because current prices are much higher, meaning the total MSP subsidy would also be higher. Fortunately, India’s food subsidy is still below 10% of the total value of production.
Of greater importance throughout the developing world, India, China, and others have opposed the huge production-related price distorting subsidies given by rich countries like the US and the EU to farmers. Produce becomes cheaper relative to produce from developing countries, making competition difficult.
The US alone gives around $150 billion in direct subsidies to farmers. These fall within the ‘green box’ of GATT (the WTO’s predecessor organisation) rules, and are thus allowed. India’s MSP is considered trade distorting, falling within the ‘amber box’, so India is mandated to reduce them.
The issue of agricultural subsidies in rich countries was not addressed at MC11, even though it has been raised in WTO negotiating rounds. The US refused dialogue on agricultural reforms.
Several other sticking points were new to this Ministerial conference. China proposed the removal of all duties on e-commerce, but India objected because its comparatively shallow degree of digital penetration would harm the country’s MSMEs by rendering them uncompetitive against rivals from more deeply internet-penetrated countries, which would have better access to international markets.
Investment facilitation arose in relation to India’s new model investment code, which prevents multinational companies taking the government to international courts before they have first used domestic dispute settlement bodies for a period of at least five years. India’s government has been taken to international arbitration courts on multiple occasions in the past. In Buenos Aires, India was supported by the 53-member African Group in opposing the inclusion of investment facilitation on the WTO agenda.
China and India also resisted obligations to eliminate fisheries subsidies for ‘illegal fishing’ due to the large numbers of fishing livelihoods which would be affected.
The future of the WTO
The limited progress of the Doha Development Round, which India and the group of 33 developing countries had been so keen to promote, begs the question of what exactly the WTO can still achieve.
Sadly, even the WTO’s limited role as a dispute settlement body has been watered down by US refusals to participate in the nomination of judges to the Appellate Body, paralysing the dispute settlement system. Members are usually appointed by consensus and the US contribution matters.
Historically, the organisation has been dominated by rich countries, with US foremost among them. But having previously supported trade and investment liberalisation and insisted on tariff reductions in order to pry open developing markets, the US itself has now reverted to protectionism. It has withdrawn from the Trans-Pacific Partnership Agreement and wants to renegotiate the North Atlantic Free Trade Agreement in the name of President Trump’s ‘America First’ goal.
Although China – the biggest exporter in the world – continues to support free trade and globalisation, India on the other hand is increasingly promoting its own free trade agreements. As India competes with ASEAN rivals and other emerging economies for a share of global trade, it has made greater progress establishing its own FTAs with Asian neighbours and other regional groupings than it has found in advancing the Doha Round.
If India left the WTO, no great harm would come to it in the areas of trade and investment. It would be independent of the public stockholding restrictions which are unjust towards poorer Indians in need of food security. India would be able to undertake reforms at its own pace and would be better placed address the needs of the poor farmers and small enterprises. Reflecting similar sentiments in the US, India’s ‘Make in India’ policy prioritises its own industries. India may also implement its own agenda regarding duty reduction on various sensitive items.
The impasse at the WTO, especially regarding food security, means that India’s long-held support for multilateralism and globalisation may change in the near future.