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Is India to blame?

THE failure of global trade negotiations at Geneva earlier this week was not entirely unexpected. Barring a salvage bid by Pascal Lamy, WTO Director-General, this could well mean the end of the Doha Development Round of trade talks. For the first time since World War II, a trade talk round has failed to produce a trade-enhancing package of measures.

The reason why ministers of a select group of WTO members failed to resolve their differences was quite simple: none of the major trading countries saw enough benefit coming its way, and the concessions that they were being asked to make would go down badly with their key domestic constituencies in the midst of a global slowdown.

When something as huge and complex as these negotiations fails, accusations and counter-accusations are traded, narratives of responsibility written and pronouncements of doom intoned across the world. The collapse of the mini-ministerial WTO talks also has set off the usual round of recriminations among the developing and the developed countries. The finger-pointing has now begun in earnest.

The United States' chosen fall-guy is India, and to a lesser extent other emerging countries, including China. While there are many issues on which the two sides did not see eye to eye, the immediate trigger for the collapse was disagreement on the Special Safeguard Mechanism (SSM) for agriculture imports.

The other main unresolved issues included reduction of huge trade-distorting farm subsidies of the US, especially on cotton, and Washington's insistence that developing countries should eliminate duties in certain infant and vulnerable industries.

The SSM refers to the norms that allow developing countries to respond to a sudden surge in imports or price declines of sensitive agricultural products by putting up emergency tariff barriers to protect their subsistence farmers. But it is a contingency measure to be used only when imports rise substantially.

The contentious issue was the precise level of imports that would trigger SSM. While India and several other developing countries wanted an import surge of 110 per cent over a three-year base period to trigger SSMs, the US wanted it to be 150 per cent. WTO Director-General Pascal Lamy had proposed a 140 per cent trigger. India also demanded that on such imports it should be allowed to impose additional safeguard duties above the Uruguay Round-bound levels (maximum tariff levels committed at the Uruguay Round) as the present proposal of 15 per cent additional duty would not be enough to curb such import surges and price declines.

Lamy made a last-ditch effort at compromise by suggesting another mechanism for agricultural safeguards which did away with the triggers and remedies altogether. This mechanism required members to inform the WTO after the imposition of safeguards, after which a special panel would study the merits of the move.

The US rejected the proposal by Lamy and another one by the European Union saying that SSM would disrupt normal trade rather than protect poor farmers. Some agricultural exporting countries like Uruguay and Paraguay, too, said SSM would hurt their interests. The talks broke down as India and the United States refused to budge.

The complaining about SSMs ignores three points: first, losses from the implementation of such provisions would be a fraction of what the agricultural exporters in developed countries would earn from market access; second, most countries already have them, but use them very rarely; and third, there are built-in restrictions on their use, because it is usually politically necessary to keep food prices low.

As to the specific cut-offs for SSM, was 40 per cent too high? Was 10 per cent, as India and China demanded, too low? The difference is not trivial, as some commentators have sought to imply. The economic losses may be small, but the relative number of lives at stake may be very large. This is because these are increases in quantities of agricultural imports, not changes in the prices of these goods. Small increases in imports could lead to large declines in prices.

When the concern is about insulating subsistence farmers from catastrophic risk, it is the price that is relevant rather than the quantity imported. Therefore, the bar for quantities should be lower to allow governments to respond in time to price changes. To suggest that intervention should wait till imports have already flooded the markets is economically illiterate: even discreet measures take time to work.

That is why India was supported by China and around hundred other countries in its stand on SSM. That is also why Indian farmers and food security activists are relieved at the failure of the talks. India's firmness at Geneva is explained by the ferocity of its politics on this subject and the desperate, even suicidal, poverty of millions of its farmers. And, as Economist has pointed out, the ultimate stumbling-block of SSM may be a mountain to India but was surely a molehill to a country of America's wealth. Also, America has one million farmers, India over 200 million.

Many analysts have pointed out that Lamy was ill-advised to force the issue by calling the Geneva meeting at the present juncture. The WTO framework is based on reciprocity. But concessions are most easily made when economies are doing well, whereas the Doha round has reached its final stages when the world economy faces a slowdown - which tends to make everyone tightfisted - and at a time when the emergence of countries like China and India makes the developed world feel under threat. In the US and the EU, dismantling of the clothing quotas under the Uruguay Round has exposed domestic firms to greater competition and the adjustment costs of the Uruguay Round commitments are yet to play out fully.

In this scenario, there is little prospect that industrial countries will be able to put aside their own defensive interests to grant greater access to developing countries where they seek it most. The negotiations have therefore turned out to be as hardnosed as any, with pressure being focused on China and India to make more concessions.

And unlike the previous (Kennedy, Tokyo and Uruguay) rounds, it is no longer possible for US, Europe and Japan to agree on a deal and shove it down the throats of the rest. This time, the rest too have a say in what happens. It is no wonder that a consensus has proved elusive.

What does the failure of Geneva talks mean for the world trade? For one, the growth of global trade is not under threat. Developing countries, on their own, have continued to reduce duties and open up to imports and foreign investment.

The growth of global commerce has outstripped the hitherto healthy pace of global GDP. This trend is unlikely to be reversed just because the Doha Round talks failed. Indeed, the eventual benefits of an agreement at Geneva were estimated at $70 billion, a drop in the ocean of the world's GDP.

Yet it is worth trying to salvage the round. The trade ministers at Geneva had managed convergence on 18 out of 20 contentious issues. That is too precious an achievement to be thrown away lightly. Secondly, the alternative of bilateral agreements is hardly a superior substitute. Imagine Sri Lanka persuading US to change its laws in return for market access.

However, with American elections looming, India heading for the polls by next May and a new European Commission due late next year, it may be 2010 before much can be done. And there is a risk that by then things might have taken an altogether different turn.