Strategic mistake

Lack of vision behind India's stand on trade facilitation

Multilateral negotiations at the World Trading Organization, or WTO, are an extremely delicate dance. These require the balancing of a multitude of interests; countries have to play off their internal lobbies' demand against the gains from trade, which are generally spread out over all their citizens; and unanimity is required, making progress subject to vetoes from countries with no stake in the future. In this context, the agreement hammered out at the Bali ministerial last year, which revived the Doha Round of the WTO, was almost a miracle. It is doubly tragic, therefore, that this hard-won agreement looks like being scuttled by one of the countries with most to gain from a strong multilateral trading system, and from this agreement in particular: India.

Since taking over office, the National Democratic Alliance government and its commerce minister, Nirmala Sitharaman, have made it clear that the Bali agreement, signed by the previous government, will not be ratified unless Indian demands are met. This is both a strategic and a tactical mistake. At a tactical level, it seriously misjudges the support for the agreement globally, and the costs and the benefits to India. Essentially, the government wants agreement from the WTO that high Indian subsidies to farmers producing foodgrain be allowed to continue before the country signs on to "trade facilitation" reform. Trade facilitation essentially works on helping out traders - through better ports infrastructure, through more transparent Customs norms globally, and through faster and more efficient Customs procedures. There's both money and technical advice available to help make these things happen. For Indian traders inundated with paperwork, this global agreement would be a giant help - and something a reformist government should be helping out with. Yet, instead, the government feels that this agreement can be put in jeopardy merely to ensure that Indian minimum support prices (MSPs) for food products continue to be high. The WTO's rules cap subsidies for food production at 10 per cent of the total value of production. It is important to note that this is not an attack on the idea of subsidising the consumption of food. If India opens procurement for its public distribution system to all comers, including foreign grain suppliers, at the same price, then the WTO has no problem. High MSPs for foodgrain are something India needs to move away from anyway. They distort Indian agriculture - and the Indian diet. There are other, better ways of providing food security, including direct benefit transfer options. But, instead, a nominally reformist government is defending high MSPs at the risk of scuttling the Doha Round.

The strategic problem is precisely this: that there is no grand vision of Indian trade. Thinking is largely dominated by a protectionist mindset. Around the world, major trading powers are making their own agreements, bypassing the veto-prone WTO - the Trans-Pacific Partnership, for example. India cannot join these, for they would ask too much in terms of regulation. Its own bilateral free-trade agreements are too shallow, and some are prone to being misused to allow the entry of Chinese products through the back door. In other words, India desperately needs multilateral trade negotiations to work. The WTO is more in India's interest than any alternative. But, instead, it has developed a reputation for scuttling such talks in the past. And on this occasion, the optics will be the worst of all such times. Trade facilitation is a universal good; to see India veto that, as well, will cause other countries to think the worst of India - and of the WTO, which hurts a WTO-dependent India particularly.