Event ReportsPublished on Mar 02, 2015
The world sees India as not contributing positively to the international trade negotiations and this makes it difficult for India to actively participate in ongoing major plurilateral trade negotiations, according to Dr. Harsha Vardhana Singh, India's former DDG to WTO.
World sees India as not contributing positively to trade negotiations

The world sees India as not contributing positively to the international trade negotiations and this makes it difficult for India to actively participate in ongoing major plurilateral trade negotiations, according to Dr. Harsha Vardhana Singh, India’s former DDG to WTO.

Giving a presentation on "India-US Agreement on Agriculture, Current Status of Doha Impasse and the Impact of emerging Mega Regionals on India" at Observer Research Foundation in Delhi on February 13, Dr. Singh, currently Senior Fellow at International Centre for Trade and Sustainable Development (ICTCD) and International Institute of Sustainable Development ( IISD), Geneva, said India also needs to go a long way on the domestic reforms front to be able to be a part of the many regionals in the foreseeable future.

The short-term impact of mega-regionals would be seen by way of trade diversion, as TPP and TTIP will have massive tariff reductions and countries within these agreements will have an advantage and Indian exporters will increasingly lose their marketshare, he said.

Dr Singh said the larger impact of such agreements will arise because the standards of trade that prevail will be significantly determined by U.S. standards as the U.S. is the dominant partner in these agreements. The U.S. standards in turn are determined by the system of private standards. A feature of private standards is that they have higher content than other standards in general and they keep moving up over time. The two focus areas of private standards are going to be sustainable development and social issues- aspects that have a macro impact, i.e. they are not focussed on any one sector in particular. It can therefore be concluded that by way of TPP and TTIP, U.S. standards i.e. private standards, are going to increasingly be seen as the global value systems to which world trade must adhere to.

India thus needs to prepare itself for this eventuality else it runs the risk of being excluded from nearly 50% of the world’s market, Dr Singh said. The risk that the West and countries part of the agreements run is that they will create a huge imbalance in world trade as only 50 countries will account for 3/4th of world trade, which is a recipe for tension, conflict, and eventually even major disruption. In conclusion it was stated that there needs to be a move back to the multilateralism and for mega regionals to be more open to ensure inclusion in world trade.

Dr Singh began his presentation with the discussion over how the world is changing with regard to commercial relationships between nations through attempts made by countries by undertaking "large" plurilateral negotiations. Interest in FTAs, or Free Trade Agreements, has over the years been increasing, and this practice was furthered after the Doha impasse as it made things difficult to move forward at the multilateral level. Large nations started negotiating mega regionals with each other and as a result a huge portion of world trade started to move in the direction of such agreements with limited memberships. The three large mega-regional agreements include Trans-Pacific Partnership (TPP)- which is between the U.S. and 11 other nations, the Trans-Atlantic Trade and Investment Partnership (TTIP)-which is between U.S. and the European Union, and the Regional Comprehensive Economic Partnership (RCEP)- which is a FTA between ten ASEAN countries plus 6 other nations i.e. Australia, China, India, Japan, Republic of Korea and New Zealand.. These three mega-regionals account for only 49 nations. This fragmentation, where only 50-odd countries account for most of world trade needs to addressed. A significant feature of these mega-regional agreements, particularly TPP, is that they will give rise to high standards with respect to environment, labour laws, quality, etc. India is part only of RCEP. The worry for India would be that most RCEP nations and China are moving towards TPP, and once this happens, TPP and TTIP agreements will account for about 3/4ths of world trade.

The discussion then moved towards India’s stance at the WTO towards the food security issue, with a focus on the food-stock holding. India has three objectives from the food-stock holding policy -- one, to maintain reasonable income levels of its farmers through government decided procurement price; two to provide cheap food to its poor; and three to stabilize the price fluctuation of key food items that go into the consumer basket. In the WTO context, in terms of the agriculture agreement, India wanted its food-stock holding issue to be included effectively in the "green box"- similar to those subsidies which do not cause any adverse impact to trade and are exempted from disciplines (for India, the background for this was the Food Security Bill).

It was however claimed that India being a big economy had the potential to impact global agriculture trade both by procuring to stock up for domestic consumption and by exporting subsidised items. In this context, India wanted a permanent solution to the problem that arises especially because of a feature of the WTO agriculture agreement for calculating domestic support value to agriculture. According to the agreement, when the administered price is more than the reference price (i.e. the average price prevailing in 1986-88), the domestic support provided is calculated by taking the difference of the administered price and the reference price and multiplying it with the volume that is being subsidised. The reference price of 1986-88 was deemed very low by India as significant inflation has taken place since.

However, the view from the other side was that this price was intentionally kept low to increase discipline over nations when providing large subsidies. At the Bali ministerial meeting, it was evident India would not agree to the terms unless its concerns were met and its interest were taken into account. When it was made clear that India would not move its stand, efforts were made towards a permanent solution with a peace clause i.e. a dispute would not be raised even if the prevailing conditions were inconsistent with the original WTO agreement on agriculture. The timeframe for this peace clause was initially four years, and there were some who felt that it was not clear whether the peace clause for food stockholding subsidy would be operational after a four year period.

Post-Bali, the negotiations were being delayed, partly on account of the fact that since the peace clause would be till 2017, some felt no pressing need to address the issue. Instead they emphasized other pressing and more immediate concerns that needed to be addressed in 2014, such as Trade Facilitation. From India’ side, there were concerns that the legal wording of the above mentioned agreement did not give a guarantee that the peace clause would continue post-2017. India felt that a permanent solution needed to be agreed upon, or at the very least a permanent waiver until a permanent solution was agreed. With limited negotiations taking place, India decided to use trade facilitation as leverage and refused to agree for trade facilitation unless its own food stockholding concern was addressed. During PM Modi’s visit to the United States, talks at the highest level led to a subsequent breakthrough and a decision of the WTO General Council was taken whereby a permanent waiver till a permanent solution is identified, was agreed upon.

He then moved over to the current status of the Doha impasse. This began in 2008 not because of the disagreements between the U.S., India and China mainly on account various issues related to agriculture, as is the common perception, but also importantly due to NAMA (Non Agriculture Market Access). On agriculture, the US sought more market access from China by way of them reducing tariffs for some products of key interest, such as cotton and soybean. However, China disagreed to this demand. A similar demand was made of India too. Similar demand was made for major tariff reduction in NAMA as well. Both India and China disagreed to demands under NAMA, because the US wanted zero tariffs in two out of three sectors, one of them being the crucial chemical sector. A breakdown in NAMA talks also adversely affected agriculture negotiations.

Moving forward it was analysed that today, markets in the West, particularly with regard to international trade, have some very specific features- One, trade and investment are integral parts of each other’s activities. Second, there now exist global value-chains i.e. production of goods and services has become increasingly globalised with different countries adding value at different production levels. Thus, through trade, investment, and production networks, countries are now increasingly inter-linked. There is however a rising concern that certain value systems such as those on environmental and social impact while being important to certain societies, are not given the same level of emphasis in others. One view is that this creates an imbalance and gives societies that do not lay emphasis on these factors, an unfair advantage. These concerns are not just limited to trade but also extend to investments -- so much so that it’s now difficult to distinguish between trade and investment agreements in relation to such requirements. It is to counter this unfair advantage and to respect value systems across different major markets in the world, and to move beyond the Doha impasse, there has been a significant increase in the mega FTAs with several countries coming together and agreeing to conditions that will result in high and common standards operating for trade to take place.

Coming back to the mega FTAs such as TPP and TTIP, it was suggested that trade systems are changing rapidly, both through formal and informal mechanisms. Formal mechanisms can be seen through formation of mega-regionals and bilateral agreements between major economies such as China and the U.S. The informal mechanism can be defined as China’s need to maintain its prosperity through the linkages with the rest of the world. Focus of investment in China is on two issues- one, to overcome the difficulty of getting high-value investment. China realises today that without high-value technology it will not break the middle income trap. Second, China’s prosperity cannot be solely dependent on investment coming into its domestic market and therefore the focus is also on China’s outward foreign direct investment which is an important issue for Chinese policymakers. To achieve outward foreign direct investment, China would benefit from investment regulations providing certainty, and would ideally need investment agreement within the multi-lateral system.. China has come to the realisation that when TPP and TTIP are firmly established, they would involve half of world trade, and when that happens in a global value chain scenario, China cannot afford to be out of it. China has thus started preparing for a post TPP world by changing its environment standards, social policies, and in general conforming to global value systems.

The topic then moved towards India’s lack of quick efforts and reforms to be a part of these agreements. Dr Singh noted that if and when India wants to participate in high standard mega-regional negotiations, a concern for India would be that the world sees it as not contributing positively to the negotiations. Ideally, India should prepare its domestic reform process in such a way that it strengthens its abilities to better participate in the global system of trade, investment and value chains.

(This report is prepared by Shubh Soni and Richa Sekhani, researchers with Observer Research Foundation, Delhi)

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