Aug 14, 2014

The late comment on India's veto on Trade Facilitation Agreement


India declined to sign the Trade facilitation agreement (TFA) on the ground that there has been no progress on the issue of public stockholding for food security purposes. TFA would facilitate trade by adopting better and common customs procedures for trade facilitation. This would ease the hassles in cross border movement of goods. India needs easing of customs procedures given that we rank 132nd in ease of trading across borders as per world bank's doing business report. 

The official explanation given to the parliament by the Commerce minister on the stand taken by India, is here. It's an interesting read as it appears that we stood on behalf of developing countries, which includes the least developed countries, the so called LDCs, and all the poor of the world. That would mean that we must have been supported by them at the WTO. I checked up. It was not so. 
We had three supporters on this matter. Cuba, Venezuela and Bolivia. And if a country is known by the company it keeps, I think there is some trouble here. No LDC or any developing country supported us. Apparently there was some tacit support, but it never came out in open. What came out in open was an attempt to leave India alone and push ahead with the deal, and other attempts to try out the TFA at plurilateral level with most of the countries, minus India and the Castro bastions. 

Let me make few things clear. One, I support the stand we took, for reasons I shall explain. Two, I don't subscribe to the nationalistic tone, bordering on jingoism, attached to this defiant stand by the Indian media. The media was initially skeptical for days while the deal hung in balance, and then, as if on a cue, went on an overdrive to defend our side when the deal fell through. The tone was simple, Modiji has saved millions of poor farmers with this one stroke. How? That was to be answered some other day. People gave theories of whatever suited them, including ridiculous reasons such as TFA would lead to increase in current account deficit, a comma usage being blamed on deal falling through, and so on (link here, here). The media lapped up anything remotely positive said about India on the matter, by any agency/expert from abroad. If you know you are right, why look at endorsements?

My support stands on following grounds. Bali package had four major components. They were TFA, Agriculture (including food security), Cotton and Development/LDC issues. It was a package. So all points needed to be arrived at simultaneously. Or at the least, a roadmap should be ready before one of them is finalized and signed off. TFA was ready, agricultural issues were not, and India has a problem with that. Fair enough.

Agricultural issues will always be difficult to negotiate. To expect them to be completed along with something simpler like trade facilitation is not correct. What India was dismayed with, was that there was no progress at all on agri and food security issues, whereas people were jumping over each other to pass through the TFA. It concerned India as India has landed up in a tricky situation after the National Food security Act of last government, which mandates huge subsidy expenditure on food in future. WTO limits such expenditure and India can be brought to dispute panel ending up with penalties. This is worrisome. The Bali package had agreed to give a window of 4 years, a kind of amnesty, for negotiations on the matter. So India started looking at TFA as more of a bargaining chip than as a facilitative multilateral agreement. That's a very insecure way of looking at things, but going by the past experience, India has good reasons to be skeptical. The exploitative IP agreement is a case in the point. Agricultural subsidies is a sensitive subject. There are many contentious issues when it comes to food security, right from fixing of magnitude of food subsidy, correcting the base year for consideration of subsidies, the nature of such subsidies and the methods and so on. The negotiations will take time, and might eventually never materialize. And so it makes sense to use TFA as a bargaining chip.

So on the basis of above points, I would say that though India needs TFA as much as any other country, to boost its trade, we can afford to hold it without substantial loss till our concerns are addressed.

Food security is an important issue in India as we still have a substantial population of poor, who are dependent on subsidized food. India has a ridiculously inefficient food procurement and distribution system. That needs to be urgently fixed. Only then we will have a fair idea on the working of food subsidy and the methods of implementing food subsidy programs. The sense of timing was never this urgent but I hardly see much movement in this area at domestic level.

Anyway, now that India has taken a negative stand the following possibilities arise:

First, if TFA falls through at WTO, the momentum generated at Bali will be lost and WTO will slowly start its decline into oblivion, which will be sad. US/EU and other nations are already building the world trade rules, the way they want it, through trans-pacific and trans-atlantic arrangements. India will not be part of them. And if and when we wish to join such new arrangements, we will be made to sign the dotted line. That's doomsday scenario, but can be a situation if WTO withers away.

Second, there might be some middle ground that might be broken in coming months, with some assurance to India about a roadmap regarding food security negotiations, and TFA might be signed. There are already such talks around this idea.

Third, there might be some kind of plurilateral arrangement involving most of the nations except few like India. This would again feedback into the first situation, with similar outcomes. The regional arrangements will grow stronger.

Anyway, TFA or no TFA, we need to align to easier customs procedures and improve from the 132nd rank in trading across borders if we are to become a serious global player in trade. We also need to fix what's wrong in our system when it comes to food security. It can't work with the existing way of doing things.

Otherwise, we will continue punching above our weight at multilateral bodies, and someday, someone will call the bluff. That would end the game.