Nov 30, 2014

TFA deal at WTO - A victory for India?

I had blogged earlier about the matter regarding objection of India to sign Trade Facilitation Agreement(TFA) at WTO, as agreed at Bali ministerial. India has now agreed to sign the agreement as I had predicted in that post as one of the likely outcomes. However, when I see what is being signed, I wonder if it was worth to take the fight to this level. There is hardly much change, as far as I understand, from what could have been signed then, and what is being signed now, despite what our media projects as a great victory without any compromise. 

India's objection to TFA was linked to following issues:

  • that Agri negotiations (on public stockholding for food security purposes) are not going at the expected pace and direction. As Agri is part of the package, there is no meaning in signing only one part of the package, i.e. TFA, while the other part, i.e. Agri negotiation, is still in its infancy at the table. 
  • Specific inside the Agri negotiations, India had various issues, from the method of subsidy calculation, the base year taken as reference, the agreed cap on acceptable subsidies, and so on. These issues would take time to resolve and India wanted it to be fast paced. 
  • There was a peace clause in the agreement that lasted till 2017 and India was not happy with this, as in the lack of an agreement by 2017, one was not sure if the peace clause still holds. 
  • TFA being a bargaining chip, there is no point in throwing it away without getting some returns  at Agri negotiations. 
  • Indian farmers and poor developing countries would be adversely affected. 
At the same time, India had no objection to TFA text as such. Despite what the commerce minister of India claimed about the support it got on the above points by other LDCs or developing nations, there was absolutely no vocal or visible support.

After the visit of US Trade Representative Michael Froman earlier this month, India and US had resolved the differences, though not many details of it were shared with the media. 

And on 27th November, the TFA was agreed by all WTO members, with a "peace clause" in perpetuity for developing nations till an agreement on agriculture is finalised. The details on the peace clause is reproduced from WTO site below:


On 27 November, the General Council adopted decisions that would allow the trade facilitation text to go ahead, clarify the public stockholding proposal and allow work on it to continue and allow a programme for completing the Doha Round negotiations to proceed, almost six months later than originally envisaged.
On public stockholding, the “peace clause” was confirmed, but the way it was described was now firmer: members would “not” challenge these programmes legally under the Agriculture Agreement — the original decision said they would “refrain from” doing so. The conditions also remained unchanged: Governments seeking the shelter of the peace clause had to avoid distorting trade (ie, affecting prices and volumes on world markets) or impacting other countries’ food security, and to provide information to show they were meeting those conditions.
Members clarified that the “peace clause” would remain in force until a permanent solution was agreed, even if that meant going beyond the 2017 deadline. Although the reference to the 2017 Ministerial Conference remained, members also agreed to strive for a permanent solution by the end of 2015.

And the reading of above text is both heartening and disappointing. Disappointing because:
  • India, it appears, is ready to sign TFA without any firm assurance on Agri negotiations. A dilution from its earlier stand that without Agri, it won't give away TFA. Bargaining chip, Indian farmers, and concern for poor countries were all silently relegated under for unknown reasons.
  • Peace clause, though extended perpetually, is still challengeable under the guise of trade distortion or impacting other countries and such, as implied from copied text above. 
The heartening part is small. India could get the word "refrain from challenging" converted to "not" challenge when it comes to agri subsidies. So that means, others countries who would earlier "refrain" from challenging India's food security program, would now "not" challenge. Go figure. 

My point is simple:

If this is what India wanted, I don't think there would have been any objection during July. We could have had TFA much earlier, and avoided the chest thumping drama that Indian media creates every time India takes a stand at international level, stupid or otherwise, to support the stand. 

I am happy that we are signing TFA. Its needed urgently in India. 

Food security in India, as I understand, is in bad shape due to mismanagement and inefficiency in public administration and domestic policy making, than any capping clause arising from international agreements.






Nov 28, 2014

Gold import control goes

I had blogged about the matter of controlling gold imports into India initially here, and then here when RBI relaxed the controls to include star export houses. Now the RBI has cleared out all such controls through this notification, and gold is free to be imported, after payment of required customs duty which is around 10 percent. 

Recap:

1. Alarmed by rising current account deficit and rising gold imports during early and mid 2013, RBI, in consultation with the Govt., used provisions of FEMA to bring out a circular to curb gold imports during August 2013. Some supplementary circulars were later on issued to clarify the matter, effectively making it clear that no one, including banks, could import gold for domestic sale. The language of the circular effectively lead to a ban on import of gold. 
2. This resulted in significant decrease in import of gold into the country. However, the gold imported for export purposes was out of purview and such gold was still being imported, to be exported later on. 
3. There was an artificial price distortion in Indian domestic gold market due to this. Smugglers invented ingenious ways to bring gold into the country. The policy of wait and watch continued till elections got over.
4. RBI brought out a circular, in late May 2014,  partially relaxing the gold imports to include star and premier exporters (with more than 2500 crore turnover over last three years) leading to a surge of imports by such big exporters. This partial relaxation lead to windfall chance for such established big exporters, as they alone were allowed to import gold into domestic market while all others were not allowed to do so. This was as good as allowing a quota to these few exporters, while shutting out all others. At the time of issue of this partial relaxation, there were hardly four or five such entities in the country who could qualify to gain from this arrangement. 
5. Today, RBI got out of all such controls on gold by issuing the latest notification. 

This would not have been a blog post, but for the timing of this announcement. 
RBI is getting out of such controls at a time when the gold import has surged significantly. In fact, during the month of October 2014, the gold imports surged by more than 250% over last year, and there were some concerns about this rise in gold import. In fact, a senior in RBI was quoted just last week saying that RBI is thinking of bringing in more controls to curb gold imports. That's why this move is significant. 

However, I believe that somewhere, sane forces prevailed over control masters when it came to making this decision. I reason thus:

  • First, there is no need to feel concerned about y-o-y increase this year as there is base effect in play. Last year this time, we had tight gold controls in place. Any relaxation shows up as a spike naturally. 
  • Second, gold imports are price inelastic in India. 
  • Third, such full and partial controls helps none but smugglers and a closed group of big exporters. The price distortion in market due to such controls leads to additional incentive to such elements. 
  • Fourth, we are in a relatively comfortably position when it comes to current account deficit and rupee stability. 
  • Fifth, it was a policy nightmare to understand and practically implement schemes such as 20:80 that these circulars mandated. It lead to inefficiency, corruption and crony capitalism, and not to mention overtime work for customs and DRI which went after smugglers, with mixed results at success. 

In light of above, I laud RBI, and the Govt that it probably consulted.