Defending turf at Hong Kong

The prevalent mindset regarding the WTO puts a lot of pressure on the government to be defensive regarding its stance even where it can afford to be more aggressive

N Chandra Mohan Delhi

After the World Trade Organisation's (WTO) ministerial conference in Hong Kong in December 2005, there is still no clarity on whether India is a gainer or loser from this round of talks. Union commerce minister, Kamal Nath, for his part, states that India's concerns have been fully addressed at the WTO. But the left and Bharatiya Janata Party (BJP) disagree arguing that he has failed to protect the interests of India. What is the true position? One difficulty in examining such issues is the prevalent mindset that regards the WTO as a rich countries' club that thrusts iniquitous bargains on countries like India.

Instead of debating how India can negotiate aggressively to its advantage at the WTO, this mindset offers a more pessimistic prognosis of this encounter and advocates instead a more defensive negotiation stance. True to form, whatever the government does at these talks is considered a sell-out of India's national interests. But what is the national interest? The left and BJP do not offer much insight in

this regard but they would much prefer that the government does not yield an inch at the WTO as it might have far-reaching and even irreversible consequences for India's economy.

Such opposition naturally puts whi-chever government is in power on the defensive so that it is not vulnerable to the charge of a sell-out. Kamal Nath's challenge in the months ahead is indeed to convince the left, on whose support the current UPA government depends for its political survival, and the BJP that he has given away nothing at Hong Kong. Their basic argument is that the minister has not adequately safeguarded the interests of millions of small farmers in the country and has left them open to predations of the big agricultural corporations masquerading as farmers in the developed world.

Agriculture is indeed the most controversial sector being negotiated at the WTO, thanks to the intransigence of the European Union (EU) in reducing subsidies and cutting tariffs. The draft text at the end of the Hong Kong ministerial mentions that all export subsidies will be ended three years later than earlier hoped, that is by 2103; that a substantial part of the cuts must take place in the first half of the implementation itself. The draft text, however, is also explicit that the cuts must come also in indirect subsidies to farm products like export credits, state trading enterprises and food aid.

The left-BJP criticism against Nath doesn't, however, take into account the fact that there is nothing in all of this for India. Unlike Brazil and Australia who are efficient exporters of agricultural goods, India's interests have always been dictated by the need to safeguard millions of small farmers who operate majority of farm holdings in the countryside. India may be a fast expanding and prospective economic power. Yet, it remains a very closed economy with some of the highest agricultural tariffs in the world. None of this will change, Hong Kong or no Hong Kong.

Citing food security concerns, India thus can be exempt from making any reduction commitments in terms of domestic support and from the obligation to provide any minimum market access in agricultural goods. That indeed is what the union commerce minister claims has been safeguarded: notably, that there is no restraint on the government's ability to provide domestic support to farmers. The agreement also protects countries like India from unfair competition from imports. India can raise duties on farm produce because of a surge in imports or because the import price was too low.

With prevalent mindset, however, none of this will be considered as anything other than a sell-out. What is conveniently forgotten is that in a negotiation entailing give and take, how can India without budging an inch ask the US and EU to reduce farm subsidies and tariffs? Asking the latter to make all the concessions while keeping one's own tariffs high to protect millions of its small farmers might well be a nonstarter, as has been pointed out by Professor TN Srinivasan of Yale University. Unlike India, Brazil as a major farm exporter will benefit from greater access to the US and EU market.

While India has defensive interests in agriculture, its edge is mainly in services. Unlike many developing countries, it has, in fact, taken offensive positions in this area as it has export interests in information technology (IT). The country also seeks greater access to EU and US in terms of the movement of natural persons or what is termed as mode 4 in cross-border supply of services. Indications are that there was only limited movement on this matter at the Hong Kong ministerial. If this route is blocked due to opposition by the US and EU, it will affect India's ability to offer in agriculture and industrial tariffs.

From India's point of view, services present a different picture than agriculture and industrial tariffs. As an emerging global power in IT and business services, the country, in fact, is a demandeur in the WTO talks as it seeks more liberal commitments on the part of its trading partners for cross-border supply of services, including the movement of natural persons to developed countries or what is termed as mode 4 for the supply of services. The last thing it needs at this juncture is pressure to be a tad defensive in an area where it can afford to be more aggressive.

Unfortunately, this is indeed what the prevalent mindset dictates. The left, for instance, has asked the UPA government to withdraw its binding commitment to allow foreign universities to open their branches in India that was made at the WTO negotiations in services in August 2005 as it would foster "cultural insensitivity", among other things. India then had offered to take extensive commitments in a number of new services such as architecture, tourism, life insurance, recreation, culture and sports and education. This sort of pressure to rollback will weaken India's hand at the services talks, post-Hong Kong.

Why cannot educational services be opened up? The left's argument regarding "cultural insensitivity" underscores its concerns that the curriculum of foreign varsities might have a viewpoint different from, say, a nationalist position on India's struggle for independence or Kashmir. The fees charged by foreign universities are also expected to be exorbitant and would only intensify the prevalent "urban elitist bias" in higher education. These concerns surfaced after the union cabinet approved India's negotiating position and the Indian delegation then extended a binding commitment in August.

In sharp contrast, the interest of the EU and US is more in establishing a commercial presence in developing countries. Thus if a lawyer or insurance company from the EU or US establishes an office in India, this sort of service is supplied through commercial presence. Accordingly, this mode 3 of supply is accompanied by requests for more liberal policies on foreign direct investment in sectors like insurance. These developed countries are lukewarm to demands for a more liberal regime for the movement of natural persons because of the high unemployment in their economies.

Naturally, there is scope for aggressive give and take in such negotiations, including the possibility of making cross-sectoral concessions in agriculture and industrial tariffs. While the focus so far has been on agriculture, the talks on services also have a bearing on the successful conclusion to the Doha round. Unfortunately, however, only 64 members have presented initial offers on services, if the EU is counted as one country, as on June 20, 2005. Only 15 members have presented revised offers. Considering the time-consuming and re-iterative nature of service trade negotiations, the fear is that even 2006 may not be sufficient to wrap up a final agreement in this regard.

However, due to the prevalent mindset regarding the WTO in India, India's negotiating stance is more defensive than it would otherwise have been, even in services where the country has dynamic comparative advantages and can afford to have a higher level of ambition. A more aggressive stance is called for than one that is weakened by pressure to withdraw commitments. Post-Hong Kong, the upshot is that India has not budged an inch over agriculture while there are advantageous prospects in services. The latter will dictate whether India has been a gainer or loser at the WTO.