Focus on the Global South- India - Whither WTO? Background Paper for National Consultation

The draft agriculture modalities text, despite having many flaws and shortcomings on issues of major concern to developing countries like Special Products (SP) and Special Safeguard Mechanisms (SSM), received a positive response from India and other member countries. Within a month of the much acclaimed "walk out" from Potsdam, India did a U-turn by supporting the incomplete draft proposal which will lead to deeper tariff cuts than those implemented during the Uruguay Round. Indian negotiators believe that this draft on agricultural subsidies and tariffs provides for a 'good basis for further negotiations'. And the imminent threat is that this draft paper could become the basis of negotiations when the talks resumes in Geneva in September.

Domestic Support:

The draft modalities paper by the Chair of the Agriculture Negotiations, Ambassador Crawford Falconer of New Zealand, proposed a cut in US OTDS (over all trade distorting subsidies) by 66% to 73%, which would bring its permitted level of spending to between $13 billion and $16.4 billion a year. The OTDS consists of several subsidy categories - the aggregate measure of support (AMS), the Blue Box, and the de minimis support. The proposed figure is closer to the G20 demand to US to bind their OTDS at $12 billion. Their 2006 OTDS was only $10.8 billion and their 2007 OTDS is expected to be even lower than that (between $6 to $10 billion) because of increased commodity prices in the US domestic market. If these modalities are adopted, no cuts are needed on the part of the US. The same holds true for the EU, which escapes unscathed, because it is shifting most of its supports to the undisciplined Green Box. The EU is proposed to bind its OTDS level between €16.5 to €27.6 billion euro (a proposed cut in OTDS between 75 to 85% under the modalities text).

The draft text also calls for an 82% cut in trade-distorting subsidies to American cotton farmers. This would mean a drastic cut in the cotton subsidies which would bring it down to around $500 million annually from its current average spending of above $3 billion annually.

However, as per the Falconer proposal, US subsidies, particularly for commodity programmes for wheat, soya, corn and rice (except cotton) would continue as usual. All these crops are staple crops in much of the developing world and farmers have suffered under from US dumping. US subsidize rice producers to the tune of 1.3 billion USD for rice that costs 1.4 billion to grow. Both US and EU poultry have wiped out local producers in West Africa but these will continue to be heavily subsidized if these modalities are adopted. Therefore, under the Falconer proposed modalities, the issue of dumping in the developing world will not be addressed.

Green Box:

However it is worth mentioning here that the OTDS is just a fraction of the total subsidies by developed countries to its farmers, e.g. US 70-80% of the support is provided under Green Box which is not included under the OTDS. The draft text allows the US and EU to go scot-free on the domestic supports under Green Box. The bulk of domestic supports for the US and EU are being shifted to the infamous 'Green Box'. This is quite worrying since these domestic supports are today's new form of hidden export subsidies. For the EU, the Green Box is its new export subsidy pillar. EU is lowering its internal prices so that it can export competitively on the world market. Yet its producers receive a direct payment in order to compensate them for higher production costs.

The fact is that the Falconer text does not provide anything meaningful on the Green Box and put more focus on the absolute cuts to subsidy levels, and not on the mechanisms of spending (the amount of cuts more than the type of cuts). Both World Bank and UNCTAD research have shown that it takes a long stretch of the imagination for certain Green Box supports to be claimed as genuinely non-trade distorting. Instead of proposing to tighten the Green Box criteria of developed countries, to make these payments genuinely non-trade distorting, the draft text has rather restrained the developing countries future ability to subsidise under Green box by proposing to bind their Green Box direct payments to some 'fixed and unchanging' period. Despite this the developing countries leaders, India and Brazil are silent on the issue of Green Box.

Market Access:

On Market Access in agriculture, Falconer text essentially goes with the G20 proposal for tariff reduction. Accordingly developing countries will have a maximum average reduction of 36-40% which is higher than the G20 proposal of a maximum of 36%, and far higher than the ACP and Africa Group proposals of a maximum 24% for developing countries. The proposed tariff cut is also far higher than the 24% average reduction that developing countries were obliged to undertake under the Uruguay Round. Thus they have to pay a higher price in this Doha Round - while hardly obtaining any benefits in agriculture in exchange. Not only in agriculture, but the developing countries are also expected to implement steep tariff cuts in NAMA, thus the draft texts are seeking to push the developed countries agenda of market access in agriculture and industrial goods.

However, the Falconer draft has not finalized modalities on the following key issues in agriculture including tariff escalation, commodities, SP, SSM, tropical and diversification products, preference erosion. Ambassador Falconer said that there is not sufficient agreement yet on them. However there is a sense of fear among the proponents of these issues that these instruments will become wrapped in red tape and rendered unworkable, if modalities on them are not finalised along with domestic support and market access.

On Special Products, the Falconer text reaffirms the principle of self-designation in selecting an appropriate number of tariff lines as special products. But he proposes the G33 list of indicators to be used as criteria and not guides in the selection of special products, thus making the principle of self designation a useless proposition. By doing that he supports the US, which is interested in limiting the list of 'indicators' thus making it difficult for countries to choose the products they want to be declared as SPs.

On Special Safeguard Mechanisms, the Falconer text tried to restrict its effectiveness against devastating import surges by confining it to only certain products, to highly exceptional cases and the extent of redress. Ambassador Falconer said that the SSM should not be used to disrupt "normal trade" and should only be used for special circumstances. Hence the draft text tries to water down the scope of application of an SSM. This is inconsistent with the way WTO members have traditionally approached safeguard measures.

NAMA:

The Canadian Ambassador Donald Stephenson's in his draft text on industrial products goes with the Swiss Formula and proposed a co-efficient of 8 or 9 for developed countries and between 18 to 23 for developing countries. As per this, the developed countries like EU, US and Japan will have to undertake an average cut of 28% in industrial tariff with coefficient of 8, e.g. for EU a cut from average tariff of 3.9% to 2.6%, for US 3.2% to 2.2% and for Japan 2.3% to 1.7%. While the developing country with a co-efficient of 20 (a middle figure between 18-23) would need to undertake a drastic cut in their tariff, e.g. a 61% cut for Brazil from an average of 30.8% to 12.1%, and a 63% cut for India from an average of 34.3% to 12.6%. The developing countries with higher average tariffs would have to undertake even higher percentage reductions. The para 6 countries (those that have less that 35% of tariff lines currently bound) have been asked to bind up to 90% of their tariff lines. Ambassador Stephenson's proposal for such steeper cuts in industrial tariff is a deliberate denial of the 'less than full reciprocity' principal to the developing countries, thus contradicting the Doha mandate. This kind of industrial tariff cut would completely finish the industrial sector in small countries and devastate the small scale industries in India.

Conclusion

In last 12 years of WTO rule several studies have shown that the third world developing countries are not going to gain much from the Doha Round. Studies conducted by the World Bank and the Carnegie Endowment for International Peace also shows that the gains to developing countries from the conclusion of the Doha Round are either minimal or non-existent. Projections of the gains from a "likely Doha scenario" show that just $16 billion out of $96 billion would go to developing countries and the real beneficiaries of the increased trade would be the agribusiness corporations. Adjusting for Special and Sensitive Products in agriculture, developing country gains come to just $ 6.7 billion out of a total of $ 38.4 billion. In other words, $6.7 billion is the total welfare gain that is expected from a successful Doha Round. This gain is for 110 developing countries. For India, it means nothing since our annual Budget for the Rural Development Ministry is higher than the total gains the entire developing world is being promised.

In view of the proposed draft modalities which have put new life into the almost dead Doha round of negotiations, the WTO secretariat is eager to conclude the talks by end of year 2007. The series of victories enjoyed by civil society with the 3 major failures of Doha talks, at Cancun (2003), Geneva (2006) and Potsdam (2007), is in danger of being overturned. And if the so called "Development" round is concluded, it will be at the expense of the peoples of the third world for whom there is "no development" and "minimal gains" under this free trade multilateral framework. The only possible gains for the developing countries is seen in the reduction of domestic support as proposed by the Chair for the developed countries but the fact is these are not real cuts in their subsidies. The real cuts would be when there is decline in the support provided by the US treasury to its big farmers and agribusiness. As Indian Commerce Minister Kamal Nath had said after Potsdam collapse, "I would be happy with any reduction the US is willing to do on their applied levels of farm spending. Even one dollar from what they are applying today, it's a deal." But why has Mr. Nath failed to see the gameplan in the Falconer text where there would be absolutely no cut in applied levels? India and other developing countries, therefore, must resist saving of this unequal international trading system in which the developed countries aim to extract greater market openings from developing countries while making minimal concessions on their part, as demonstrated in the present draft modalities.