How to win the fight in an unfair international market

The once influential global institution World Trade Organization (WTO) continues to be afflicted with the same problems that diminished its clout.

The recent wrangling on trade facilitation and food security bill is another example of how WTO continues to focus on the interests of the developed and not the developing world. It also shows how developing countries like India have not been able to make the most of WTO global trading rules.

But let’s begin by talking about WTO’s skewed understanding of fairness. Visiting WTO Director General Roberto Azevedo says that India’s food security law will violates its rules. Under WTO rules countries must limit the supply of subsidized food to 10 per cent of total output. But with India planning to provide 70 per cent of the population subsided grains, it will be in breach of this condition.

Not just India, several other developing countries including a Group of 33 has been asking WTO to relax this condition. For many poor countries, subsidized food supply is an important part of their welfare programmes. WTO has been unwilling to consider this view since global producers will be affected by the supply of subsidised food in emerging markets. The big producers of food like US, Western Europe and Australia have been hoping to provide agriculture and food products to developing markets where the demand is rising. They fear that the increase in domestic production coupled with subsidy on supply will push their products out of the market.

In retaliation to WTO, developing countries led by India have been refusing to discuss improvements in trade facilitation. WTO has been negotiating an easier and less cumbersome regime of trade facilitation that speeds up the movement of goods across the world. WTO estimates that less bureaucratic hurdles will reduce time of processing and increase speed of delivery. This efficiency will add about a $1 trillion to global trade. In a time of downturn, this is seen as a significant boost to global economy.

The standoff between the developed and developing world shows that not much has changed in the world. A similar standoff that began a decade ago in the Cancun Ministerial meeting led to a decline in the status of WTO. Developed countries had been using WTO to make trade rules to suit themselves at the expense of developing countries. Emerging markets dug in their heels on matters like the huge subsidy given by Western European countries to their farmers. It was estimated that the farm sector received subsidies of over a $1 billion per day.

In some ways the wheel has come a full circle. The same countries are upset with India’s subsidized supply of food to its own citizens. Europeans on the other hand were exporting their subsidized farm products.

Blocking talks on trade facilitation to counter pressure on food subsidy has brought some concessions from WTO. Now WTO is willing to allow the subsidy to continue to 2-3 years while India is demanding about 9 years.

It will take lot of tough negotiations before India and the Group of 33 can reach an acceptable agreement with WTO before a ministerial meeting in Bali in December this year.

While emerging markets have learnt how to stall unfair rules being pushed by WTO, they have not yet learnt how to make the most of the fair rules.

Internal efficiency and competitiveness is essential for developing countries to take on the developed world. India has fought many years for higher market access for its agricultural products in Western markets. But its internal food policy has prevented Indian products from achieving high quality and quantity that is good enough to be competitive in domestic and global markets. Similarly, India must reduce its internal red tape and inefficiencies that hurt exporters.
Only then will it be able to take advantage of an improved global trade facilitation regime. Efficient internal policies are the best weapon against an unfair external market.

The author tracks India’s political economy and its engagement with the world.