Commercial conditions | Multilateralism versus mercantilism: our agricultural trade policy dilemma


Murasoli Maran served as Minister of Commerce under the Atal Bihari Vajpayee government from 1999 to 2002. He was the best Minister of Commerce India has ever had. It is not because India had one of its best export performances during and immediately after his tenure. Maran’s greatest contribution to India’s trade struggle, in fact, to the entire trade struggle of the Global South, was his role at the Doha Ministerial Meeting of the World Trade Organization (WTO) in 2001. The declaration of the Doha Round, as the result is popularly known, forced advanced countries to accept the fact that the multilateral trading regime could not be limited to opening up the markets of the countries of the South. Maran and his peers from developing countries forced advanced countries to agree that issues of development and livelihoods in developing countries were equally important. Agriculture and food security are among the most important issues discussed in the Doha Round.

It will not be an overstatement to say that India’s National Food Security Act (NFSA) and its subsequent additions, such as the ongoing Pradhan Mantri Garib Kalyan Yojna (PMGKY), would have been vulnerable to hostile trade litigation in the absence of the outcome of the Doha Round. Admittedly, such regimes still do not have carte blanche. India has managed to continue these programs which, as the pandemic has taught us, are absolutely essential for food security and livelihoods, because it was able to secure a so-called peace clause during the ministerial round of WTO Bali in 2013.

What explains these legal hurdles and the workaround that India was able to manage? The Agreement on Agriculture (AoA), which governs international trade in agricultural products under the WTO, is one of the most unfair trade treaties in the world. It classifies subsidies into three categories: the green box, the blue box and the orange box. The first two largely contain income transfers. Most of the advanced world’s support for agriculture falls into these two categories. Incidentally, the most subsidized agriculture in the world is practiced in the United States. A 2016 article published by Economic and Political Weekly (EPW) by Biswajit Dhar and this author examined this issue in detail.

Commodity-specific support mechanisms such as Minimum Support Price (MSP), which is the mainstay of India’s food security program, are grouped under the amber category. While support under the Green and Blue Box categories is unrestricted, Amber Box support is subject to a de minimis test whereby total support cannot exceed 10% of the value of the production of a crop.

It is not very difficult to see why the free pass for the green and blue box and the restrictions on the orange box are discriminatory. Farmers make up a very small proportion of the workforce in advanced countries, unlike in developing economies like India. This means that it is much more difficult for countries like India to provide income support to farmers.

The Doha Round did not see much progress in subsequent discussions at the WTO. In fact, most commentators agree that the multilateral trade regime itself risks becoming redundant as populism takes hold of the first world and countries become more interested in negotiating bilateral or regional trade deals. rather than investing in the multilateral framework.

Why is this column talking about these issues today?

Global food markets suffered a massive shock due to the Russian invasion of Ukraine. Food prices have reached an all-time high and many food-importing countries face the prospect of either a shock to the import bill or a shortage of staple grains such as wheat. India, which currently has around 19 million tonnes of wheat stocks, has announced that it is ready to fill the gap in the global food market. Commerce Minister Piyush Goyal expects India’s wheat exports to reach 10-15 million tonnes this year. The government’s wheat export ambitions need to carefully consider two issues.

First, the possibility that this year‘s wheat production will be lower than expected. Some experts believe that the shortfall – it is expected due to the early start of the summer season and a shortage of fertilizer in the previous planting season – could be equal to what the government thinks our exports will be. This could create a shortage in the national economy, at least to the point of eroding government stocks. Anecdotal reports from states like Punjab already indicate that government procurement is far lower than it used to be. Certainly, the reduction in purchases is not only due to low production, but also to the fact that farmers are able to manage prices above MSP in the private market.

A sharp reduction in government wheat stocks will generate tailwinds for domestic prices and could worsen an already precarious situation on the price front. As grim as that sounds, in this author’s view, it’s not the biggest concern on the agricultural policy front. At worst, the shortages will kick in after a few months and the government will abandon its ambitious export targets, and perhaps also impose an export ban which, despite this government’s self-proclaimed commitment to agricultural reforms, has become an integral part of its agricultural policy.

The greatest danger of such a mercantilist rhetoric in agriculture – this government has not wasted an opportunity to brandish India’s agricultural exports and future possibilities – is the potential backlash that India may face in multilateral trade negotiations on agriculture. While it is politically advantageous for a government to portray India as a powerhouse of agricultural exports and claim that farmers’ incomes have doubled under it, such rhetoric can be extremely damaging in trade negotiations.

The facts speak for themselves. A 2021 Economic and Political Weekly article by Biswajit Dhar and this author flagged some of these issues. “India has notified the WTO Committee on Agriculture that 99.43% of its farmers, or those operating farms of 10 hectares or less, are ‘low-income or resource-poor,’ notes the document, while adding that “several WTO members, including the United States, Canada, Australia and the European Union have argued that India has violated its subsidy commitments on several crops “. While such claims are not entirely true – the document discusses this in detail – what is true is that export declarations of government accumulated wheat stocks violate India’s commitments to WTO – India justifies its subsidies in the name of protecting food security and earning no wheat dollars – and could lead India down a slippery path in international trade negotiations.

Of course, the ideal outcome of trade negotiations should have been that advanced countries also faced questions about their massive agricultural subsidies. It doesn’t take rocket science to realize that subsidies have the same effect – reducing the economic cost to farmers – whether they are income transfers or specific products. It is this question that India must confront honestly.

Despite Maran’s heroic efforts in 2001, advanced countries stalled the Doha Round at the WTO in subsequent negotiations for fear that their national interests would be compromised. After its initial reluctance to conclude regional and bilateral trade agreements, the current government seems to have decided to go all out. Such negotiations, however, do not guarantee that advanced countries will not try to harm India’s agricultural support mechanisms through hostile litigation or challenge them in multilateral forums. The likelihood of such a pullback will only increase when India’s actions (such as filling this year’s shortage in wheat markets) threaten the profits of big players in the global food trade.

A slightly provocative analogy might be given to close this argument. Many liberals would like the US government to penalize the Indian state for what they claim are civil liberties violations in India. Notwithstanding the veracity of these assertions, there has been a voice that has argued (in this author’s opinion quite rightly) that India’s importance in the United States’ realpolitik strategy to contain China in the Indian Ocean region is too important to be sacrificed on the altar of civil politics. freedoms.

A similar logic could also be given for agriculture. No amount of trade reciprocity or bilateral agreements will appease the powerful agribusiness lobby in advanced countries to allow India to continue its agricultural support and commercialism at the same time. Unless, of course, India can build an effective alliance with other countries in the South and get rid of the unfair trade laws of the multilateral trading regime, which are at the root of the dominance of advanced countries in the markets agricultural. Maran’s successors successfully tipped the box of multilateralism against mercantilism for nearly two decades. This road could very soon find itself at a dead end.

Every Friday, HT’s Data and Political Economy Editor, Roshan Kishore, combines his commitment to data and his passion for qualitative analysis in a column for HT Premium, Terms of Trade. Focusing on big numbers and big issue, it will go behind the headlines to pose a question and address the political economy issues and social conundrums facing contemporary India.

Opinions expressed are personal


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