Deadlock at the WTO

Is the multilateral trading system represented by the World Trade Organization (WTO) dying? The failure of its 160 member states to sign a trade facilitation agreement (TFA), which eases customs procedures and red tape on goods moving across borders, in Geneva last week is yet another setback in a series of complex negotiations that have been deadlocked for a decade.

The TFA is one component of a subset of issues selected by WTO members as relatively easier to tackle within the larger universe of trade liberalisation topics under the purview of the ill-fated Doha Round of negotiations.

This round of talks to reduce trade barriers was initiated in 2001 and planned to have concluded by 2005. Nine years later, the world is at an impasse and unable to implement even small highlights capsules of Doha.

Reactions in diplomatic circles to the breakdown in Geneva over the TFA have been caustic because the doable bits of Doha appeared to be slowly inching forward. But despite frantic behind-the-scenes bargaining and propositioning, the deadline of July 31 for its signing passed without a champagne moment.

INDIA’S BARGAINING CHIP

Western negotiators are blaming India as the stumbling block that caused the collapse in Geneva because it insisted on linking the TFA to a separate set of rules about government procurement of food grains. India, on the other hand, argues that it did submit a “compelling counter-proposal, which had substance” to enable a compromise. But there were few takers and everyone returned empty-handed.

The WTO’s working principle of negative consensus empowers any one member state to object and stall a deal from sailing through. In the war of words, which has gotten bitter and acrimonious at each juncture of the procrastinating Doha Round, key players accuse one another of exercising their veto power and stymieing the collective welfare of all member countries.

The present recriminations over undermining the TFA have been replayed before during negotiations on agricultural subsidies and special safeguards for poor farmers, with the sparring protagonists being India, the United States and European nations. Western diplomats accuse India of blackmail, “hostage-taking” and “suicidal” behaviour, while New Delhi hits back by contending that the development content of the Doha Development Round has been robbed by hypocritical rich countries.

In the row over state procurement of food stocks, India portrays itself as a unique developing country with hundreds of millions of subsistence-level farmers whose grains the government has to buy at above-market rates to sustain their livelihoods. Critics correctly counter that its Minimum Support Price (MSP) system is often misdirected towards enriching prosperous farmers and landed elites rather than its intended penurious beneficiaries.

Nonetheless, the power of the farm lobby in Indian politics and the overall ideology of the welfare state, in which government has to provide safety nets to most vulnerable citizens, leave little room for any mainstream political party to abandon the MSP.

Subsidies of all shades distort trade by giving local recipients an unfair advantage over foreign competitors. Progressive elimination of subsidies is a central article of faith at the WTO. As per India’s own prior international commitments, it can be legally prosecuted if procurement subsidies on wheat and rice exceed 10 per cent of the total value of production of a crop for a given year.

The Indian government’s MSP value is now on the verge of breaching the 10 per cent limit. With inflation and depreciation of the rupee against major international currencies, the day when India would be subject to a barrage of cases and retaliatory tariffs for anti-competitive farm procurement subsidies is not far off.

Hence the urgency with which its diplomats at the WTO are pushing for a “permanent solution” on agricultural procurement. New Delhi wants to shift the calculation of the subsidy ceiling of 10 per cent from 1986 price levels to current ones. Western powers as well as some export-oriented developing countries are unwilling to countenance this revision, as it would render their agricultural commodities uncompetitive in India’s profitable domestic consumer market.

The WTO’s Bali ministerial meeting last year kicked the can down the road by protecting India from farm procurement-related litigation until 2017. But the clock is ticking and Delhi believes it can extract better terms from its trading partners at the WTO at a time when they are eager for at least minimal progress in the Doha Round.

Stoic to international pressure and catcalls of “deal breaker” and spoiler, it knows the entire WTO comity is desperate for a breakthrough and might be eventually forced to concede some revisions in farm procurement rules.

Regarding potential losses that would accrue from the delay in implementing the TFA, India believes it would not be forfeiting much as it is a net importer rather than exporter. Entry into force of the TFA would mainly benefit exporting powerhouses such as China, Brazil and Russia, besides the US and Europe.

SIGN OF FAILING WORLD ORDER?

Going by the plodding nature of the Doha Round, the WTO’s inability to sign and implement the TFA on time is not really a surprise or a “shock”, as some Western negotiators are declaiming. India is sanguine about the TFA ultimately fructifying before the end of the year (after it gets a fairer outcome on farm procurement).

The grounding of the Doha Round essentially reflects differing economic structures and political priorities in individual member countries. While the WTO has at times been paralysed along a Global North versus Global South dynamic, it is facing a fundamental crisis due to a classic conflict of interest between national objectives and the common well-being. Neither India nor any of the advanced economies has acted truly magnanimously owing to the difficult balancing act of placating respective domestic interests and a generic abdication of global leadership by all sides.

If the Doha Round ossifies in its current stalemate and the WTO fades into irrelevance, history will judge the undertakers to be multiple countries rather than any single destroyer-in-chief. This denouement has implications not only for economics but also politics. When states always privilege narrow considerations over international cooperation, the space for broad quid pro quos at the foreign policy level shrinks and the world grows more conflicted and segmented.

The WTO’s travails are symptomatic of a worrisome fragmentation of countries into camps and clubs that exclude outsiders and increase friction. A new international disorder awaits us.

ABOUT THE AUTHOR:

Sreeram Chaulia is a professor and dean at the Jindal School of International Affairs.