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Mainstream, VOL LII, No 48, November 22, 2014

The Bali Battle: Lessons for the Future

Saturday 22 November 2014

by Rohini Pandurangi

With the resolution of the impasse over the Bali deal, jubilation is the word to describe the mood of the Indian Government. It had been three months since the Bali trade deal reached an impasse over India’s refusal to sign the Trade Facilitation Agreement (TFA). The negotiations had reached a stalemate due to differences among the members regarding a permanent solution to the issue of public stockholding for the purpose of food security. India had asserted that it will not budge from its position and had made ratification of the TFA contingent upon finding a permanent solution to the food subsidy issue.

The developed countries had put the blame squarely on India for making the ‘Bali Bicycle’ lose momentum. They further predicted dooms-day for the whole multilateral trade negotiations. India, on its part, found itself isolated as it had not been successful in garnering support of a significant number of developing countries on an issue that is equally important to them (many others are also set to breach the subsidy limit under the Agreement on Agriculture).

Most of the international opinion was against India, painting it as obstinate, hell-bent on denying the world a ‘wonderful opportunity’ to progress—an opportunity which has come in the form of the Trade Facilitation Agreement. India, however, had made it clear that it was not against the TFA but wanted a balanced outcome to the Bali deal.

After three months of hectic parleys the deal has now been sealed between the US and India. The statements issued by the Commerce Minister of India and the United States Trade Represen-tative (USTR) are consistent with each other. The USTR in its fact-sheet says: “Both countries have reached an understanding on implemen-tation of a December 2013 WTO decision regarding specific food security programmes maintained by some developing countries. The bilateral agreement makes clear that a mechanism under which the WTO members will not challenge such food security programmes under WTO dispute settlement procedures will remain in place until a permanent solution regarding this issue has been agreed and adopted. It also sets out elements for an intensified programme of work and negotiations to arrive at such a permanent solution.” The resolution of this issue means that India would be signing the TFA and the WTO machinery would be working to get the agreement up and running as soon as possible.

The resolution of the impasse is a vindication of the Indian Government’s stand. The ending of the stalemate is a welcome development as it saves the WTO from the ignominy of an organisation that is not able to move forward. However, it is yet to be seen what shape the Bali package takes and this will be known only after the WTO’s General Council approves it. This leaves the WTO-watchers to speculate about the exact nature of giveaways and takeaways, the shape the temporary arrangement may take and the timeline for reaching the permanent solution and its contours.

As of now it seems that India has won the Bali battle, but the war is not yet over. The Bali package is part of the Doha Round — the Round dubbed as the ‘Doha Development Round’ because of its numerous references to the developing countries and their concerns. The Doha Ministerial Declaration says that it seeks to place the needs and interests of the developing countries at the heart of the Work Programme. This amounted to saying that the Doha Round would be about the developing countries. The expectation of the developing countries from the Doha Round was the correction of imbalances emanating from the Uruguay Round and a balanced outcome of the future negotiations. India’s contention that the Bali Package can have a balanced outcome only if a permanent solution is found to the problem of subsidies for public stockholding for the purpose of food security is a sound one. It has been determined not just by the domestic requirement of food security but also the inherently skewed nature of WTO policies on agricultural subsidies. A brief outline of the provisions of the Agreement on Agriculture (AoA) on domestic support, especially with respect to public stockholding, and the subsequent understandings reached on the issue would give a clear perspective.

The AoA exempts subsidies provided for public stockholding for food security purposes from reduction commitments. Hence they fall into the Green Box category. But the purchase and sales have to be made at the current market price. A concession has been made for the developing countries in the form of allowing them to procure and sell the accumulated stock at administered price. However, the hitch is in the form of a rider that the difference between the administered price and the base price (fixed at 1986-88 levels) has to be included in the calculation of the Aggregate Measurement of Support (AMS) which actually is the basis for the reduction commitment. Therefore, in the first place, this purported special and differential treatment for developing countries is not a concession. To put the whole thing in perspective, the other Green Box measures, mostly used by the developed countries, have been exempted from inclusion in the calculation of the AMS.

Even if this provision is ignored while making the arguments, the rule on public stockholding goes against the developing countries on technical grounds as well. This is because of the pegging of the reference price at 1986-88 levels. Therefore India’s stand on subsidies is a sound one, both from the moral and technical pers-pective. A lot of media coverage has been given to Indian efforts at eliciting a permanent solution to the problem of food subsidy and the benefits foregone because of non-ratification of the TFA. One fact that has been ignored or has not been much highlighted is the December 2008 Draft Modalities on Agriculture which proposed amendments to Annex 2 of the AoA. One of the proposed amendments is to the provision on public stockholding for the purposes of food security. The text says that “acquisition of stocks of foodstuffs by developing country Members with the objective of supporting low-income or resource-poor producers shall not be required to be accounted for in the AMS”. It categorically says that “the acquisition of foodstuffs at subsidised prices when procured generally from low-income or resource-poor producers in developing countries with the objective of fighting hunger and rural poverty, as well as the provision of foodstuffs at subsidised prices with the objective of meeting food requirements of urban and rural poor in developing countries on a regular basis at reasonable prices shall be considered to be in conformity with the provisions of this paragraph.....

there is no requirement for the difference between the acquisition price and the external reference price to be accounted for in the AMS


 It is clear from the above text that there was a consensus on the issue as there were no square brackets (a square bracket indicates the text that has not been agreed). This makes it evident that it is the developed countries that were going back on a commitment. Even if a permanent solution for the issue of subsidies for food security is found, it would only be the correction of an anomaly. On the other hand, there are no prizes for guessing who is going to gain from the TFA. The standoff that took place clearly indicated unwillingness on the part of the developed countries to honor a commit-ment made by them at Doha.

However, now that the impasse has ended India needs to brace itself up for some hard bargaining which will take place when a permanent solution is negotiated. There is an urgent requirement to rethink our WTO policy and come up with a strategy for future negotiations. It is important that there is a clear enunciation of our position while negotiating for a permanent solution. A comprehensive approach is the need of the day as the developing countries usually adopt an adhoc approach. Another area in which India will have to work on is gaining support of other developing countries. This will take away the burden from India’s shoulders to negotiate on its own.

International relations is a game nations play. This is more so in the case of trade relations where every country tries to maximise its benefits. When it comes to taking sides on an issue it is only natural for a country to weigh the costs and benefits that are going to accrue to it. It is but natural that other developing countries were wary of taking sides with India as they are dependent on the developed countries for export earnings and various other issues.

India has been taking up the cause of the developing countries in the WTO even from the GATT days but has not seen much success. It has found itself isolated most of the time. If India wants to have its way in the WTO it will have to work towards gaining the support of as many members as possible. Mutually beneficial partnership with major developing countries and their regional groupings like SAARC, BRICS and ASEAN is very crucial. It is also very important to have the support of developed countries, especially the US, as it still is the most important player in the world arena. The current government has taken some steps in this direction by engaging with countries that matter. Whether these endeavours will bear fruit or not will depend on sustained efforts to build relationships that are mutually beneficial. The WTO negotiations will have to be a part of this larger exercise.

A lot of water has flown down the bridge since Indian foreign policy first took shape. The last decade especially has been a period of sea change in global politics where questions of trade and commerce are at the top of the mind of govern-ments. Economic diplomacy now occupies a position of primacy in furthering national interests. It is very important that India takes into consideration this reality, recalibrates its foreign policy and works on its economic diplomacy.

Rohini Pandurangi is a Project Fellow, SIES College of Arts, Science and Commerce, Sion (West), Mumbai.