Sunil Jain & Monica Gupta: No time for tea

ALL EXPORT SUBSIDIES TO GO BY 2013

This is, perhaps, one of the most widely misunderstood outcomes of the Hong Kong ministerial since most take it to mean the hundreds of billion dollars worth of support the EU and the US give to their farm sector (it's $112 billion for the EU and $95 billion for the US). All that Hong Kong referred to really is the export subsidies given by these countries and that, in the case of the EU, for instance, is just around $2.5 billion "" though much is made of the elimination of the $4 billion cotton subsidies, these were declared illegal by the WTO when Brazil took the US there and had to go anyway. The July 2004 Framework Agreement also said this would happen, but did not put a date to it which has now been done. India gets until 2018 to do this, and while India hardly has any export subsidies at the moment, this would allow, for instance, India to include some transport expenses on floriculture exports in this basket if it so desires.

There has, however, been an agreement that domestic subsidies will be cut, but by how much is subject to negotiations over next year. The proposal is that there will be three bands in which various countries will be put into, depending upon their levels of "trade-distorting" domestic support to farmers. The EU will be in the top band where support levels are greater than $60 billion, the US in the middle one where support levels are between $10-60 billion and a third one below $10 billion. The cuts in the top band could be between 70-80 per cent, but the time frame for this has to be negotiated. It could be between 53-75 per cent for the US and between 31-70 per cent for the rest.

INDIAN SUBSIDIES TO REMAIN UNTOUCHED

While developing countries like India are allowed to retain subsidies upto a value of 10 per cent of the total value of output, India's average subsidies are 2-3 per cent. So, even prior to Hong Kong, India did not have to make any cuts in its subsidies "" what it needs to do for domestic policy reasons is another matter. In addition, it may be possible to include some other subsidies in what is called the "green box" "" these subsidies could be income support policies which are not linked to production "" and so do not need to be cut.

SAFEGUARDS ON AGRICULTURE

One of the proposals on which there is considerable convergence is to have four bands of agricultural tariffs and to have linear cuts in them. So, if the EU reduces the tariffs on its highest lines by 40 per cent, India would do the same "" it looks right now that developing countries like India may have to do just two-thirds of what the developed countries have to. Since India's actual tariffs are much lower than its "bound" rates (in the case of palm oil, for instance, India's actual tariffs are 80 per cent while the bound, or the ones used for purposes of the negotiations, are 300), this is unlikely to pose much of a problem.

In addition, India will have the flexibility to designate some products as "special" or "sensitive" (the exact numbers are the subject of negotiation), on which there will be no/lesser cuts "" getting all the states in the country to agree on which products are "special" or "sensitive", of course, will be a Herculean task though these are to be based on the criterion of food security, livelihood security and rural development!

The special safeguard mechanisms (SSMs) would allow higher duties or other import barriers once a certain trigger is set off. The July 2004 framework talked of quantity triggers and the commerce ministry says the big victory is that it has got price triggers included as well, and this was done by pointing out that in the past, of the 770 times SSMs were used, 500 were based on the price trigger.

THEIR FARMERS, OUR INDUSTRY

The proposal on what's called Non Agricultural Market Access or NAMA was to use the Swiss formula, the coefficient of which would be the average tariff "" so, if the coefficient was 10, that would be the average tariff as well. What the coefficient will be is still not decided, but it appears that at Hong Kong, there was a general level of agreement that there could be multiple coefficients "" Indian negotiators say this is very close to the Argentina-Brazil-India initiative. Also, duty cuts by developing countries will be based on "less than full reciprocity", so if the US cuts tariffs by 30 per cent, India can cut it by, say, 20. Even so, a duty cut that begins in 2008, and ends in 2013, can't be too much of a problem even if India goes down to the 10 per cent the US/EU want from the current level of 34.3 per cent, given the pace of our duty cuts each year. At Hong Kong, the Advanced Developing Countries issue was brought up to reduce the flexibility for countries like India. A timely letter signed by 11 countries helped put paid to this. This will allow India to negotiate the possibility of keeping a few tariff lines (like, say, automobiles) out of the coefficient and so retain slightly higher protection for select industries. Most importantly, there is an explicit link, for the first time, between the cuts in agriculture tariffs and NAMA "" so, if developing country farmers don't get real access to EU markets, the former don't have to do much to cut non-farm tariffs.

THE PRICE OF COALITIONS

India's biggest interest in the new round of talks is liberalisation in the services sector, something even most developing countries are not in favour of. India had come up with a plurilateral approach which basically fast-tracked the commitments that various countries would give on opening up their markets. This is something India soft-pedalled on at Hong Kong to maintain the developing countries' unity. So, the way ahead would depend purely on the negotiations India is able to have from now on.

Postscript: One of the reasons why Hong Kong didn't go the Cancun way was that the ministerial discussed no numbers, no duty cuts and so on. All these have been left to the detailed negotiations beginning mid-January and ending July 31, 2006. Forget tea, there may be no time for lunch either!