Rajiv Kumar: India should strive for Doha's success

Nobody can rightly argue that the WTO or the external world is primarily responsible for the woes of our farmers.

Several commentators have argued that the Doha Round be declared dead, and attempts to resuscitate it be given up. But will India really benefit from a failed Doha Round, or could saving it yield more gains than losses?

The demise of Doha, the consequent loss of WTO credibility and weakening of the multilateral trading regime will adversely affect the large developing economies that are trying to increase their share in global trade, and which stand to gain the most from improved market access. A successful Doha also has enough to offer even for the developed economies. They will significantly expand their market access in emerging economies from a lower set of tariffs for manufactured and agriculture markets. Moreover, their consumers will benefit from the elimination of tariff peaks that currently make textile and leather (among others) imports expensive. So the incentive exists but these are clearly stronger for emerging economies. This should be recognised by India and Brazil and they should therefore take the extra step to bring the Round home.

What are the likely contours of a successful Doha outcome? Emerging economies will have to adopt a coefficient of 20 to 24 for manufactured products in the Swiss formula, while the developed economies could possibly agree to a coefficient of 7 or 8. This implies eliminating all peaks faced currently by developing country exporters. The July Framework offers enough flexibilities to protect industries considered critical to the growth effort, by exempting up to 5 per cent of the total tariff lines in the manufacturing sector from the application of bound tariffs, as long as their imports are not greater than 5 per cent of total imports. And up to 10 per cent of tariff lines can have only half the cut, as long as their imports are less than 10 per cent of total imports. A coefficient of 20-24 will imply a bound rate of between 13 per cent and 15 per cent for India, when the applied peak rate is already 10 per cent and headed towards 5 per cent. So it leaves policy space in case tariffs need to be raised in future. Moreover, there is likely to be a minimum five-year transition period for the new bound rates and this should suffice for any required adjustment. So India and other emerging economies will benefit by greater market access with the removal of the peaks, while flexibilities and the transition period provide them sufficient protection for their important sectors.

On agriculture, India has to make up its mind on two counts. First, whether small and marginal farmers suffer today because of cheap imports or because of extensive state intervention that has prevented the emergence of an integrated domestic market, distorted resource allocation and cropping patterns because of extensive subsidies, seen a near breakdown of technology generation and dissemination systems in agriculture, and prevented the entry of modern trading and logistics. I don't think anybody can rightly argue that the WTO or the external world is primarily responsible for the woes of our farmers. In most cases, bound tariff rates in agriculture are far above the applied rates, as in cotton, where our bound rate is 100 per cent and the applied rate only 10 per cent! Second, we have to ask if India will be a net importer of cereals and foodgrains in coming years. Our farmers are already shifting to more value-added crops. Given our adverse land-man ratio and the difficulties in establishing a land market, we cannot expect to emerge as an exporter of wheat, rice, corn and edible oils, which are land-intensive crops.

The possible landing zone in agriculture is for the European Union to agree to an average cut of 55-58 per cent in its agriculture tariffs (up to 70 per cent in the top tariff bands) and for the US to agree to bind overall trade-distorting support to $14 billion from the present bound level of $48 billion. According to some estimates, the actual subsidies given by the US government to its farmers over the last 12 years average $15.2 billion per year. The US estimates them at about $17 billion. So a bound level of $14 billion does represent real movement, and it is quite unproductive to argue that because the actual support last year was only $11.9 billion due to high international prices, the ceiling should be below $12 billion.

In return, developing countries may be asked to reduce their bound agriculture tariffs by about 36 per cent. Even here, there are three categories of flexibilities that India can use to protect its small and marginal farmers under sensitive products, special products and the special safeguards mechanism. We can put up to 10 per cent of our agriculture tariff lines under the special products categories that will be exempt from tariff cuts. Introducing our agriculture to international trade and markets will help us move away from the present policy regime of subsidies, price supports and free power that exclusively supports the rich and middle farmers. A successful Doha Round will help this transformation, and will be in our national interest.

In the services sectors, India is moving away from its dependence on Mode 4 and competitively offering services under Modes 1 and 2. Technological advances have made the movement of personnel less important. Also, emerging economies must recognise that any further surge of migrant workers will be socially resisted in OECD countries, which are anyway being pushed to accept multiculturalism and accommodate more migrant workers due to population ageing and competitive pressures. We don't need to push so hard that we end with social strife and a backlash on our hands.

Given the above outlines of a possible deal (and these are only the core areas, there are 13 other areas in which consensus has to be arrived at for Doha to succeed as a single undertaking), should India not strive for a compromise? A successful round will take care of our defensive interests in agriculture and see forward movement on services, where our aggressive interests are concentrated. In the manufacturing sector our fears are misplaced because tariff reduction in the last 15 years has resulted in higher growth momentum. If we can live with Chinese imports, unfairly supported by an artificially weak exchange rate, we can surely hold our own against imports from the developed economies. It comes down to whether India is willing to take a strategic view of its national interest.

The author is director and chief executive of ICRIER, a Delhi-based think-tank.

rkumar@icrier.res.in