Jagdish Bhagwati and Arvind Panagariya explain (Doha: Why the Key to Its Success lies in Washington, VoxEU, July 8).
A lot of progress has been made in the negotiations:
...the Doha Round has now witnessed, through successive meetings in Cancun and Hong Kong, both mischaracterized as “failures”, a substantial progress on several contentious issues. The so-called “Singapore issues”, which included agreements on competition policy and investment which were strongly opposed by some developing nations and most NGOs, were abandoned by Pascal Lamy, then the EU Trade Commissioner, at Cancun. The demand to have export subsidies in agriculture proscribed was agreed to at Hong Kong. So were demands, first at Cancun and then more fully at Hong Kong, for the availability of easier access to generics by the poor nations. The demands of the least developed countries to have virtually free market access without duties and restrictions were also conceded at Hong Kong pretty much by the US and Japan, as earlier by the EU in its Everything but Arms initiative: not all was granted but nearly all was.
There are four key players left:
With many contentious issues settled or taken off the table, and many players placated, the end game was then among the four “big players”: the US, the EU, Brazil and India.
The problem is the US need for sectoral concessions from India and Brazil in agriculture:
The essential outlines of the deal among the G-4 were clear. The EU had to give on agriculture where its barriers and subsidies were huge. With negligible comparative advantage in agriculture, it did not seek concessions in this sector from India and Brazil, but rather wanted reciprocal concessions in manufactures and services. The problem with the US was that it had a strong farm lobby that would not permit meaningful reduction in the substantial US subsidies simply in exchange for concessions in manufactures and services; it sought “sectoral reciprocity” in agriculture itself.
Something the Indians, at least, have trouble with:
The problem that Ms. Schwab cannot ignore is that it is politically impossible for a democratic developing country such as India to persuade an aroused public opinion that its farmers, often at the margin of subsistence, should agree to competition from rich-country farmers who are being heavily subsidized. Unless the US, and also the EU, address this issue meaningfully, there is no prospect of movement on Doha.
Moreover, India has unilaterally lowered its actual industrial tariffs quite a bit since its reforms began in the early 1990s, and is reluctant to agree to further reductions there.
So,
...unless the US moves to cut its actual agricultural subsidies drastically, there cannot be any movement in the actual tariffs of India and Brazil. Nor, for that matter, can Minister Kamal Nath persuade his people to open Indian agriculture to (heavily subsidized) US farm exports.
But there is no political support for subsidy cuts in the U.S. It is not going to happen:
The US finds no political support, from either Party, for reducing agricultural subsidy support. The Democrats are salivating to take the White House; the republicans are traumatized that they will lose it. Neither will risk the farm belt’s vote.
There is a way out:
Therefore, the only political formula that has a chance of working is to, not reduce farm support, but to change its composition from distorting to non-distorting, the latter being what affects trade of course (though James Wolfensohn and his economic advisers, including Joe Stiglitz and his predecessor, encouraged the foolish nonsense that all subsidies were to be attacked if trade was going to be “fair”). This is what the celebrated Fischler-Lamy reform to the European farm policy was all about.
So, take the estimated 20 billion dollars worth of these distorting subsidies and turn, for example, two-thirds of that into non-distorting ones, de-linked from production and given, for instance, for environmental purposes to farmers....
If that is done, surely Mr. Kamal Nath would be able to pry open more agricultural market access from the Indian farmers,
But,
...the expectations must be modest. The current Congress government has its own problems, not on manufactures and on service liberalization (which it has been doing amply and unilaterally) but in agriculture. It believes erroneously that it won the national elections, and the BJP lost them, because agriculture was neglected: there is much evidence that the poor in the rural areas also benefited in big numbers from the reforms since 1991 which included trade liberalization. The Congress also believes that trade liberalization will harm, not help, agriculture. This is almost certainly as wrong as the pre-1991 belief that manufactures trade liberalization would decimate industry: Indian industry has only grown more successful and the voices against liberalization have become steadily muted. But the persistence of these twin beliefs, despite their weakness, will take some time to remove.
Ms. Schwab therefore needs to cultivate patience, maybe to work out an “understanding” that, after Doha concludes with the Fischler-Lamy type reforms in US subsidies, India will return to the agricultural agenda in the next Round.
Comments