Arvind Subramanian has always been one of my favorite trade commentators. Whatever topic he takes on, he has great insights. This short piece he wrote on the current WTO trade facilitation/food security issue with India is no exception. He explains how policy changes in recent years have led to a situation where India can no longer protect its agricultural producers in the way it used to. In a nutshell, it shifted away from tariffs, for which it had lots of leeway under its Uruguay Round commitments, and moved towards price support-based subsidies, where it was subject to tight constraints. By contrast, rich countries had been using subsidies all along, and had made commitments that allowed them to continue doing so.
So how should India remedy this imbalance? Should it use everyone's desire for a trade facilitation deal as leverage to get a change in the rules? Here's what Subramanian has to say:
Is holding up the TFA the best way for India to secure its objectives on agriculture?
The July 31 deadline for adoption of the Bali agreement does provide India some leverage to advance its broader objectives on agriculture.
Despite the criticism, India’s threat to block the TFA is not standing in the way of great global trade advancement. Gains from the TFA have been grossly overstated. Reforming customs administration, a key ingredient of trade facilitation, is an important objective, but the TFA neither adequately incentivizes nor forces such reforms that will be politically difficult within member countries.
Nevertheless, India looks obstructionist by opposing the TFA, especially for the new government, led by Prime Minister Narendra Modi, which is trying to project an image of being investor- and market-friendly and constructive in its international engagement. The reputational costs of blocking the TFA could be high.
India should worry as well about appearing isolated in its current position, with China, Brazil, and Russia—the band of BRIC brothers as it were—and many other emerging market countries clearly distancing themselves from New Delhi. A policy that has limited support among the WTO membership looks weak, lacks legitimacy, and seems unlikely to succeed.
Indeed, if India succeeds in its opposition, and the Bali deal collapses, the blow to an already weak WTO would be significant and India would bear much of the blame. And the costs of a weak and delegitimized multilateral trade system are greater for countries such as India, which is excluded from the emerging Asian trade architecture underpinned by the US-led Trans-Pacific Partnership (TPP).
India should thus withdraw its opposition to the TFA and reformulate its position on agriculture along with a number of countries that likely face a similar predicament. India should also proceed to persuade its partners of the merits and fairness of its new position over the next few months, and revisit this issue at the WTO in the near future.