India's trade stance wins few friends

26 Sep, 2014 10:00 AM
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India's Prime Minister Narendra Modi. Photo: Graham Crouch
Despite its insistence, New Delhi's stand is finding few backers in the developing world
India's Prime Minister Narendra Modi. Photo: Graham Crouch

WHEN India scuppered a World Trade Organisation (WTO) agreement in July that would have been the first in the WTO's history, its government defended the decision to blow up years of negotiations as a principled defence of the globe's impoverished farmers.

New Delhi insisted it would only let the deal – aimed at reducing customs red tape around the world – go forward on one condition: the WTO drop its objections to the subsidy and pricing schemes India uses as part of a vast food security program for the poor. It is a stand Prime Minister Narendra Modi will carry to Washington for his inaugural visit this week to the United States, which has been India's main WTO combatant.

But, despite its insistence, New Delhi's stand is finding few backers in the developing world. It is an important marker of how in multilateral trade negotiations, the traditional ­divisions between the rich and the poor world are breaking down, thanks to the rise of emerging giants like India and China and their trading relationships with other low-income countries.

India has, in recent years, overtaken the European Union as the largest exporter of ­agricultural commodities to the world's least developed countries, according to the US Department of Agriculture.

Moreover, India's critics believe much of that surge has been helped by the very food security program it is now defending at the WTO.

Serious risks

François Kanimba, Rwanda's trade minister, says his country has seen a surge in food imports from India in recent years at improbably low prices. This rise has complicated the country's own efforts at building food security.

"We have been seeing some ­agricultural commodities from India like rice and sugar which reach our markets at such low prices [that] you are left wondering if these are really ­global market prices simply explained by the competitiveness of the Indian economy," he said. "There are serious risks. India is a huge country."

The issue is an important one for Rwanda. A landlocked country of fewer than 12 million people, it has made ­substantial economic gains since the 1994 genocide. But it has a largely ­agrarian economy. Two-thirds of the labour force work in agriculture, and coffee and tea remain its most ­valuable exports.

Rice is a popular staple and domestic production has risen substantially over the past decade. But it still lags behind demand and Mr Kanimba worries cheap imports are making it hard for local producers to compete.

In an attempt to fight back, Rwanda increased the taxes on rice imports in March, following the example of other African countries such as Nigeria, which have done the same in recent years. But such efforts have often come with unintended consequences.

Nigeria's battle against rice imports only led to a surge in smuggling from neighbouring Benin which, despite its tiny size, was the main African ­destination for Indian rice exports last year, largely because of its porous ­border with Nigeria.

India's hard stand at the WTO on food stockpiling is the result of ­domestic exigencies.

A "right-to-food" law passed last year doubled to 70 per cent the portion of India's population eligible to receive government-subsidised grain. Mr Modi is now considering ­increasing from five kilograms to seven kilograms the amount each recipient is entitled to.

Sceptical of food security claims

To ensure it has sufficient stocks on hand to meet its obligations to consumers, New Delhi sets a "minimum ­support price" for wheat and rice, promising to buy the entire grain ­harvest at the preset price. But the price the government pays for cereals has more than doubled over the past ­decade, encouraging bumper harvests and leading to huge stockpiles.

The moves have had consequences for global grain markets, particularly in rice which is thinly traded around the world, as India has turned to exports to reduce its stocks­. This helps explain why other developing countries view more sceptically what India has sought to portray as an issue of food security.

It is also why the solution India is seeking at the WTO, which celebrates its 20th birthday in January, is unlikely to be palatable to many of its members.

And, why people like Roberto Azevêdo, the WTO's director-general, worry the current stand-off could put the body into another deep freeze just as it seemed to be finding a tentative way to move forward with the long-stalled Doha Round of negotiations.

"Failing to agree on new rules for 20 years is a very disturbing record," he told a forum in Geneva on Monday.

Financial Times

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READER COMMENTS

Henry
26/09/2014 10:47:45 AM

The world is an interesting place. Don't know what it will mean but I read somewhere the near Free electricity for pumps has severely reduced the water table of many of the farming districts in India to a point where it is uneconomical to continue. Don't know how that will come in to play, however like the US oil supply I think there could be problems ahead.
King Billy
29/09/2014 9:19:04 AM

I would isolate India as a signatory to WTO and let them live with those consequences. They are notoriously bad trading partners and cannot be relied upon in the cut and thrust of International trade.

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