Saturday, August 02, 2014

Q: WTF is the WTO fuss all about?

A: Read on. If you are among the hundreds who have written in seeking enlightenment. Or you would just like to know what the intriguing headlines and confusing verbiage really mean. Or you know but would like to see what I have to say on the subject.

Q: We have had chest-thumpers going "We have shown them!" and breast-beaters going: "What will they think?" about India's veto of the Trade Facilitation Agreement. What is the truth?
A: Neither. It is not about them. It is about us.

Q: What is the TFA or Trade Facilitation Agreement?
A: It is basically a set of mutual obligations the international community has agreed to adopt which will make international trade easier, faster and cheaper.

Q: What obligations?
A: Facilitation will happen along two axes:
  • Uniform and simpler procedures, systems and rules for processing imports and exports.
  • Improved infrastructure for goods handling at ports, airports and in back-offices.
Q: Will it cost a lot of money to fulfil these obligations?
A: Yes. Billions of combined dollars.

Q: Who will bear the cost?
A: Each country will bear its own costs. The developing and poor countries will bear about 80% because they are more in number and they have more to do to get where they need to.

Q: Will it bring a lot of benefits?
A: Yes. About a trillion combined dollars.

Q: Who will get the benefits?
A: Everyone. The industrialised countries will harvest about 80% of the benefits because at present they have most of the export pie.

Q: Still, if everyone benefits where is the problem?
A: As the great 20th century philosopher Jeeves sagely observed: "God is in the details". Costs are all up-front, so not many will be net beneficiaries in a hurry.

Q: Is it in India's interest to sign the agreement?
A: Of course it is.

Q: Why then is India the villain in this drama?
A: International trade broadly falls into three categories: industrial products, services and agricultural produce. The TFA does not deal with the last two which are currently of prime interest to India. These are also areas where, under the prevailing set of rules, developing countries have got the short end.

Q: Is India the only country in this space?
A: No but it is the face and vocal mouth of G33 which, as the name suggests, is a grouping of 46 developing countries, including some, like China, which have a foot in both camps.

Q: But isn't there already an Agreement on Agriculture?
A: Yes. And it caps agricultural subsidies at 10% of the output of a country. The problem is the cap is calculated at 1986 prices. There are also restrictions on accumulating food stocks. We agreed to all this in a monumental lapse of judgement*, and are now ruing it.

Q: Who are the beneficiaries of India's subsidised food?
A: Mainly some 800 million poor or near-poor. Including 400 out of the 500 million farmers from whom we buy staples at above market prices.

Q: Why do we buy high and sell low?
A: We buy high so the farmers can afford to farm. Sell low so everyone can afford to eat. Even so millions go hungry every day. We are working on more efficient ways of producing food and reaching it to everyone.

Q: But why do we have so many poor?
A: Because we have produced and continue to produce more people than the land can happily support.

Q: What are the rich countries scared of?
A: That we will buy wheat and rice for stockpiling from our farmers at high prices and - unable to store them safely or to sell locally even at low prices - dump them abroad driving prices down everywhere.

Q: Don't others dump?
A: America is the master of dumping.

Q: Why is it bad to give something cheaply to others?
A: The answer to that question is nuanced** and long. Merits a post of its own.

Q: What happens, au contraire, when we have a shortfall and drive up prices of food staples all over the world?
A: The rich lick their chops in glee, rake in the moolah and bless us secretly.

Q: Don't other countries subsidise agriculture?
A: They absolutely do. One estimate is:
  • The U.S. provides $12 billion subsidy to its 2 million farmers.
  • India provides $2 billion subsidy to its 500 million farmers.
  • And Japan! Don't even get me started on Japan.
Q: How did we get painted into a corner then?
A: We were not smart enough.

Q: Isn't there a break from this subsidy cap business and a solution under discussion even now?
A: Yes there is. But we know that once we sign on for TFA, the main areas of interest to us, namely agriculture and services, will go on the back burner. According to how one reads it, this existing break could expire as early as 2017. And at the recent parleys the rich were unwilling to commit to an unambiguous extension till a permanent solution is found.

Q: How important was the 31 July deadline which got missed due to our obduracy?
A: There is no such thing as a real deadline in this business. When the food security issues are sorted out, you will find everyone exactly where you left them.

*****

* We also got screwed by a lack of attention to punctuation. But that is another story. For another day.
** Nuanced: I love this word. Sounds very sophisticated, but is essentially empty. One can read into it whatever one is inclined to.