Tuesday, August 5, 2008

The Doha Round Collapse: Was India the Culprit?

Did the collapse at the ministerial meet signify the end of hegemony of the big four or did it signify the rise of India, China and Brazil as nations with enough clout that they can make or break the deal? In my opinion, both hypotheses are correct. There were 20 items on the agenda this time and against hopes and expectations, we reached the 18th. India, China and the rest could not reach an agreement on the issue of what “Special Safeguard Mechanism”. Then the talks broke down.

What is the SSM?
The Special Safegaurds Mechanism intended to allow developing countries to protect farmers in the event of import surges or price declines has emerged as one of the most fought-over issues of the ongoing mini-ministerial. The special safeguard mechanism would allow developing countries to raise tariffs beyond bound levels, in principle to stall inflows of cheap imports that could displace farmers.

What Did India Want and How Did it All Collapse?
India wanted the mechanism to allow it to raise the tariff’s beyond the Doha agreed levels in case of an import surge that would threaten the livelihood of Indian farmers. US and EU stated that this was against the principal of free trade and a stalemate ensued.The Director General, Mr. Pascal Lamy proposed a compromise formula. Lamy’s own proposed compromise would have allowed SSM remedies to surpass pre-Doha tariff bindings by up to 15 percent if and when import volumes would rise by 40 percent over a three-year average. The freedom to exceed current bound levels would have been limited to 2.5 percent of tariff lines, with remedies unavailable if prices were not actually declining.
The Indian stand was that since US and EU were subsidising agriculture heavily, the spurts in import of food items from such “subsidised” production centres would hurt the Indian farmer and that the safety trigger to use tarrifs to protect them were set too “high” for comfort. India argued that at such high trigger levels, the SSM may remain a cosmetic law and might not get operationalised in case of import surges. India wanted the highest SSM remedies to be triggered by import volume increases of 10 percent and more, with safeguard duties capped at 30 percent above bound levels.
On the 28th, the US contingent rejected the use of “numerical triggers” and linked the SSM activation to “demonstrable harm” to the livelihood security and rural development needs by the affected governments. The claims they said should then be subjected to “expert review”. Quite unexpectedly to many, India accepted it.
G-7 ministers and officials on Tuesday looked for more acceptable numbers to plug into the model proposed by Lamy. Sources say that one option would have involved a ‘trigger’ import volume increase of 15 to 20 percent, with remedies equal to either 30 percent of current bound tariffs or 8 percentage points. A subsequent trigger of a 35 to 40 percent increase in import volumes would have been linked to remedies of either 50 percent of bound tariff levels or 12 percentage points. The difference between the percentage of bound tariffs and the number of percentage points would be particularly relevant for countries looking to export to China, which has low tariff levels because of its accession conditions (adding 8 percentage points to a tariff capped at 8 percent amounts to a 100 percent increase; adding 30 percentage points, to yield 38 percent, represents a far higher increase).
The US reportedly did not budge from its position that a 40 percent increase in import volume was the lowest possible trigger it could accept for SSM remedies that would go beyond current tariff ceilings.

In The End
USA is home to 1 million agriculturists enjoying the advantages of being in a developed economy and availing the benefits of massive subsidies. Of the 1.1 billion people in India, more than 65% (a very conservative estimate) are directly or indirectly dependent on agriculture. In the majority of cases, the land holdings are small, no automation is possible, and production is dependent on monsoon. The majority are subsistence producers. For USA if at all it is an issue, it is an issue which affects a very small percentage, unless of course you factor in the upcoming elections. For India, the issue is about protecting the livelihood of people more than the population of USA. And in India too, elections are looming.

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