India’s Bali Debacle

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on August 4, 2014


India’s Bali Debacle

Delhi holds free trade hostage to score political points at home

Wall Street Journal Asia
Dec. 9, 2013 11:50 a.m. ET
Bali, Indonesia

After four days of intense round-the-clock negotiations, the 159 members of the World Trade Organization struck a deal last week that is expected to give the global economy a $1 trillion boost. But progress toward freer trade came at a price. Indian Commerce Minister Anand Sharma held up the deal to extract permission for Delhi to break current WTO rules that limit agricultural cash subsidies and food stockpiling.

The real surprise was how India’s backsliding provoked an angry reaction even among its fellow developing countries. By overplaying its hand, Delhi damaged its reputation as the champion of the world’s poor. That may have important consequences for future WTO negotiations.

First the unalloyed good news. The core of the deal, the Trade Facilitation Package in WTO parlance, aims at moving goods more efficiently across international borders, especially in the less-developed parts of Asia, Latin America and Africa. It should help streamline inefficient customs procedures, improve some of the world’s worst roads and otherwise foster efficiencies in clogged ports of entry.

Mr. Sharma was willing to throw all of these benefits away to score political points at home. Sonia Gandhi’s Congress Party, weakened by corruption scandals, is lagging in the polls ahead of next April’s general election. Mr. Sharma’s mission in Bali was to secure agricultural protectionism, a centerpiece of Congress’s appeal. The largesse is meant to be doled out to hundreds of millions of India’s poor voters–from subsistence farmers to urban slum residents.

At a contentious Dec. 5 press conference, Mr. Sharma told reporters that he had come to Bali not “to make a deal,” but “to secure the interests of the poor, as well as food security.” India was no longer a “beggar nation,” he insisted, and called all criticisms of his position wrong or misinformed.

That infuriated a journalist from Benin, one of the world’s poorest countries, who at the conference shouted to Mr. Sharma, “You don’t speak for us.” WTO members like Benin recognize they cannot afford to lavish subsidies on their poor farmers, Indian style. They did not want Bali to fail.

Nor did more than 100 influential WTO members and groups, including Hong Kong, New Zealand, Costa Rica, Chile, all of Asean, and most African and Latin American countries. On Nov. 29 these WTO leaders circulated a strong letter supporting Director-General Roberto Azevedo’s attempts to ensure a “successful outcome” in Bali. “We were sending a clear message about India’s likely obstructionism,” one Asian diplomat involved in drafting the letter explained.

India also lost the support of important players like China, Brazil, and even Russia. An upset Indonesian President Susilo Bambang Yudhoyono leaked to the Jakarta Post that he planned to call Indian Prime Minister Manmohan Singh, hoping to persuade India to be more reasonable. Indeed, the leading Indonesian newspaper hammered India all week, rightly reporting that Delhi had been “widely blamed” for the hardball tactics leading to the negotiating impasse.

Mr. Sharma offended many peers and undermined his claims to be negotiating in good faith by asserting that his demands were “non-negotiable.” Diplomats privately called the Indian position “arrogant,” “condescending,” and “insulting.”

Said one Latin American trade negotiator, “The WTO is supposed to be about freeing trade, not negotiating increased protectionism.” Another senior Asian diplomat reminded me that India’s unfortunate record of stockpiling grains contributed in 2008 to skyrocketing rice prices that caused food riots from Haiti to the Ivory Coast and Indonesia. “You can’t trust these people,” he said of the Indian delegation.

At the end of the day, Mr. Sharma’s insistence that India needed a permanent exemption from existing WTO rules limiting agricultural subsidies was supported only by the usual suspects when it comes to backward-looking economics: Zimbabwe, Venezuela, Cuba, South Africa, and Bolivia. Not that Mr. Sharma had reason to care. He was really speaking to Congress Party constituencies back home.

Still, the threat to torpedo the entire negotiating package was considered credible enough that Mr. Sharma ended up getting most of what he had wanted. The “peace clause” in this deal allows India to continue its subsidies for four years, at which point the fight could start all over again.

The politics of trade are distorted in India by the country’s failure to take advantage of past openings. China and others have developed their manufacturing industries by exporting finished goods to North America and Europe. In the process they have created unskilled jobs for people moving off the land and into the cities.

In India, by contrast, excessive regulation, taxation and corruption prevent companies from building factories. So the rural poor continue to demand handouts and protection from agricultural imports.

Most other developing countries face a different political calculus. As their labor force moves into the cities, they are less concerned with protecting grain markets and more interested in using the WTO to open markets wider to their manufactured exports.

That created what some are now calling a “South-South split.” While it’s not clear how this will affect the political landscape in future WTO negotiations, it was clearly evident in Bali. The backlash against the main obstructionist power in global trade talks could mean that the tide is finally turning away from a “rich vs. poor” mentality that has stymied the WTO’s Doha Round for the last 12 years.

Mr. Rushford publishes the Rushford Report, an online journal based in Washington, D.C. that specializes in the politics of international trade and development.