Temper Tantrums at the WTO

Bernard Gordon at the Wall Street Journal criticizes India’s trade representative, Kamal Nath, in a recent Op-Ed:

Surprise, surprise, the WTO talks in Geneva are “suspended.” But in truth, hardly a surprise, since in May France’s agricultural minister said, “I would prefer that the negotiations fail rather than . . . raise questions about . . . agriculture.” At the G-8 summit this month President Jacques Chirac backed him up: “Only Europe has moved [and] gone to the extreme limits.”

Both were responding to America’s insistence that Europe do more to match its offer to cut farm subsidies — in order to break the logjam at the heart of the now-collapsed Doha Round. But Europe had a partner in its “my way or the highway” approach. India’s Commerce Minister Kamal Nath, presumably speaking for the developing nations, said more “flexibility” was needed, and then gave his definition of the word: “We can’t negotiate subsistence and livelihood . . . we should not even be asked to do that.”

Mr. Nath had walked out of earlier trade talks, arguing “there was no point” in continuing, which prompted the press at home to fault him for throwing a “temper tantrum.” Not a bad label in this case, since India in 2004 accounted for less than 1% of world trade. And speaking after the collapse, which Mr. Nath characterized as “between intensive care and the crematorium,” he sharply singled out the U.S. as the sole culprit: the “mind-set” of the Americans was “inverted . . . they’re thinking only of market access.” (link; subscription required)

(Note that he’s not inventing the phrase “temper tantrum,” only citing the Indian media’s use of the term approvingly.) Gordon goes on to try and poke holes in Nath’s criticism of the U.S. for the fact that the Doha round has gone aground. Gordon mentions that the Brazil representative was actually more critical of Europe than the U.S., and cites President Bush’s promise to reduce U.S. farm subsidies by 60% in keeping with the opening of U.S. markets.

While the intricacies of world trade agreements and the workings of the WTO are, admittedly, not my area of expertise, one does note that Kamal Nath actually has plenty of company in blaming the U.S. primarily for the collapse of the talks. The most vocal critic of the U.S. role in the Doha collapse is the European WTO representative Peter Mandelson, who has argued that the loopholes in the U.S. subsidies reduction were so big as to make Bush’s “60%” figure meaningless. Mandelson also cites the election year and the current Republican troubles as a probable factor:

But led by Peter Mandelson, chief negotiator for the European Union, many foreign trade officials asserted that the U.S. offer was deceptive. The real cuts, Mandelson said, were far less.

A senior British political figure close to Prime Minister Tony Blair, Mandelson suggested that the Bush administration was loath to make a trade deal in an election year with farmers’ votes crucial to Republicans. By doing so, he angered U.S. officials, who accused him of hypocrisy.

“I understand the politics of this situation,” Mandelson said during an interview after the collapse of the talks. “Coming from Europe, I understand agricultural politics quite well.” (link)

Of course, the U.S. negotiator, Susan Schwab, has countered the European argument by pointing out that Europe’s own agricultural subsidies are currently even higher than the U.S.’s, and also states that Europe’s promise to cut subsidies had its own loopholes.

The Toronto Globe and Mail has a statistic that supports the European point of view on the U.S. loopholes:

While U.S. negotiators said the administration’s agriculture proposal would have resulted in a 60-per-cent reduction in subsidies, a WTO analysis concluded that loopholes might actually have permitted farm supports to American farmers to rise to $22.7-billion (U.S.) a year from the current $19.6-billion. (link

Nath’s own point of view is pretty well represented in an interview he did with Outlook this week. In the interview, Nath does come across as somewhat arrogant, though he’s undoubtedly highly articulate in his defense of India’s interests:

The developed countries must understand that the rules of trade and the leverage that they got from trade have always been in their favour. And these countries, which are the champions of globalisation, are now realising that they are no longer globally competitive, whereas countries like India, which are becoming globally competitive, have started demanding that there should be no curb on globalisation. So they (the developed world) are looking at various ways and means to ensure that there is no change in this balance of leverage. So I said where industrial products are concerned, I am going to protect my infant industries, protect my automobile industry because no more can you make automobiles in Detroit and Stuttgart and sell them in India. You have to make your automobiles in India.

A time will come when the automobiles will be made in India and sold in Stuttgart and Detroit. This is how the trade winds are changing. So my position on industrial products is clear: tell me how much of your duties and tariffs you will reduce and as per the WTO principle, I will reduce it slightly less. If they say they will reduce it by 50%, then I will do so by 40%. But it canÂ’t be that they do (reduce their tariffs) by 20% and expect us to reduce it by 70%. (link)

A couple of notes: Nath’s invocation of car-making is probably somewhat besides the point, since as I understand it this round of the Doha talks was primarily dedicated to discussion of agriculture. Also, I believe he’s contradicting himself in his first paragraph when he states, first, that the developed nations are no longer competitive and that he has to protect India’s “infant industries.” (Perhaps I’m simply not following him.)

I also wonder about his confidence in saying that no matter what the developed countries offer by way of subsidies reductions, he’ll offer less. That is a bit of a strong-arm position to take, is it not?

The Christian Science Monitor has a nice think-piece on Doha:

How did it get to this?

The short answer is that agricultural lobbies enjoy a political clout that far outweighs their economic weight, economists say. Their influence is often felt in every region of nations such as France and the US, with corresponding influence in legislatures. So once farmers have won government entitlement benefits, they’re often very hard to remove.

“You take that cotton land down in Mississippi…. That land would probably drop in value by half” without subsidies, says Gary Hufbauer, a trade specialist at the Institute for International Economics in Washington.

Thus, it takes a formidable argument on the part of free-traders to overcome the opponents to big cutbacks in farm supports.

Similarly, developing nations such as India and China often have their own political resistance to free trade in farm goods. The concern, Dr. Hufbauer says, is that “if the liberalization is too fast, too many rural people will leave the farm life too quickly … and disrupt the political system.” (link)

India has 650 million farmers, some of whom are desperately poor. They could benefit if the U.S., Europe, and Japan lowered their agricultural subsidies. Meanwhile, between 1% and 2% of the U.S. population is in agriculture — which comes out to maybe 5 or 6 million people. Isn’t it possible that the potential benefit to 650 million Indians outweighs the potential losses to 5 million Americans? By this logic, isn’t Kamal Nath right to throw a temper tantrum?

Of course, some on the Indian left are opposed to the WTO in blanket terms, following the statistics offered on this website:

Moreover, the distortions and imbalances in agriculture trade have also drastically affected the prices, incomes and livelihoods of small farmers in India. Since the inception of the WTO, there is a steep decline in the prices of agricultural commodities internationally. From 1980 to 2000, world prices for 18 major export commodities fell by 25% in real terms. During this period the decline was especially steep for cotton (47%), coffee (64%), rice (61%), cocoa (71%) and sugar (77%). For example international cotton prices came down from 128 cents per pound in 1981 to 38.7 US cents per pound in 2002. Similarly rice prices came down from 565 US$/tonne in 1981 to 160.8 US$/tonne in 2002 and sugar prices came down from 18.11 US cents per pound in 1981 to 5.68 US cents per pound in 2002.

The world prices of the agriculture commodities have gone down mainly because of the high domestic and export subsidies attached to the developed countries’ commodity exports. For example the OECD data shows that in the 25 OECD countries the Total Support Estimate (TSE), a measure of domestic support, rose from US $275.6 billion (annual average for base period 1986-88) to US $326 billion in 1999, while US has given a fresh subsidy of US$190 billion in 2002 under the US Farm Bill 2002. (link)

That’s sobering. But the statistics on the dropping prices for agricultural goods may not be caused by the WTO even if it correlates to the years the WTO has been in existence. Rather, one would argue that it’s the trade-distorting subsides the developed nations that keeps international prices low. The WTO in the Doha round might have been able to resolve that in India and other poor nations’ favor, if the U.S. and Europe were willing to sacrifice a little pork.

14 thoughts on “Temper Tantrums at the WTO

  1. Nice post Amardeep!… During the last round of WTO talks, Kamal Nath’s predecessor, late MusorliMaran’s similar stand(the intensity,depth and calling bluff tactics) came as a surprise(to some shocking)for many Western country respresentatives…especially US. Remember,at that time, India didn’t enjoy the clout it does now….the event,prompted a big article of the confusion that arose during the talks in Wall Street Journal.

    On a similar note, Ms Ghose, India’s rep to the now “dead” CTBT discussions, caught quite a few foreign reps(Anglo Saxson), off guard with her candid,sharp and intransigent stand.

    India does have some “real/genuine” calibre within the Babudom.

  2. So my position on industrial products is clear: tell me how much of your duties and tariffs you will reduce and as per the WTO principle, I will reduce it slightly less. If they say they will reduce it by 50%, then I will do so by 40%. But it canÂ’t be that they do (reduce their tariffs) by 20% and expect us to reduce it by 70%.

    But what if their tariffs are only 20% and ours 100% to begin with? (as is often the case)

  3. Yes, the more I read about this, the more I think India’s stand is correct. The onus is on the wealthier nations to reduce agricultural subsidies first, since those subsidies are seriously distorting international ag. trade and hurting Indian and African farmers.

    Kamal Nath might be off in blaming the U.S. more than Europe — it looks like Europe and the U.S. are equally to blame. (I realized that only by the end of my post.) It appears it’s their failure to agree with each other, and not Kamal Nath’s “temper tantrum,” that led to the collapse of the talks.

    Thanks for the pointers on some of the figures from earlier trade talks.

  4. GM,

    But what if their tariffs are only 20% and ours 100% to begin with? (as is often the case)

    Yes, India will have to reduce its import tariffs as well. I was referring mainly to subsidies, which are a somewhat separate question (European and American governments pay farmers directly irrespective of the market price of their goods). I don’t know if Nath’s comment on tariffs is right; certainly the demand for a ‘better deal in any case’ strikes me as a bit pushy.

    As for how important the different tariffs are as compared to the subsidies, I’m not sure — we might need the help of a real economist to answer that one. My suspicion is that market penetration is so lopsided in the U.S.’s favor that even its low tariffs make a bigger difference to the Indian economy than India’s high tariffs make to America.

  5. No von Mises, I came across a similar — but more detailed — contrarian view by Daniel Davies (of Crooked Timber) at the Guardian.

    Davies argues that subsidies for staples doesn’t hurt and might even help the economies of poorer African nations:

    The trouble is that the truth is a little bit too simple to be credible. Farm subsidies in the EU and USA mean that we sell some kinds of foodstuffs (mainly grains, milk products and sugar) to Africa and other countries cheap. So cheap, in fact, that the Africans etc can buy our imported goods cheaper than they can produce them for themselves. This is good news. No, stop, yes it is. If you can buy something for cheap, then that is good news. Food being cheap is good news for Africa. It isn’t bad news. I promise you it is as simple as that. [...] So bearing in mind that there are no good roads or railways on the continent of Africa, that foodstuffs degenerate with transport and that grain, milk and sugar are bulky, low-value commodities, did it ever make sense to think that a viable development strategy for Africa involved the export of milk, wheat or sugar to the USA and EU? No it didn’t. You cannot base a development strategy on low value-added commodity production. It makes sense to produce some grain and milk locally for local consumption and food security, but not for the export trade. For export, you need to produce higher valued-added goods in order to create a marketable surplus and to make the freight economics work better. That is why Africa does in fact export a lot of food to the EU and USA; it exports value-added prepared vegetables, cocoa, palm oil and other commodities in which it has a comparative advantage. Believe it or not, David Ricardo’s trade theory works.

    Interesting argument… Am still chewing on it…

  6. Davies argument is very narrow. Subsidies in Europe and America is for protecting jobs in their countries. One could argue that without subsidies, the western farmers could not compete with farmers in developing countries. So instead of cheap products being exported from US/Europe to Africa, countries like India and China could be exporting the same producing jobs and higher GDP in those economies.
    Anytime a govt. uses subsidies, duties and tariffs, it is distorting pure capitalism – now how ethical/legal/fair is this distortion is what this debate is about. There is legitimate use of these distortions for national security, societal cohesion etc. by all countries but what rankles developing countries is that developed countries use all sort of tools to protect their economy while preaching “free markets” to the whole world

  7. The WTO is in one big mess! Very informative post.

    But looking at the whole issue, I dont know where the half way point really is. And no country is willing to budge. And the cotton belt is (I believe) hardcore Republican territory. These guys are producing so much excess cotton that it is causing them to dump their products on other countries thus causing losses to farmers from developing lands.

    “IsnÂ’t it possible that the potential benefit to 650 million Indians outweighs the potential losses to 5 million Americans?”

    Thats far too easy to say. Every leader will have to protect the interests of his own people. I am pretty certain we would do the same.

  8. “IsnÂ’t it possible that the potential benefit to 650 million Indians outweighs the potential losses to 5 million Americans?”

    We can do one better. Far more than 5 million american consumers gain from the elimination of subsidies. Both in fiscal savings (and taxes), and in consumer prices. It’s good unilateral policy, too.

  9. The framing is wrong for this discussion… it’s like the Middle East blaming the US for all its problems. Economic well-being and power can not come from these negotiations only.. the developing countries are to blame as well with terrible supply chains that destroy more than half the crops in transport, bad storage, etc. Step 1 is to make these supply chains more efficient – things like eChoupal are helping here (http://www.echoupal.com).

    Another way for the developing countries to get out of this mess is to industrialize faster. While I’m a huge fan of India’s services economy, manufacturing has not caught up (even though our motorbikes, scooters, ball bearings, auto components, pharmaceuticals etc.) are all world-beating. We grow our way out of this problem, and not by kow-towing to the US/Europe.

  10. Not a bad label in this case, since India in 2004 accounted for less than 1% of world trade

    I dont think Gordons use of the 1% here is appropriate. As has been pointed out, this round focused primarily on Agriculture – in which case India commands more than a measly 1% cited. Further, the stake holders are not just going to look at this in $ terms – but also how many people it affects. After all isn’t one of the objectives to bring up the standard of living of people all around ?

  11. Amardeep,

    The failure of the developed countries to work out a way to satisfy the rest of the world on agricultural subsidies is the key reason why the Doha round failed.

    But some of the key arguments hurled by one side against the other are dubious. India claims that rich country farm subsidies are hurting its farmers. Theoretically, yes. But I would argue that the Indian state’s stranglehold over agriculture, and labour laws that block the transition from farm to factory are the real elephants in the room. Indian farmers (and consumers) stand to gain much more by further economic reform, than by getting the West to stop subsidising rich world farmers.

    On the other hand, the arguments that rich world subsidies don’t affect African farmers, because Africa lacks infrastructure is dubious. European foodgrain, subsidised by EU taxpayers, may be cheap. But how’s the poor African to pay for it, if he can’t make an income?