The High-Stakes Poker Game in World Trade

   By Kollengode S Venkataraman


In July India’s newly elected Modi government blocked what is known in the arcane world of global trade as the Trade Facilitation Agreement (TFA). Key elements of the TFA are reducing import tariffs, bureaucratic delays and subsidies to farming in member countries.

The details of the World Trade Organization’s TFA were agreed to in the ministerial meeting in Bali in December 2013 with India participating under Manmohan Singh’s government. Though India agreed to the TFA, it also wanted the WTO to simultaneously address India’s need for food subsidies. These subsidies are lifelines for the millions and millions of subsistence farmers worldwide. Another issue is the stockpiling of food grains as an insurance against famines/droughts. Signing this by the 160-strong WTO countries (out of 180-plus UN members) was thought to be a formality. However, the WTO did not address these issues. So India under Modi’s government, blocked the ratification of TFA. Several non-G-8 members except China, Brazil, Pakistan, and Thailand supported India.

The stockpiling of food grains is important to India given the unpredictable monsoons and the on-again-off-again droughts. Granted, India’s cantankerous and corrupt state governments need to better manage their water resources and improve the productivity in farming, but this will take time. With the chronic threat of droughts, if not famines, the problem for India is here and now.

But protection from cheaper imports always gives complacency for the local industries. India’s economic stagnation before 1990 itself is an example of this. That is India’s dilemma.

For the uninformed, India, along with the other BRICS nations and the ASEAN nations, among others, are now called Newly Industrialized Countries. The bottom in this classification is LCDs or the Least Developed Countries, mostly in Sub-Saharan Africa, and Nepal, Afghanistan, Bhutan, Myanmar…  Recognizing the unique problems of LCDs, the WTO affirmed that all nations will provide duty- and quota-free market access for goods from LCDs.

That India wants to stock-pile food as insurance against famine would be understandable if only one cares to know how India has been ravaged by famines. Here are the big ones in a long list:

♠    The Bengal Famine of 1770 during the Mughal Empire-East India Company transition. Ten million people died. Bengal’s population was reduced by 33%. Neglect by the rulers was a main cause.

♠    The Great Famine of 1876–78 in South India under the British Occupation. 5.5 million people died. With South India’s population 50 to 60 million then, 10% of the people, mostly the poor, died.

♠    Bengal’s man-made famine in 1943 during WW II under the British rule. Two million deaths. Bengal’s population was 60 million.

♠    Bangladesh famine of 1974. One million died.

With the democratically elected governments in India, large-scale famine-related deaths today would end in a bloody revolution.

In the early 1960s many parts of India were in severe drought. With Jawaharlal Nehru’s Congress government mismanaging the farming sector’s multi-faceted needs, India went begging for food all over the world  at a time when nearly 60% of Indians were engaged in farming. India has not forgotten the embarrassment and shame.

South and Southeast Asia depend on monsoon rains for farming. Every April/May, Indian meteorologists closely follow the weather pattern in the Philippines region to predict the arrival and scale of the monsoon in India and warn the governments on shortfalls in rain and potentials for droughts. If the monsoon is delayed or is weak, it is front page news today even in India’s tech-savvy business publications. India’s arid regions — the Dakshin (Deccan) Plateau, the states of Bihar, Odisha, even many river deltas — go through droughts when the monsoon falters.

In recent years, many farmers in Andhra Pradesh, Maharashtra and other places got into heavy debt to pay for the costly genetically modified seeds they need to buy from big overseas companies for every planting season. Many killed themselves because there was no way to get out of their debt from their low-profit-margin harvests.

In India today 40% of the population lives in rural and semi urban areas; 25% of the population or 300 million — equivalent to the entire population of the US — is engaged in farming. So, Indian elected officials have every reason to safeguard their farming sector for their national and social interests — and for their political survival. For India, food security is its national security. Even military comes only next.

Besides, Indian farmers already depend on big corporations for a whole range of supplies: fertilizers weed killers and pesticides, pumps, farm equipment, and diesel… … and on government for electricity and water irrigated through canals.

So, in Australia, before the July 31 deadline for the TFA signing, India held its ground: “The way things are moving, there is no way [India] can agree to the trade facilitation agreement being pushed by the developed nations… Food security has always been India’s main concern and this time we are not going to concede,” and “[It] will be really difficult for India to sign the TFA till WTO [is] ready to discuss a permanent solution of food subsidies and stockpiling of food grains.”

Remember, in the industrialized economies, only 2 to 3% of the population is directly engaged in farming, which is an incredibly energy- and resource-intensive and fully mechanized enterprise. In the US, corporate farming has all but eliminated family-owned farmers.  And the farming industry, owned by large corporations, is still subsidized with billions and billions of dollars. The US taxpayers spend $14 billion every year insuring farmers against loss of crop or income. And often, farmers are paid for every acre of the land they leave fallow.

Often, with such subsidies, the G-8 (and other countries as well) dump their farm products at prices below their production costs to Africa and other poorer nations, where farming is pursued by many just to survive.

With great irony and sarcasm, Joseph Stiglitz in NYT Nov 16, 2013 summarized the situation thus: “We [the US government] spend billions every year on farm subsidies, many of which help wealthy commercial operations to plant more crops than we need. The glut depresses world crop prices, harming farmers in developing countries.”

Further, in the US, over 40 million people living below the official poverty line receive tax-payer funded Food Stamps (called Supplemental Nutrition Assistance Program). This is valued at $70 billion/year, or $1750 per recipient. It is noble that the government is taking care of the poor through these programs. After all, we are the richest, technically and militarily the most powerful country on earth.

People on Food Stamps can use them only to buy staples — breads, cheese, meat, vegetables, cereals, milk, eggs, etc. So, the indirect beneficiaries of the Food Stamps are the big agribusinesses who are assured of $70 billion business per year. This is a form of farm subsidy. Similar subsidies for agribusinesses are entrenched in all modern nation-states.

In addition, the TFA agreement limits the value of food subsidies to 10% of the total value of food grain production. India is flexing its muscle on this issue because the subsidies will be calculated taking 1986 as the base year.  In India, where inflation is running at 6 to 7% a year, 1986 as the baseline is meaningless, even laughable.

The TFA, it is believed, would add over $1 trillion to the GDPs worldwide creating 21 million jobs. But the operative word in WTO is Trade, not farming. As every farmer in India knows, the beneficiaries in any market situation — glut or scarcity — are the wholesale and retail traders. The subsistence farmers only see small slivers of profits in good times, but are hit hard during droughts.

In the Chicago Mercantile Exchange, the largest trading place for agribusiness where all farm products are traded — grains, beans, poultry, beef, eggs, milk, cheese, even alfalfa-hay — billions are made and lost every day speculating on everything affecting any aspects of farming. So, if  the TFA is ratified, subsistence farmers worldwide would need to deal with speculative traders on a global scale.

The rich and powerful members of the WTO worry that they would lose control in global trade in agribusiness if the TFA is not ratified. But poorer nations see the TFA as an effort by developed countries to access vast markets in their growing economies. Because of this  irreconcilable built-in conflict, each group negotiates for its advantage. There is no altruism here. US Ambassador Michael Punke warned the WTO in Geneva, “Today, we are extremely discouraged that a small handful of members… … are ready to walk away from their commitments… … Bali agreement, to kill the power of that good faith and goodwill we all shared, to flip the lights in this building back to dark.”

Geopolitically speaking, the G-8 members have been at this game for  years and years dictating to other nations on monetary, economic, military, and political issues. When they are on the receiving end, it hurts them.

What is worrying them is that emerging bilateral and regional free trade agreements will weaken the reach of the WTO. But these regional/bilateral trade arrangements make sense given the regional nature of rainfall, weather patterns, biodiversity, ecology, transportation, population density, culture, lifestyles and even food habits. So, putting a brake on the WTO’s ambitious FTA may not be all that bad—it may even be a good thing.

This time, the Big Boys at the WTO are dismayed that India is not blinking in the high-stakes poker game. Even though they threatened to go ahead with the TFA with or without India, they cannot simply ignore India geopolitically. India houses 1/6th of the world population; has been a stable democracy with a disciplined military that has no ambition for political power; has a large technical talents pool; and offers a countervailing force, partially in any case, for China’s ambition as a global power.  India also offers limitless opportunities for foreign direct investments in many sectors, whose beneficiaries are businesses in the G-8 countries. That is their dilemma.    

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